<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1998.
REGISTRATION NO. 333-49459
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NEW SOUTH BANCSHARES, INC. NEW SOUTH CAPITAL TRUST I
(EXACT NAME OF REGISTRANT AND CO-REGISTRANT AS SPECIFIED IN THEIR CHARTERS)
---------------
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
63-1132716
(I.R.S. Employer Identification No.) 63-6207255
(I.R.S. Employer Identification No.)
1900 Crestwood Boulevard 1900 Crestwood Boulevard
Birmingham, Alabama 35210 Birmingham, Alabama 35210
(205)951-4000 (205)951-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROBERT M. COUCH, EXECUTIVE VICE PRESIDENT
NEW SOUTH BANCSHARES, INC.
1900 CRESTWOOD BOULEVARD
BIRMINGHAM, ALABAMA 35210
(205) 951-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
WITH COPIES TO:
WALTER M. BEALE, JR. FRANK M. CONNER III
JOHN W. MCCULLOUGH JONATHAN H. TALCOTT
BALCH & BINGHAM LLP ALSTON & BIRD LLP
1901 SIXTH AVENUE NORTH 601 PENNSYLVANIA AVENUE, N.W.
BIRMINGHAM, ALABAMA 35203 NORTH BUILDING, 11TH FLOOR
(205)251-8100 WASHINGTON, D.C. 20004-2601
(202)508-3300
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Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE FOLLOWING 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.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 number of the earlier effective registration statement for the
same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration 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,
check the following box.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
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.
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<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 STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 13, 1998
PROSPECTUS
3,000,000 PREFERRED SECURITIES
NEW SOUTH CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10.00 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
LOGO
NEW SOUTH BANCSHARES, INC.
The % Cumulative Trust Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of New South Capital Trust I, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"). New South Bancshares, Inc., a Delaware
corporation (the "Company"), will be the owner of all of the undivided
beneficial interests in the assets of the Trust represented by common
securities of the Trust (the "Common Securities" and, together with the
Preferred
(Continued on next page)
The Company intends to apply to have the Preferred Securities approved for
quotation on the American Stock Exchange, Inc.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREOF FOR CERTAIN RISK FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE PREFERRED SECURITIES.
-----------
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 COM- MISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS,
ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NONBANKING AFFILIATE
OF THE COMPANY (EXCEPT TO THE EXTENT THAT PREFERRED SECURITIES ARE
GUARANTEED BY THE COMPANY AS DESCRIBED HEREIN), ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND
INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) TRUST(3)(4)
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<S> <C> <C> <C>
Per Preferred Securities.................. $10.00 $0.35(4) $10.00
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Total(5).................................. $30,000,000 $1,050,000(4) $30,000,000
</TABLE>
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(1) Plus accumulated Distributions (as defined herein) from , 1998.
(2) The Trust and the Company have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses of the offering which ware payable by the
Company, estimated to be $350,000.
(4) These amounts will be paid by the Company but will not be paid out of the
proceeds of the sale of the Preferred Securities offered hereby. See
"Underwriting."
(5) The Trust has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 450,000 additional Preferred
Securities on the same terms and conditions set forth above solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Commissions and Proceeds to the
Trust will be $34,500,000, $1,207,500 and $34,500,000, respectively.
-----------
The Preferred Securities are offered by the Underwriters, subject to receipt
and acceptance by them, to prior sale and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that the delivery of the Preferred Securities
will be made on or about , 1998.
-----------
J.C.Bradford&Co. Sterne, Agee & Leach, Inc.
, 1998
<PAGE>
[Map appears in Prospectus indicating location of the Company's offices]
<PAGE>
(cover page continued)
Securities, the "Trust Securities"). Bankers Trust Company is the Property
Trustee (as defined herein) of the Trust. The Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in
$30,927,840 initial principal amount of % Subordinated Deferrable Interest
Debentures (the "Subordinated Debentures"), to be issued by the Company. The
Subordinated Debentures will mature on , 2028 (the "Stated Maturity"). The
Preferred Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption
or otherwise over the Common Securities. See "Description of the Preferred
Securities--Subordination of Common Securities."
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions accruing from , 1998 (the "Issue Date"), and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each a "Distribution Date"), commencing September 30, 1998, at the
annual rate of % of the Liquidation Amount of $10.00 per Preferred Security
("Distributions"). Subject to certain exceptions, as described herein, the
Company has the right to defer payment of interest on the Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Subordinated Debentures. Upon the termination of any
such Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the rate of % per annum, compounded
quarterly, to the extent permitted by applicable law), the Company may elect
to begin a new Extension Period subject to the requirements set forth herein.
If interest payments on the Subordinated Debentures are so deferred,
Distributions on the Preferred Securities will also be deferred and the
Company will not be permitted, subject to certain exceptions described herein,
to declare or pay any cash distributions with respect to the Company's capital
stock or debt securities that rank pari passu with or junior to the
Subordinated Debentures. During an Extension Period, interest on the
Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Preferred Securities are entitled will
accumulate) at the rate of % per annum, compounded quarterly, to the extent
permitted by applicable law, from the relevant payment date for such interest,
and holders of Preferred Securities will be required to continue to accrue
income for United States federal income tax purposes, even though the Trust is
not making cash Distributions on such Preferred Securities. A holder of
Preferred Securities that disposes of its Preferred Securities between record
dates for payments of Distributions (and consequently does not receive a
Distribution from the Trust for the period prior to such disposition) will
nevertheless be required to include accrued but unpaid interest on the
Subordinated Debentures through the date of disposition in income as ordinary
income and to add such amount to adjusted tax basis in its pro rata share of
the underlying Subordinated Debentures deemed disposed of. See "Description of
the Subordinated Debentures--Option to Extend Interest Payment Dates" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The Company will, through the Guarantee, the Trust Agreement, the
Subordinated Debentures and the Indenture (each as defined herein), taken
together, fully, irrevocably and unconditionally guarantee all of the Trust's
obligations with respect to the Preferred Securities. See "Relationship Among
the Preferred Securities, the Subordinated Debentures and the Guarantee--Full
and Unconditional Guarantee." The Guarantee of the Company guarantees the
payment of Distributions and payments on liquidation or redemption of the
Preferred Securities, but only in each case to the extent of funds held by the
Trust. See "Description of the Guarantee." The Guarantee does not cover
payment of Distributions when the Trust has insufficient funds to pay such
Distributions. If the Company does not make interest payments on the
Subordinated Debentures held by the Trust, the Trust will have insufficient
funds to pay Distributions on the Preferred Securities. In such event, a
holder of Preferred Securities may institute a legal proceeding directly
against the Company pursuant to the terms of the Guarantee to enforce payment
of amounts equal to such Distributions to such holder. See "Description of the
Subordinated Debentures--Enforcement of Certain Rights by Holders of Preferred
Securities."
The Company's Subordinated Debentures and its Guarantee are unsecured and
subordinated to all Senior Debt (as defined herein). Substantially all of the
Company's existing indebtedness constitutes Senior Debt. As of March 31, 1998,
Senior Debt of the Company aggregated approximately $10,000,000. Accordingly,
the
2
<PAGE>
Subordinated Debentures and the Guarantee will rank junior in right of payment
to all present and future Senior Debt of the Company and rank pari passu with
obligations to or rights of the Company's other general unsecured creditors.
In the case of a bankruptcy or insolvency proceeding involving the Company,
the Company's obligations under the Guarantee will rank subordinate and junior
in right of payment to all liabilities of the Company, but senior to any
obligation in respect of any class of capital stock of the Company.
The Preferred Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debentures at their Stated Maturity
or their earlier redemption. The Subordinated Debentures are redeemable prior
to their Stated Maturity at the option of the Company (i) on or after ,
2003, in whole at any time or in part from time to time, or (ii) at any time,
in whole (but not in part), upon the occurrence of a Special Event (as defined
herein). See "Description of the Subordinated Debentures--Optional Prepayment
after , 2003," and "--Special Event Prepayment." For a description of the
redemption prices for the Preferred Securities in the event of a redemption of
the Subordinated Debentures pursuant to clause (i) or (ii) above, see
"Description of the Preferred Securities --Redemption."
The Company will have the right at any time to terminate the Trust and cause
the Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust. See "Description of the Preferred
Securities--Liquidation of Trust and Distribution of Subordinated Debentures."
In the event of the termination of the Trust, after satisfaction of
liabilities to creditors of the Trust as required by applicable law, the
holders of the Preferred Securities will be entitled to receive a Liquidation
Amount of $10.00 per Preferred Security plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of such amount in Subordinated Debentures, subject to certain
exceptions. See "Description of the Preferred Securities--Liquidation of Trust
and Distribution of Subordinated Debentures."
The Preferred Securities will be represented by global certificates
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Preferred Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described in the accompanying Prospectus,
Preferred Securities in certificated form will not be issued in exchange for
the global certificates. See "Description of the Preferred Securities--Form,
Denomination, Book-Entry Procedures and Transfer."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-1
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Trust with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Preferred Securities offered hereby and
by the Company with respect to its Subordinated Debentures to be issued to the
Trust pursuant to the Indenture and its guarantee of payment of the
Distributions due on the Preferred Securities pursuant to the Guarantee. This
Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, although it does include a
summary of the material terms of the Indenture and the Trust Agreement.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Company, the Trust, the
Preferred Securities and the Subordinated Debentures. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission or incorporated
by reference herein are not necessarily complete, and, in each instance,
reference is made to the copy of such document so filed for a more complete
description of the matter involved. Each such statement is qualified in its
entirety by such reference.
Neither the Company nor the Trust is currently subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), but
each of the Company and the Trust will become subject to such requirements
upon the effectiveness of the Registration Statement. The Company intends to
seek an order from the Commission conditionally exempting the Trust from the
reporting requirements of the Exchange Act pursuant to Section 12(h) thereof,
and, therefore, it is not expected that the Trust will be filing separate
reports under the Exchange Act. When filed, the Company's reports and other
information can be inspected and copied at the following public reference
facilities maintained by the Commission: 450 Fifth Street, N.W., Washington,
D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and
the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, upon payment of prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding issuers who file electronically
with the Commission. The address of that site is http://www.sec.gov.
No separate financial statements of the Trust have been included herein. The
Company does not consider that such financial statements would be material to
holders of Preferred Securities because (i) all of the voting securities of
the Trust will be owned by the Company, (ii) the Trust has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in Subordinated Debentures issued by the Company, and (iii)
the obligations of the Company described herein to provide certain indemnities
in respect of, and be responsible for, certain costs, expenses, debts and
liabilities of the Trust under the Indenture and pursuant to the Trust
Agreement, the Guarantee issued by the Company with respect to the Preferred
Securities, the Subordinated Debentures purchased by the Trust and the related
Indenture, taken together, constitute, in the belief of the Company and the
Trust, a full and unconditional guarantee of payments due on the Preferred
Securities. See "Description of the Subordinated Debentures" and "Description
of the Guarantee."
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus does not give effect to
the exercise of the Underwriters' over-allotment option. Prospective investors
should carefully consider the information set forth under the heading "Risk
Factors." Throughout this Prospectus, unless the context clearly requires
otherwise, references to "the Company" should be deemed references to the
combined activities of New South Bancshares, Inc., a non-operating holding
company, and its principal operating subsidiary, New South Federal Savings
Bank.
THE COMPANY
New South Bancshares, Inc. (the "Company") is a closely held unitary thrift
holding company headquartered in Birmingham, Alabama. Through its financial
institution subsidiary, New South Federal Savings Bank ("New South"), a
federally chartered savings association organized in 1985, the Company operates
two full-service retail branch offices in Birmingham, Alabama, and 46 loan
production offices located in 13 states throughout the southeastern and western
United States. New South is the largest thrift and the sixth largest depository
institution, based on asset size, headquartered in the State of Alabama. See
"The Company" and "Business."
The Company's operations principally involve residential mortgage lending,
installment (automobile) lending, residential construction and land lending and
deposit gathering activities. The Company's residential mortgage lending
efforts involve the origination and purchase of residential mortgage loans
through its loan origination offices and wholesale sources, the sale of such
loans (usually on a pooled and securitized basis) in the secondary market, and
the servicing of residential mortgage loans for investors as well as the
Company's own loan portfolio. The installment (automobile) lending program
involves indirect lending through 600 automobile dealers in six southern
states. The Company's residential construction and land lending efforts involve
making loans to builders for the construction of single family properties and,
on a more limited basis, loans for the acquisition and development of improved
residential lots. In addition, the Company actively funds and purchases
commercial real estate loans originated by Collateral Mortgage Ltd.
("Collateral"), an affiliate, which may be sold to investors or held in New
South's portfolio. See "Business."
The Company funds its lending activities primarily with customer deposits
gathered through a broad range of banking services including certificates of
deposit, individual retirement and other time and demand deposit accounts and
money market accounts. The Company takes a wholesale approach to generating
deposits, paying high interest rates while keeping deposit gathering overhead
costs low. The Company maintains two retail branch offices, both located in
Birmingham, Alabama, and attracts the majority of its deposits through
telemarketing activities and third parties, primarily brokers. See "Business."
At December 31, 1997, the Company's loan portfolio consisted of the
following: (i) $385.3 million in residential mortgage loans, of which $252.6
million the Company classifies as conforming residential mortgage loans, and
$132.7 million the Company classifies as nonconforming residential mortgage
loans; (ii) $96.9 million in installment (automobile) loans; (iii) $87.9
million in residential construction and land loans; (iv) $158.4 million in
commercial real estate loans (the majority of which are originated by
Collateral but funded and closed by New South); and (v) $1.5 million in
commercial loans. Also as of such date, the Company serviced approximately $1.7
billion of residential mortgage loans, installment (automobile) loans and
commercial real estate loans which had an approximate weighted average yield of
8.67%. Of such amount, $999.6 million represented loans serviced for others and
$729.9 million represented loans the Company held in its own portfolio. During
the 1997 fiscal year, the Company originated $490.7 million of residential
mortgage loans and $75.8 million of installment (automobile) loans. See
"Business."
5
<PAGE>
The following information summarizes certain selected consolidated financial
information of New South as of and for its fiscal years ended September 30,
1993 and 1994 and of the Company (which was established in 1994 with a fiscal
year ended December 31) as of and for its fiscal years ended December 31, 1995,
1996 and 1997. The data for the Company, on a consolidated basis as of and for
its fiscal year ended December 31, 1994, did not differ significantly from the
corresponding data for New South as of and for its fiscal year ended
September 30, 1994. The summary below should be read in conjunction with
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
included herein.
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK
AS OF AND FOR NEW SOUTH BANCSHARES, INC.
THE YEAR ENDED AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ -------------------------------
1993 1994 1995 1996 1997
-------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Total assets............. $616,949 $575,767 $ 746,518 $ 822,980 $ 992,065
Loans serviced for
others.................. 643,429 723,699 716,664 709,773 999,613
Loans originated......... 104,339 161,526 228,295 367,605 807,074
Net income............... 5,804 3,793 3,366 2,562 4,716
Net income per share..... 5.80 3.79 2.42 1.84 3.42
Total stockholders'
equity.................. 37,350 38,263 45,780 47,941 52,314
Return on average
equity.................. 17.01% 9.51% 7.75% 5.22% 9.17%
Return on average
assets.................. 0.99 0.59 0.47 0.31 0.51
</TABLE>
The principal executive offices of the Company are located at 1900 Crestwood
Boulevard, Birmingham, Alabama 35210. Its telephone number at such address is
(205) 951-4000.
NEW SOUTH CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant to
(i) a trust agreement, dated as of April 2, 1998, executed by the Company, as
depositor, and Bankers Trust (Delaware), as a trustee (the "Delaware Trustee"),
and (ii) a certificate of trust filed with the Delaware Secretary of State on
April 2, 1998. The initial trust agreement will be amended and restated in its
entirety (as so amended and restated, the "Trust Agreement") substantially in
the form filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. This Trust Agreement will, among other things, appoint
a "Property Trustee" which shall hold legal title to the Subordinated
Debentures in trust for the benefit of the holders of the Trust Securities and
several "Administrative Trustees" who shall have the power, duty and authority
to cause the Trust to issue and sell the Trust Securities and to execute any
documents or certificates necessary to effectuate such issuance and sale. The
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the statutory requirements of Section 3807 of the Delaware Business
Trust Act and shall have no authority to take any action except as required
under the Delaware Business Trust Act. The Delaware Trustee, Property Trustee
and Administrative Trustees are collectively referred to herein as the "Issuer
Trustees."
The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Trust exists
for the exclusive purposes of (i) issuing the Preferred Securities offered
hereby representing preferred undivided beneficial interests in the assets of
the Trust, (ii) issuing the Common Securities representing common undivided
beneficial interests in the assets of the Trust to the Company, (iii) investing
the gross proceeds of the sale of the Trust Securities in the Subordinated
Debentures, and (iv) engaging in only those other activities necessary,
advisable, or incidental thereto. The Subordinated Debentures will be the only
assets of the Trust and payments on the Subordinated Debentures will be the
only
6
<PAGE>
revenue of the Trust. The Subordinated Debentures will be issued by the Company
pursuant to the Junior Subordinated Indenture between the Company and Bankers
Trust Company, as debenture trustee (as amended and supplemented from time to
time, the "Indenture").
Upon issuance of the Preferred Securities, the purchasers thereof will own
all of the Preferred Securities. The Company will acquire all of the Common
Securities which will represent an aggregate liquidation amount equal to at
least 3% of the total capital of the Trust. The Common Securities will rank
pari passu, and payments will be made thereon pro rata, with the Preferred
Securities, except that upon the occurrence and during the continuance of an
Event of Default (as defined herein) under the Trust Agreement resulting from a
Debenture Event of Default (as defined herein), the rights of the Company as
holder of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the Preferred Securities. See "Description of the
Preferred Securities--Subordination of Common Securities."
The Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The principal executive offices of the Trust are located
at 1900 Crestwood Boulevard, Birmingham, Alabama 35210. Its telephone number at
such address is (205) 951-4000. It is anticipated that the Trust will be
conditionally exempted from the reporting requirements of the Exchange Act.
THE OFFERING
Securities Offered..........
3,000,000 Preferred Securities having a
Liquidation Amount of $10.00 per Preferred
Security. The Preferred Securities represent
preferred undivided beneficial interests in the
assets of the Trust, which will consist solely of
the Subordinated Debentures and payments
thereunder. The Company and the Trust have
granted the Underwriters an option, exercisable
within 30 days after the date of this Prospectus,
to purchase up to an additional 450,000 Preferred
Securities at the initial offering price, solely
to cover over-allotments, if any.
Payment of Distributions.... The Distributions payable on each Preferred
Security will be fixed at a rate per annum of
% of the Liquidation Amount of $10.00 per
Preferred Security, will be cumulative, will
accumulate from , 1998, the Issue Date of the
Preferred Securities, and will be payable
quarterly in arrears, on March 31, June 30,
September 30 and December 31 of each year,
commencing September 30, 1998. See "Description
of the Preferred Securities --Distributions."
Extension Periods...........
The Company has the right, at any time, so long
as no Debenture Event of Default has occurred and
is continuing, to defer payments of interest on
the Subordinated Debentures by extending the
interest payment period on the Subordinated
Debentures, at any time and from time to time,
for up to 20 consecutive quarters (each, an
"Extension Period"), provided, that no Extension
Period may extend beyond the Stated Maturity of
the Subordinated Debentures. See "Description of
the Subordinated Debentures--Option to Extend
Interest Payment Date." During an Extension
Period, interest on the Subordinated Debentures
will continue to accrue (and
7
<PAGE>
the amount of Distributions to which holders of
the Preferred Securities are entitled will
accumulate) at the rate of % per annum,
compounded quarterly, to the extent permitted by
applicable law, from the relevant payment date
for such interest, and holders of Preferred
Securities will be required to continue to accrue
income for United States federal income tax
purposes, even though the Trust is not making
cash Distributions on such Preferred Securities.
There could be multiple Extension Periods of
varying lengths throughout the term of the
Subordinated Debentures.
As a consequence of the extension by the Company
of the interest payment period, quarterly
Distributions on the Preferred Securities will be
deferred (though such Distributions will continue
to accumulate and compound quarterly, since
interest will continue to accrue and compound on
the Subordinated Debentures) during any such
Extension Period. During an Extension Period the
Company will be prohibited, subject to certain
exceptions described herein, from declaring or
paying any cash distributions with respect to its
capital stock or debt securities that rank pari
passu with or junior to the Subordinated
Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due,
the Company may commence a new Extension Period,
subject to the foregoing requirements. See
"Description of the Preferred Securities--
Distributions" and "Description of the
Subordinated Debentures--Option to Extend
Interest Payment Date." During an Extension
Period, holders of Preferred Securities will be
required to continue to include income in the
form of Original Issue Discount ("OID") in their
gross income for federal income tax purposes in
advance of the receipt of the cash payments
attributable to such deferred interest. See
"Description of the Subordinated Debentures--
Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
Ranking..................... The Preferred Securities will rank pari passu,
and payments thereon will be made pro rata, with
the Common Securities except as described under
"Description of the Preferred Securities--
Subordination of Common Securities." The
Subordinated Debentures will be unsecured and
subordinate and junior in right of payment to all
Senior Debt to the extent and in the manner set
forth in the Indenture. See "Description of the
Subordinated Debentures." The Guarantee will
constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of
payment to all Senior Debt to the extent and in
the manner set forth in the Guarantee Agreement
and, in the event of bankruptcy or insolvency
proceedings involving the Company, will rank
subordinate and junior in right of payment to all
liabilities of the Company, but senior to any
obligations in respect of any class of capital
stock of the Company. See "Risk Factors--Risk
Factors Relating to the Preferred Securities--
Ranking of Subordinate
8
<PAGE>
Obligations Under the Guarantee and Subordinated
Debentures" and "Description of the Guarantee."
In addition, because the Company is a holding
company, the Subordinated Debentures and the
Guarantee will be effectively subordinated to all
existing and future liabilities of the Company's
subsidiaries, including New South's deposit
liabilities. See "Description of the Subordinated
Debentures--Subordination."
Optional Redemption.........
The Preferred Securities are subject to
redemption, in whole or in part, upon repayment
of the Subordinated Debentures at , 2028, the
Stated Maturity, or their earlier redemption. The
Subordinated Debentures are redeemable prior to
the Stated Maturity at the option of the Company
(i) on or after , 2003, in whole at any time
or in part from time to time, or (ii) at any
time, in whole (but not in part), upon the
occurrence of a Special Event. See "Description
of the Preferred Securities--Redemption,"
"Description of the Subordinated Debentures--
Optional Prepayment after , 2003," and "--
Special Event Prepayment."
No Ratings.................. The Preferred Securities are not expected to be
rated by any rating agency, nor is any other
security issued by the Company so rated.
Termination and
Distribution................ The Company will have the right at any time to
terminate the Trust and cause the Subordinated
Debentures to be distributed to the holders of
the Preferred Securities in liquidation of the
Trust. This right is optional and wholly within
the discretion of the Company. Circumstances
under which the Company may determine to exercise
such right could include the occurrence of
adverse tax consequences to the Company or the
Trust that are not within the definition of a Tax
Event (as defined herein) because they do not
result from an amendment or change described in
such definition, and changes in the accounting
requirements applicable to the Preferred
Securities as described under "Accounting
Treatment." See "Description of the Preferred
Securities--Liquidation of Trust and Distribution
of Subordinated Debentures."
Guarantee................... The Company has, through the Guarantee, the
Indenture, the Subordinated Debentures and the
Trust Agreement, fully and unconditionally
guaranteed all the Trust's obligations with
respect to the Preferred Securities, subject to
certain subordination provisions discussed below.
The payment of distributions on the Preferred
Securities is guaranteed by the Company under the
Guarantee, but only to the extent the Trust has
funds legally and immediately available to make
such distributions. If the Company does not make
principal or interest payments on the
Subordinated Debentures, the Trust will not have
sufficient funds to make distributions on the
Preferred Securities. In such event, a holder of
Preferred Securities may institute a legal
proceeding directly against the Company pursuant
to the terms of the Guarantee to enforce payment
of
9
<PAGE>
amounts equal to such Distributions to such
holder. See "Description of the Subordinated
Debentures--Enforcement of Certain Rights by
Holders of Preferred Securities."
Voting Rights...............
The holders of the Preferred Securities will have
no voting rights except in limited circumstances.
See "Description of the Preferred Securities--
Voting Rights; Amendment of the Trust Agreement."
ERISA Considerations........ Prospective purchasers should consider the
restrictions on purchase set forth under "ERISA
Considerations."
Certain Tax Consequences....
Should the Company exercise its right to defer
payments of interest on the Subordinated
Debentures, each holder of Preferred Securities
will be required to continue to accrue income (as
OID) in respect of the deferred stated interest
allocable to its Preferred Securities for United
States federal income tax purposes, which will be
allocated but not distributed to holders of
Preferred Securities. As a result, during an
Extension Period, each holder of Preferred
Securities will recognize income for United
States federal income tax purposes in advance of
the receipt of cash and will not receive the cash
related to such income from the Trust if the
holder disposes of the Preferred Securities prior
to the record date for the payment of
Distributions thereafter. See "Certain Federal
Income Tax Consequences--Interest Income and
Original Issue Discount" and "--Sales of
Preferred Securities."
Absence of Market for the
Preferred Securities........ The Preferred Securities will be a new issue of
securities for which there currently is no
market. Although the Company intends to apply to
have the Preferred Securities approved for
quotation on the American Stock Exchange, there
can be no assurance that such application will be
approved, that an active trading market in the
Preferred Securities will develop or, if one does
develop, that it will be maintained. Accordingly,
there can be no assurance as to the development
or liquidity of any market for the Preferred
Securities.
American Stock Exchange.....
The Company intends to apply to have the
Preferred Securities approved for quotation on
the American Stock Exchange, Inc.
For additional information regarding the Preferred Securities, see "The Trust,"
"Use of Proceeds," "Description of the Preferred Securities," "Description of
the Subordinated Debentures," "Description of the Guarantee," "Relationship
Among the Preferred Securities, the Subordinated Debentures and the Guarantee,"
"Certain Federal Income Tax Consequences," and "ERISA Considerations."
10
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities offered hereby will be
used by the Trust to purchase the Subordinated Debentures from the Company. The
net proceeds to the Company from the sale of Subordinated Debentures offered
hereby are estimated to be approximately $28.6 million ($32.9 million if the
Underwriter's over-allotment option is exercised in full), after deducting the
underwriting commission and estimated offering expenses. The Company intends to
use the net proceeds to repay approximately $5.0 million drawn down under a
revolving line of credit and $5.0 million payable under a term note with a
commercial lender, each of which bears interest at a rate equal to the London
Interbank Offered Rate ("LIBOR") plus 2%. Approximately $8-10 million of the
proceeds will be used to fund an anticipated common stock repurchase program
with a view towards making an election to be treated as an "S-corporation"
under the Code. The balance will be used for general corporate purposes,
including, but not limited to, increasing the size of the loan and servicing
portfolio and reducing other long-term debt and short-term borrowings of the
Company and/or New South. The precise amount and timing of the application of
such proceeds will depend on the funding requirements of and availability of
other funds to the Company. Pending such application by the Company, such net
proceeds may be temporarily invested in short-term interest-bearing securities.
See "The Company," "Business--Funding Activities" and "Business--Potential S-
election."
The Office of Thrift Supervision (the "OTS") imposes certain capital adequacy
requirements on the Company's thrift subsidiary, New South. To the extent the
Company contributes a portion of the net proceeds received from the sale of the
Preferred Securities to New South, such proceeds would qualify as Tier 1
capital of New South under the current capital adequacy guidelines of the OTS.
Under current policy, the OTS does not impose any capital adequacy requirements
on the Company itself. Moreover, the Company is not regulated by the Board of
Governors of the Federal Reserve System (the "Federal Reserve") and is not
subject to the Federal Reserve's risk based capital adequacy guidelines.
Management is aware of various statutory and regulatory initiatives which could
reform the regulation of financial services institutions, some of which could
subject the Company to capital adequacy guidelines. No legislation on this
issue is currently pending, and, therefore, management does not anticipate that
such capital adequacy guidelines will be imposed on the Company in the near
future. If, however, the Company were to become subject to the capital adequacy
guidelines of either the Federal Reserve or OTS, it is expected that the
proceeds of the sale of the Preferred Securities would qualify as Tier 1
capital of the Company in the absence of a Capital Event. Federal Reserve
guidelines for calculation of Tier 1 capital limit the amount of cumulative
preferred stock (which would include the Preferred Securities) which can be
included in Tier 1 capital to 25% of total Tier 1 capital.
RISK FACTORS
Prospective purchasers of the Preferred Securities should carefully consider
the risks in connection with this offering set forth under "Risk Factors."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following information summarizes certain selected consolidated financial
information of New South as of and for its fiscal years ended September 30,
1993 and 1994 and of the Company (which was established in 1994 with a fiscal
year ended December 31) as of and for its fiscal years ended December 31, 1995,
1996 and 1997. The data for the Company, on a consolidated basis as of and for
its fiscal year ended December 31, 1994, did not differ significantly from the
corresponding data for New South as of and for its fiscal year ended
September 30, 1994. The summary below should be read in conjunction with
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
included herein.
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK AS OF
AND FOR THE YEAR ENDED NEW SOUTH BANCSHARES, INC. AS OF AND
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
DATA:
Interest income......... $ 46,201 $ 44,934 $ 55,064 $ 65,535 $ 75,491
Interest expense........ 28,582 28,234 37,523 43,158 47,723
----------- ----------- ------------ ------------ ------------
Net interest income..... 17,619 16,700 17,541 22,377 27,768
Provision for possible
loan losses............ 1,025 1,485 572 2,492 2,954
----------- ----------- ------------ ------------ ------------
Net interest income
after provision for
possible loan losses... 16,594 15,215 16,969 19,885 24,814
Noninterest income:
Loan administration
income................ 3,147 5,955 4,547 4,870 4,915
Gain on sale of loans.. (2,753) (505) 629 457 5,079
Other income........... 5,788 1,968 1,490 2,998 5,320
----------- ----------- ------------ ------------ ------------
Total noninterest
income............... 6,182 7,418 6,666 8,325 15,314
Noninterest expense:
Salaries and benefits.. 4,420 5,242 5,371 7,424 16,024
Other expense.......... 9,500 10,813 12,633 15,742 15,398
----------- ----------- ------------ ------------ ------------
Total noninterest
expense.............. 13,920 16,055 18,004 23,166 31,422
Income before income
taxes.................. 8,856 6,578 5,631 5,044 8,706
Income taxes expense.... 3,052 2,785 2,265 2,482 3,990
----------- ----------- ------------ ------------ ------------
Net income.............. $ 5,804 $ 3,793 $ 3,366 $ 2,562 $ 4,716
=========== =========== ============ ============ ============
PER SHARE DATA:
Earnings per share
(basic and diluted).... $ 5.80 $ 3.79 $ 2.42 $ 1.84 $ 3.42
Weighted average shares
outstanding (in
thousands)............. 1,000 1,000 1,393 1,391 1,377
SELECTED BALANCE SHEET
DATA:
Total assets............ $ 616,949 $ 575,767 $ 746,518 $ 822,980 $ 992,065
Investment securities
available for sale..... 53,932 67,323 96,678 94,451 197,135
Loans, net of unearned
income................. 496,569 407,555 561,611 681,730 727,854
Allowance for possible
loan losses............ 4,056 5,089 4,562 5,904 7,333
Deposits................ 514,320 485,342 539,011 660,668 695,365
Federal Home Loan Bank
Advances............... 45,000 46,000 104,000 95,388 179,420
Total liabilities....... 579,599 537,504 700,738 775,039 939,751
Total stockholders'
equity................. 37,350 38,263 45,780 47,941 52,314
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK AS OF
AND FOR THE YEAR ENDED NEW SOUTH BANCSHARES, INC. AS OF AND
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average as-
sets................... 0.99% 0.59% 0.47% 0.31% 0.51%
Return on average equi-
ty..................... 17.01 9.51 7.75 5.22 9.17
Net interest spread..... 2.34 1.99 2.28 2.53 2.74
Net interest margin..... 3.08 2.64 2.65 2.94 3.21
Ratio of average
interest-earning assets
to average interest-
bearing liabilities.... 114.72 114.10 106.56 107.19 108.46
Ratio of noninterest
expense to average
assets................. 2.37 2.48 2.52 2.84 3.42
Efficiency ratio........ 78.72 75.95 77.70 87.35 77.07
Average equity to
average assets......... 5.81 6.17 6.08 6.02 5.61
ASSET QUALITY DATA:
Net charge-offs to
average loans, net of
unearned income........ (0.02) 0.09 0.22 0.18 0.21
Nonperforming assets to
total assets........... 1.11 1.36 0.78 1.07 0.94
Nonperforming loans to
total loans, net of
unearned income........ 0.98 1.34 0.69 1.21 1.12
Allowance for possible
loan losses to total
loans, net of unearned
income................. 0.82 1.25 0.81 0.87 1.01
Allowance for possible
loan losses to total
nonperforming assets... 59.03 65.23 78.43 60.00 78.97
CAPITAL RATIOS(1):
Tangible capital (tier 1
to total assets)....... 6.05 6.65 7.24 6.90 6.17
Tier 1 capital (to risk
adjusted assets)....... 9.96 10.32 11.12 10.30 9.51
Total risk-based capital
(to risk adjusted
assets)................ 10.72 11.04 11.78 11.14 10.48
</TABLE>
- --------
(1) Capital ratio data for all periods presented are for New South only.
13
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained in this Prospectus, the following risk factors before
purchasing the Preferred Securities offered hereby. These considerations are
not intended to represent a complete list of the general or specific risks
that may affect the Preferred Securities, the Subordinated Debentures, the
Company or the Trust. It should be recognized that other risks may be
significant, presently or in the future. Throughout this Prospectus, unless
the context clearly requires otherwise, references to "the Company" should be
deemed references to the combined activities of New South Bancshares, Inc., a
non-operating holding company, and its principal operating subsidiary, New
South Federal Savings Bank.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
Ranking of Subordinate Obligations Under the Guarantee and Subordinated
Debentures
The obligations of the Company under the Guarantee issued by it for the
benefit of the holders of Preferred Securities and the Subordinated Debentures
will be unsecured and subordinate and rank junior in right of payment to all
present and future Senior Debt of the Company and rank pari passu with
obligations to or rights of the Company's other general unsecured creditors.
In addition, in the case of a bankruptcy or insolvency proceeding involving
the Company, the Company's obligations under the Guarantee will rank
subordinate and junior in right of payment to all liabilities of the Company,
but senior to any obligation in respect of any class of capital stock of the
Company.
No payment of the principal of, or premium, if any, or interest on the
Subordinated Debentures, or in respect of any redemption, retirement, purchase
or other acquisition by the Company of any of the Subordinated Debentures
("Debenture Payment") may be made at any time when (i) there is a default in
the payment of the principal of, or premium, if any, or interest on or
otherwise in respect of any Senior Debt (as defined herein), whether at
maturity or at a date fixed for prepayment or by declaration or otherwise, or
(ii) any other event of default with respect to any Senior Debt has occurred
and is continuing, or would occur as a result of such Debenture Payment, which
permits or would permit the holders of such Senior Debt (or a trustee on
behalf of the holders thereof) to accelerate the maturity thereof. Neither the
Indenture, the Guarantee nor the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Debt, that may be
incurred by the Company. At December 31, 1997, the aggregate principal amount
of outstanding indebtedness for borrowed money which constitutes Senior Debt
of the Company was approximately $16 million. See "Business--Funding
Activities" and "Description of the Subordinated Debentures--Subordination."
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any direct or indirect subsidiary
upon such subsidiary's liquidation or reorganization or otherwise (and thus
the ability of holders of the Preferred Securities to benefit indirectly from
such distribution) is subject to the prior claims of creditors of that
subsidiary, except to the extent that the Company may itself be recognized as
a creditor of that subsidiary. At December 31, 1997, the direct and indirect
subsidiaries of the Company had total liabilities (excluding liabilities owed
to the Company) of approximately $929.9 million. In addition, because the
Company's primary subsidiary, New South, is a federally chartered savings bank
subject to regulatory control by the OTS, the ability of New South to pay
dividends to the Company without prior regulatory approval is limited by
applicable laws and regulations. Federal and state regulatory agencies also
have the authority to limit further New South's payment of dividends based on
other factors, such as the maintenance of adequate capital for New South,
which could reduce the amount of dividends otherwise payable. Accordingly, the
Subordinated Debentures and the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company and it's subsidiaries,
including New South, and Debenture Payments on the Subordinated Debentures
(and corresponding Distributions on the Preferred Securities) will be paid
only out of the assets of the Company legally available therefor. See "Risk
Factors Relating to the Company--Status of the Company as a Holding Company"
and "Supervision and Regulation."
14
<PAGE>
Option to Extend Interest Payment Period; Tax Considerations
So long as no event of default under the Indenture (a "Debenture Event of
Default") has occurred or is continuing, the Company has the right under the
Indenture to defer payment of interest on the Subordinated Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarterly
periods, each an Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Subordinated Debentures or end on a
date other than a Distribution Date. As a consequence of any such deferral,
quarterly Distributions on the Preferred Securities by the Trust will also be
deferred (and the amount of Distributions to which holders of the Preferred
Securities are entitled will accumulate additional Distributions thereon at
the rate of % per annum, compounded quarterly, to the extent permitted by
applicable law, from the relevant payment date for such Distributions) during
any such Extension Period. During any such Extension Period, the Company may
not (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
capital stock, (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all respects with or junior in interest to the
Subordinated Debentures, or (iii) make any guarantee payment with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in right of payment
to the Subordinated Debentures, subject to certain exceptions described
herein. See "Description of the Subordinated Debentures--Option to Extend
Interest Payment Date." Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity or end on a date other than a Distribution Date. Upon the
termination of any Extension Period and the payment of all interest then
accrued and unpaid on the Subordinated Debentures (together with interest
thereon at the annual rate of %, compounded quarterly from the interest
payment date for such interest, to the extent permitted by applicable law),
the Company may elect to begin a new Extension Period subject to the above
requirements. There is no limitation on the number of times that the Company
may elect to begin an Extension Period. See "Description of the Subordinated
Debentures--Option to Extend Interest Payment Date," and "Description of the
Preferred Securities--Distributions."
Should the Company exercise its right to defer payments of interest on the
Subordinated Debentures, each holder of Preferred Securities will be required
to continue to accrue income (as OID) in respect of the deferred stated
interest allocable to its Preferred Securities for United States federal
income tax purposes, which will be allocated but not distributed to holders of
Preferred Securities. As a result, during an Extension Period, each holder of
Preferred Securities will recognize income for United States federal income
tax purposes in advance of the receipt of cash and will not receive the cash
related to such income from the Trust if the holder disposes of the Preferred
Securities prior to the record date for the payment of Distributions
thereafter. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount" and "--Sales of Preferred Securities."
Should the Company elect to exercise its right to defer payments of interest
on the Subordinated Debentures, the then current market price of the Preferred
Securities is likely to be affected adversely. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, the mere existence of the Company's right
to defer payments of interest on the Subordinated Debentures may cause the
market price of the Preferred Securities to be more volatile than the market
prices of other securities on which OID accrues that are not subject to such
deferral rights.
Special Event Redemption; Optional Early Redemption
Upon the occurrence of a Capital Event, a Tax Event, or an Investment
Company Event (in each case, a "Special Event"), the Company shall have the
right to prepay the Subordinated Debentures in whole (but not in part) and
thereby cause a mandatory redemption of the Preferred Securities within 90
days following the
15
<PAGE>
occurrence of such Special Event. See "Description of the Subordinated
Debentures--Special Event Prepayment."
In addition to a Special Event Redemption, the Company shall have the right
to prepay the Subordinated Debentures, in whole at any time, or in part from
time to time, at its option at any time after , 2003, and thereby cause a
redemption of a proportional amount of the Preferred Securities. See
"Description of the Subordinated Debentures--Optional Prepayment after ,
2003."
In the event the Preferred Securities are redeemed prior to the Stated
Maturity, the holders thereof may not be able to reinvest the proceeds
received from such redemption on terms comparable to those offered hereby. In
addition, although the trading prices of fixed income securities generally
increase as prevailing interest rates fall, the ability of the Company to
redeem the Preferred Securities may have a chilling effect on their trading
price.
Possible Tax Law Changes
In both 1996 and 1997, the Clinton Administration proposed to amend the
Internal Revenue Code of 1986, as amended (the "Code") to deny deductions of
interest on instruments with features similar to those of the Subordinated
Debentures when issued under arrangements similar to the Trust. That proposal
was not passed by, and is not currently pending before, Congress. There can be
no assurance, however, that future legislative proposals, future regulations
or official administrative pronouncements or future judicial decisions will
not affect the ability of the Company to deduct interest on the Subordinated
Debentures. Such change could give rise to a Tax Event, which may permit the
Company, to cause a redemption of the Preferred Securities.
Possible Distribution of Subordinated Debentures; Tax Consequences
The Company will have the right at any time to terminate the Trust and,
after satisfaction of claims of creditors of the Trust as provided by
applicable law, to cause the Subordinated Debentures to be distributed to the
holders of the Trust Securities. Because holders of Preferred Securities may
receive Subordinated Debentures in liquidation of the Trust and because
Distributions are otherwise limited to payments on the Subordinated
Debentures, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Subordinated Debentures and should
carefully review all the information regarding the Subordinated Debentures
contained herein. See "Description of the Subordinated Debentures."
Under current United States federal income tax law, and assuming, as
anticipated by management of the Company, that the Trust will be classified as
a grantor trust and not an association taxable as a corporation, a
distribution of Subordinated Debentures upon the dissolution of the Trust
would not be a taxable event to holders of the Preferred Securities. If,
however, the Trust were classified as an association taxable as a corporation,
the distribution of the Subordinated Debentures would constitute a taxable
event to the Trust and to the holders of the Preferred Securities. Moreover,
upon occurrence of a Tax Event, a dissolution of the Trust in which holders of
the Preferred Securities receive cash may be a taxable event to such holders.
See "Certain Federal Income Tax Consequences--Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust."
Absence of Public Market
The Preferred Securities will be a new issue of securities for which there
currently is no market. Although the Company intends to apply to have the
Preferred Securities approved for quotation on the American Stock Exchange,
there can be no assurance that such application will be approved, that an
active trading market in the Preferred Securities will develop or, if one does
develop, that it will be maintained. Accordingly, there can be no assurance as
to the development or liquidity of any market for the Preferred Securities.
The Underwriters have informed the Trust and the Company that they intend to
make a market in the Preferred Securities. However, the Underwriters are not
obligated to do so and any such market making activity may be terminated at
any time without notice to the holders of the Preferred Securities. To the
extent the Underwriters do make a market for the Preferred Securities, the
Preferred Securities (or the Subordinated Debentures which may be distributed
to the holders of the Preferred Securities upon liquidation of the Trust)
16
<PAGE>
may trade at a discounted price that does not fully reflect the price that the
investor paid to purchase the Preferred Securities offered hereby or the value
of accrued but unpaid interest with respect to the underlying the Subordinated
Debentures. Accordingly, there can be no assurance as to the market prices for
Preferred Securities or the Subordinated Debentures. In addition, such market
making activity will be subject to the limits of the Securities Act.
Potential Adverse Tax Consequences Upon Sale
A holder which disposes of its Preferred Securities between record dates for
payments of Distributions thereon will be required to include accrued but
unpaid OID on the Subordinated Debentures through the date of disposition in
income as ordinary income and to add such amount to its adjusted tax basis in
its share of the underlying Subordinated Debentures deemed disposed of. To the
extent the selling price is less than the holder's adjusted tax basis (which
will include all accrued but unpaid OID), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied
to offset ordinary income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount" and "--Sales of Preferred Securities."
Rights Under the Guarantee
The Guarantee will guarantee to the holders of the Preferred Securities the
following payments, to the extent not paid by the Trust: (i) any accumulated
and unpaid Distributions required to be paid on the Preferred Securities, to
the extent that the Trust has funds on hand legally available therefor; (ii)
the Redemption Price (as defined herein) with respect to any Preferred
Securities called for redemption, to the extent that the Trust has funds on
hand at that time legally available therefor; and (iii) upon a voluntary or
involuntary termination and liquidation of the Trust (unless the Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Trust has funds
on hand at that time legally available therefor and (b) the amount of assets
of the Trust remaining available for distribution to holders of the Preferred
Securities. The obligations of the Company under the Guarantee are
subordinated in the manner set forth above under "--Ranking of Subordinate
Obligations Under the Guarantee and Subordinated Debentures."
The holders of a majority in Liquidation Amount of the Preferred Securities
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee. Any holder of the Preferred Securities may institute a
legal proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity. If the Company defaults on
its obligation to pay amounts payable under the Subordinated Debentures, the
Trust will not have sufficient funds for the payment of Distributions or
amounts payable on redemption of the Preferred Securities or otherwise, and,
in such event, holders of the Preferred Securities will not be able to rely
upon the Guarantee for payment of such amounts. Instead, in the event a
Debenture Event of Default shall have occurred and be continuing and such
event is attributable to the failure of the Company to pay principal of or
premium, if any, or interest on the Subordinated Debentures on the payment
date on which such payment is due and payable, then a holder of Preferred
Securities may institute a legal proceeding directly against the Company for
enforcement of payment to such holder of the principal of or premium, if any,
or interest on such Subordinated Debentures having a principal amount equal to
the Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). Notwithstanding any payments made to a holder of Preferred
Securities by the Company in connection with a Direct Action, the Company
shall remain obligated to pay the principal of and premium, if any, and
interest on the Subordinated Debentures, and the Company shall be subrogated
to the rights of the holder of such Preferred Securities with respect to
payments on the Preferred Securities to the extent of any payments made by the
Company to such holder in any Direct Action. Except as described herein,
holders of Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Subordinated Debentures or to
assert directly any other rights in respect of the Subordinated Debentures.
See "Description of the Subordinated Debentures--Enforcement of Certain Rights
by
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Holders of Preferred Securities" and "--Debenture Events of Default" and
"Description of the Guarantee." The Trust Agreement will provide that each
holder of the Preferred Securities by acceptance thereof agrees to the
provisions of the Indenture.
Limited Voting Rights
Holders of the Preferred Securities will generally have limited voting
rights relating only to the modification of the terms of the Preferred
Securities, the dissolution, termination or liquidation of the Trust, and the
exercise of the Trust's rights as holder of the Subordinated Debentures.
Holders of the Preferred Securities will not be entitled to vote to appoint,
remove or replace, or to increase or decrease the number of, the Issuer
Trustees, which voting rights are vested exclusively in the holder of the
Common Securities, except as described under "Description of the Preferred
Securities--Removal of Issuer Trustees." The Issuer Trustees and the Company
may amend the Trust Agreement without the consent of holders of Preferred
Securities to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust even if such action adversely
affects the interests of such holders. See "Description of the Preferred
Securities--Voting Rights; Amendment of the Trust Agreement."
Preferred Securities Are Not Insured
The Preferred Securities are not insured by the Bank Insurance Fund or the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC") or by any other governmental agency.
RISK FACTORS RELATING TO THE COMPANY
Status of the Company as a Holding Company
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability
of holders of the Preferred Securities to benefit indirectly from such
distribution) is subject to the prior claims of creditors of that subsidiary
(including depositors in the case of New South), except to the extent that the
Company may itself be recognized as a creditor of that subsidiary. New South
and New South Agency, Inc. are the only two subsidiaries of the Company, each
of which is wholly owned. New South Agency, Inc. is an insignificant
subsidiary with minimal assets or liabilities. At December 31, 1997, the
subsidiaries of the Company had total liabilities (excluding liabilities owed
to the Company) of approximately $929.9 million, including deposits.
Accordingly, the Preferred Securities will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries, and holders of
the Preferred Securities should look only to the assets of the Company for
payments on the Preferred Securities. None of the Guarantee, the Indenture, or
the Trust Agreement places any limitation on the amount of secured or
unsecured debt that may be incurred by the Company's subsidiaries in the
future. See "Description of the Subordinated Debentures" and "Description of
the Guarantee."
In addition, as the Company is a non-operating holding company, almost all
of the operating assets of the Company are owned by the Company's
subsidiaries. The Company relies primarily on dividends from such subsidiaries
to meet its obligations for payment of principal and interest on its
outstanding debt obligations, if any, and corporate expenses. New South is
subject to certain restrictions imposed by federal law on any extensions of
credit to, and certain other transactions with, the Company and certain other
affiliates, and on investments in stock or other securities thereof. Such
restrictions prevent the Company and such other affiliates from borrowing from
New South unless the loans are secured by various types of collateral.
Further, such secured loans, other transactions and investments by New South
are generally limited in amount as to the Company and as to each of such other
affiliates to 10% of New South capital and surplus and as to the Company and
all of such other affiliates to an aggregate of 20% of New South capital and
surplus. In addition, payment of dividends to the Company by New South is
subject to ongoing review by banking regulators and is subject to various
statutory limitations and in certain circumstances requires prior approval by
banking regulatory authorities.
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Under current regulations of the OTS, during 1997, New South could have
declared dividends to the Company of approximately $13.5 million, of which
approximately $1.1 million have been declared and paid during 1997 to the
Company. Federal regulatory agencies also have the authority to limit further
New South's payment of dividends based on other factors, such as the
maintenance of adequate capital for New South, which could reduce the amount
of dividends otherwise payable. See "Supervision and Regulation."
Fluctuations in Performance
The Company's operating results can fluctuate substantially from period to
period as a result of a number of factors, including the volume of loan
production, interest rates, risk of credit losses, the level of amortization
of mortgage servicing rights required by prepayment rates. In particular, the
Company's results are strongly influenced by the level of loan production,
which is influenced by the interest rate environment and other economic
factors. Accordingly, the net income of the Company may fluctuate
substantially from period to period.
Reliance on Residential Mortgage Originations
The market for residential mortgages is highly volatile, and an increase in
interest rates could have a material adverse effect on non-interest income,
interest income and in the growth of New South's residential mortgage
portfolio. Due to the cyclical nature of residential mortgage originations,
there can be no assurance that New South will be able to sustain recent levels
of gains on the sale of residential mortgage loans which constitute a
substantial portion of New South's other income or the level of fees in
noninterest income.
Interest Rate Fluctuations
Changes in interest rates can have differing effects on various aspects of
the Company's business, particularly on the net interest income of the
Company, the rate of loan prepayments, the volume of residential mortgage
loans originated or produced, the sales of residential mortgage loans on the
secondary market and the value of the Company's mortgage servicing rights.
Net Interest Income. New South's profitability is dependent to a large
extent on its net interest income, which is the difference between its income
on interest-earning assets and its expense on interest-bearing liabilities.
New South, like most financial institutions, is affected by changes in general
interest rate levels and by other economic factors beyond its control.
Interest rate risk arises in part from the mismatch (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing interest
earning assets and liabilities, and is measured in terms of the ratio of the
interest rate sensitivity gap to total assets. More interest earning assets
than interest bearing liabilities repricing or maturing over a given time
period is considered asset-sensitive and is reflected as a positive gap, and
more liabilities than assets repricing or maturing over a given time period is
considered liability-sensitive and is reflected as a negative gap. A
liabilities-sensitive position (i.e., a negative gap) may generally enhance
net interest income in a falling interest rate environment and reduce net
interest income in a rising interest rate environment, while an asset-
sensitive position (i.e., a positive gap) may generally enhance net interest
income in a rising interest rate environment and will reduce net interest
income in a falling interest rate environment. Fluctuations in interest rates
are not predictable or controllable. Periodically, New South estimates the
prepayment rates of all loans in New South's loan and mortgage-backed
securities portfolios in order to determine New South's gap position over the
approaching twelve month period. At December 31, 1997, based on management's
assumptions derived from its experience, New South had a negative gap of 19%.
If all interest rate caps and swaps are considered as immediately repriceable
instruments, New South had a positive gap at December 31, 1997 of 11%.
Rate of Loan Prepayment. Changes in interest rates also affect the average
life of loans and mortgage-backed securities. The relatively lower interest
rates in recent periods have resulted in increased prepayments of loans and
mortgage-backed securities as borrowers have refinanced their mortgages to
reduce their borrowing costs. Under these circumstances, New South is subject
to reinvestment risk to the extent that it is not able to reinvest such
prepayments at rates which are comparable to the rates on the prepaid loans or
securities.
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Sales of Residential Mortgage Loans. Gains or losses on sales of residential
mortgage loans may result from changes in interest rates from the time the
interest rate on a customer's mortgage loan application is established to the
time the Company sells the loan. Such a change in interest rates could result
in a gain or loss upon the sale of such loan. In order to reduce the effect of
interest rate changes on the gain or loss on loan sales, the Company may
commit to sell residential mortgage loans to investors for delivery at a
future time at a stated price. At any given time, the Company may have
committed to sell substantially all of its residential mortgage loans that are
closed ("warehouse loans") and a percentage of the residential mortgage loans
that are not yet closed but for which the interest rate has been established
("pipeline loans"). To manage the interest rate risk of the Company's pipeline
loans, the Company continuously projects the percentage of the pipeline loans
it expects to close and, on the basis of such projections, enters into forward
sales commitments to sell such loans.
If interest rates make an unanticipated change, the actual percentage of
pipeline loans that close may differ from the projected percentage. A sudden
increase in interest rates can cause a higher percentage of pipeline loans to
close than projected. To the degree that this may not have been anticipated,
the Company may not have made forward sales commitments to sell these
additional loans at pre-established prices and, consequently, may incur
significant losses upon their sale at current market prices, adversely
affecting results of operations. Likewise, if a lower percentage of pipeline
loans closes than was projected, due to a sudden decrease in interest rates or
otherwise, the Company may have committed to sell more loans than actually
close and as a result may incur significant losses in fulfilling these
commitments, adversely affecting results of operations. This risk is greater
during times of higher volatility of interest rates.
Value of Mortgage Servicing Rights. The value of the Company's servicing
portfolio may be adversely affected if mortgage interest rates decline and
loan prepayments increase. The value of the Company's mortgage servicing
rights is based upon the net present value of future servicing income from
related residential mortgage loans. As interest rates on residential mortgage
loans decline, the economic advantages to borrowers of refinancing their
residential mortgage loans increase. As residential mortgage loans are
prepaid, the period during which the Company receives servicing income from
such loans decreases, thereby reducing the value of the Company's mortgage
servicing rights. If the rate of prepayment of the related loans exceeds the
rate assumed by the Company, due to a significant reduction in interest rates
or otherwise, the value of the Company's servicing portfolio will decrease and
accelerated amortization of servicing rights or recognition of an impairment
provision may become necessary, thereby decreasing earnings. There can be no
assurance that the Company's efforts to mitigate these risks will prevent
value loss or impairment provisions.
Delinquency and Default Risks
The Company's profitability may be negatively impacted by economic downturns
as the frequency of loan defaults tends to increase. From the time that the
Company funds the loans it originates to the time it sells the loans,
generally 10 to 40 days thereafter, the Company is generally at risk for any
loan defaults. Once the Company sells the loans it originates, the risk of
loss from loan defaults and foreclosure generally passes to the purchaser or
insurer of the loans. In connection therewith, the Company typically makes
certain representations and warranties to the purchasers and insurers of loans
and to the purchasers of servicing rights, if any. Such representations and
warranties generally relate to the origination and servicing of loans in
substantial conformance with state and federal laws and applicable investor
guidelines. If a loan defaults and there has been a breach of these
representations and warranties, the Company becomes liable for the unpaid
principal and interest on the defaulted mortgage loan. In such a case, the
Company may be required to repurchase the loan and bear the subsequent loss,
if any. Historically, the impact of loans repurchased by the Company as the
result of such breaches of representations and warranties has not been
material. However, the number and amount of loans repurchased in the future
could increase due to the high volume of loans which the Company originates,
acquires and sells. Accordingly, the Company believes that future charges to
net income relating to loan repurchases may be necessary as loan origination
volume increases. In addition, the Company's installment (automobile) loans
are subject to similar risks of delinquency and default. In 1997, the Company
charged off a portion of its installment (automobile) loans. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
"Business."
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The Company is also affected by loan delinquencies and defaults on loans
that it services. Under certain types of servicing contracts, particularly
contracts to service loans that have been pooled or securitized, the servicer
must advance all or part of the scheduled payments to the owner of the loan,
even when loan payments are delinquent. Also, to protect their liens on
mortgaged properties, owners of loans usually require the servicer to advance
mortgage and hazard insurance and tax payments on schedule even if sufficient
escrow funds are not available. The servicer will be reimbursed, subject to
certain limitations with respect to Federal Housing Administration ("FHA") and
Veterans Administration ("VA") loans, by the mortgage owner or from
liquidation proceeds for payments advanced that the servicer is unable to
recover from the mortgagor, although the timing of such reimbursement is
typically uncertain. In the interim, the servicer must absorb the cost of
funds advanced during the time the advance is outstanding. Further, the
servicer must bear the increased costs of attempting to collect on delinquent
and defaulted loans. The Company also foregoes servicing income from the time
such loan becomes delinquent until foreclosure when, if any proceeds are
available, such amounts may be recovered.
The Company periodically incurs losses attributable to servicing FHA and VA
loans for investors, including actual losses for final disposition of loans
that have been foreclosed or assigned to the FHA or VA and accrued interest on
such FHA or VA loans for which payment has not been received. The Company's
servicing losses on investor-owned loans have historically primarily
represented losses on VA loans. Because the total principal amount of FHA
loans is guaranteed, losses on such loans are generally limited to expenses of
collection and certain contractually defined costs. The Company has
experienced minimal losses from FHA loans. With respect to VA loans, the VA
guarantees the initial losses on a loan. The guaranteed amount generally
ranges from 20% to 35% of the original principal balance. Before each
foreclosure sale, the VA determines whether to bid by comparing the estimated
net sale proceeds to the outstanding principal balance and the servicer's
accumulated reimbursable costs and fees. If this amount is a loss and exceeds
the guaranteed amount, the VA typically issues a no-bid and pays the servicer
the guaranteed amount. Whenever a no-bid is issued, the servicer absorbs the
loss, if any, in excess of the sum of the guaranteed principal and amounts
recovered at the foreclosure sale. The Company's historical delinquency and
foreclosure rate experience on VA loans has generally been consistent with
that of the industry. There can be no assurance that the Company's servicing
losses on investor-owned loans will not be greater in the future.
Economic downturns in states in which the Company has a significant
concentration of business could have an adverse impact on the Company's
results of operations. The Company originates and purchases servicing rights
for residential mortgage loans primarily in the southern United States and
actively monitors the geographic distribution of its servicing portfolio to
maintain a mix that it deems appropriate and makes adjustments as it deems
necessary. There can be no assurance that the Company's monitoring of and
adjustments to such geographic distribution will prevent any material adverse
impact on the Company's business, results of operations and financial
condition in the future.
Allowance for Possible Loan Losses
Industry experience indicates that a portion of the Company's loans held in
its own portfolio will become delinquent and a portion of the loans will
become charge-offs. Regardless of the underwriting criteria used by New South,
losses may be experienced as a result of various factors beyond New South's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. New
South's determination of the adequacy of its allowance for possible loan
losses is based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the views of New South's regulators (who have the authority to
require additional reserves), and geographic and industry loan concentration.
If delinquency levels were to increase as a result of adverse general economic
conditions, the loan loss reserve so determined by New South, however, may not
be adequate. New South believes the allowance to be adequate, but there can be
no assurance that the allowance will be adequate to cover possible loan losses
or that New South will not experience significant losses in its loan
portfolios which may require significant
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increases to the allowance for possible loan losses in the future. At December
31, 1997, the Company's allowance for possible loan losses totaled $7.3
million which was 1.01% of total loans, net of unearned income, or 78.97% of
nonperforming assets.
Growth
There can be no assurance that New South will be able to adequately and
profitably manage its future growth. Failure by the Company to manage its
growth effectively or sustain historical increases in loan origination volume
could have a material adverse effect on the Company's business, financial
condition, and results of operations. New South has experienced significant
growth over the past five years, as total assets have increased from $616.9
million at September 30, 1993 to approximately $1.0 billion at December 31,
1997. New South, as part of this growth, has expanded its loan production
network through the transfer of 39 loan production offices from its affiliate,
Collateral, in the Transfer (as defined and discussed herein under the heading
"The Company"). The additional costs associated with operating the additional
loan production offices have increased New South's noninterest expense and
decreased earnings in the short-term and should continue to do so for some
time.
Availability of Funding Sources
The degree to which the Company is leveraged could have important
consequences to holders of the Preferred Securities, including the following:
(i) the Company's ability to grow will depend on its ability to obtain
additional financing in the future for originating loans, investment in
servicing rights, working capital, capital expenditures and general corporate
purposes; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of the principal of and interest
on its indebtedness, thereby reducing the funds available to finance
operations or pay cash dividends; and (iii) the Company may be more highly
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage and make it more vulnerable to economic downturns.
The Company requires substantial funding for its business operations. Such
funding is currently provided primarily by customer deposits, but the Company
also relies on advances from the Federal Home Loan Bank ("FHLB") and
commercial lenders. At December 31, 1997, FHLB advances to the Company
totalled approximately $179.4 million, and the Company's indebtedness to
commercial lenders pursuant to existing lines of credit totalled approximately
$16.0 million. The Company may incur additional indebtedness in the future,
subject to certain limitations contained in the instruments governing its
current indebtedness. See "Business--Borrowings."
To the extent that the Company is not successful in negotiating renewals of
its borrowings or in arranging new financing, it may have to curtail its
origination activities and/or sell significant portions of its servicing
portfolio, which would have a material adverse effect on the Company's
business results of operations and financial condition. Among the factors that
will affect the Company's ability to refinance its bank credit and term
facilities are financial market conditions and the value and performance of
the Company prior to the time of such refinancing. There can be no assurance
that any such refinancing can be successfully completed at advantageous rates
or at all.
Forward Sale Arrangements
In connection with its mortgage loan sales programs, which involve the sale
of residential mortgage loans and mortgage-backed securities on a forward or
other deferred delivery and payment basis, the Company has credit risk
exposure to the extent purchasers are unable to meet the terms of their
forward purchase contracts. As is customary in the marketplace, none of the
forward payment obligations of any of the Company's counterparties is
currently secured or subject to margin requirements. Although the Company has
never suffered a loss as a result of a default by a forward contract
counterparty, the Company attempts to limit its credit exposure on forward
sales arrangements on residential mortgage loans and mortgage-backed
securities by
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entering into forward contracts only with institutions that the Company
believes are acceptable credit risks and by limiting exposure to any single
counterparty by selling to a number of investors. All counterparties are
obligated to settle their sales in accordance with the terms of the related
forward sale agreement. The Company also attempts to limit its exposure on
flow servicing sales by only selling to institutions that the Company believes
are acceptable credit risks.
Loan Sales and Securitizations
In connection with certain whole loan sales and securitizations, the Company
recognizes a gain on sale of the loans upon the closing of the transaction and
the delivery of the loans, but does not receive the cash representing such
gain until it receives the excess servicing spread, which is payable over the
actual life of the loans sold. The Company is subject to over-
collateralization requirements and incurs significant expenses in connection
with securitizations and incurs tax liabilities as a result of the gain on
sale.
The pooling and servicing agreements and sale and servicing agreements
relating to the Company's securitizations require the Company to build over-
collateralization levels through retention within each securitization trust of
servicing distributions and application thereof to reduce the principal
balances of the senior interests issued by the related trust or cover interest
shortfalls. This retention causes the aggregate unpaid principal amount of the
loans in the related pool to exceed the aggregate principal balance of the
outstanding investor securities. Such over-collateralization amounts serve as
credit enhancement for the related trust and therefore are available to absorb
losses realized on loans held by such trust. The Company continues to be
subject to the risks of default and foreclosure following the sale of loans
through securitizations to the extent servicing distributions are required to
be retained or applied to reduce principal or cover interest shortfalls from
time to time. Such retained amounts are predetermined by the entity issuing
any guarantee of the related senior interests as a condition to obtaining
insurance or by the rating agencies as a condition to obtaining the desired
rating on the various classes of notes thereon. In addition, such retention
delays cash distributions that otherwise would flow to the Company through its
retained interest, thereby adversely affecting the flow of cash to the
Company.
Regulation, Possible Changes and Related Matters
New South's mortgage banking business is subject to the rules and
regulations of the FHA, the VA, the United States Department of Housing and
Urban Development ("HUD"), the Federal National Mortgage Association ("FNMA"),
the Federal Home Loan Mortgage Corporation ("FHLMC"), the Governmental
National Mortgage Association ("GNMA"), and other regulatory agencies with
respect to originating, processing, underwriting, selling, securitizing and
servicing residential mortgage loans. In addition, there are other federal and
state statutes and regulations affecting the activities of New South. These
rules and regulations, among other things, impose licensing obligations on New
South, prohibit discrimination and establish underwriting guidelines that
include provisions for inspections and appraisals, require credit reports on
prospective borrowers, establish eligibility criteria for residential mortgage
loans and fix maximum loan amounts.
Moreover, lenders such as New South are required annually to submit audited
financial statements to FNMA, FHLMC, GNMA, HUD and various state regulatory
authorities, and to comply with each regulatory entity's financial
requirements. New South's business is also subject to examination by FNMA,
FHLMC, GNMA and state regulatory authorities at all times to assure compliance
with applicable regulations, policies and procedures.
New South's mortgage origination activities are subject to the provisions of
various federal and state statutes including, among others, the Equal Credit
Opportunity Act, the Federal Truth-in-Lending Act, the Federal Equal Credit
Opportunity Act, the Fair Credit Reporting Act of 1970, the Home Mortgage
Disclosure Act, the Real Estate Settlement Procedures Act of 1974 ("RESPA"),
the Fair Housing Act and the regulations promulgated thereunder, which, among
other provisions, prohibit discrimination, prohibit unfair and deceptive trade
practices, require the disclosure of certain basic information to mortgagors
concerning credit terms and settlement costs, limit fees and charges paid by
borrowers and lenders and otherwise regulate terms and conditions of credit
and
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the procedures by which credit is offered and administered. New South is
further subject to federal and state laws and regulations governing the
activities involved in servicing residential mortgage loans, including RESPA,
the Federal Debt Collection Practices Act (with respect to the servicing of
loans that are in default when the right to service is acquired by the
Company), as well as other federal and state statutes and regulations
affecting New South's servicing activities. These statutes and regulations,
among other things, regulate assessment, collection, foreclosure and claims
handling, and investment and interest payments on escrow balances.
Members of Congress and government officials from time to time have
suggested the elimination of or further limitation on the mortgage interest
deduction for federal income tax purposes based on borrower income, type of
loan or principal amount. Because many of the Company's loans are made to
borrowers for the purpose of consolidating consumer debt or financing other
consumer needs, the competitive advantages to tax deductible interest when
compared with alternative source of financing, could be eliminated or
seriously impaired by such government action. Accordingly, the reduction or
elimination of these tax benefits would have a material adverse effect on the
demand for loans of the kind offered by the Company.
Failure to comply with any of the foregoing requirements regulating mortgage
origination or mortgage servicing activities can lead to loss of approved
status, termination of servicing contracts without compensation to the
servicer, demands for indemnification or mortgage loan repurchases, certain
rights of rescission for borrowers, class action lawsuits and administrative
enforcement actions. Such regulatory requirements are subject to change from
time to time and may in the future become more restrictive, thereby making
compliance more difficult or expensive or otherwise restricting the ability of
New South to conduct its business as such business is now conducted. See
"Supervision and Regulation."
Federal Programs; Availability of Active Secondary Market
New South's ability to generate funds by sales of mortgage-backed securities
is largely dependent upon the continuation of programs administered by FNMA,
FHLMC and GNMA, which facilitate the issuance of such securities, as well as
New South's continued eligibility to participate in such programs. In
addition, approximately 35% (based on 1997 mortgage loan production) of New
South's conforming residential mortgage lending is dependent upon the
continuation of various programs administered by the FHA, which insures
residential mortgage loans, and the VA, which partially guarantees residential
mortgage loans. Although New South is not aware of any proposed
discontinuation of, or significant reduction in, the operation of such
programs, any such changes could have a material adverse effect on New South's
operations. New South anticipates that it will continue to remain eligible to
participate in such programs, but any significant impairment of such
eligibility would materially adversely affect its operations. In addition, the
mortgage loan products eligible for such programs may be changed from time to
time by the sponsor. The profitability of specific types of mortgage loan
products may vary depending on a number of factors, including the
administrative costs to New South of originating or purchasing such types of
residential mortgage loans.
There can be no assurance that New South will be successful in effecting the
sale of residential mortgage loans at the historic price or volume levels in
any particular future periods. Any significant change in the secondary market
level of activity or underwriting criteria of FNMA, FHLMC or private investors
could have a material adverse effect on the gain or loss on sales of
residential mortgage loans recorded by New South and therefore on New South's
results of operations.
Dependence on Key Individuals
The success of the Company is in large part dependent upon the efforts of
William T. Ratliff, III, Chairman of the Board and President of the Company,
Robert M. Couch, Executive Vice President of the Company, David E. Mewbourne,
Executive Vice President of New South, Roger D. Murphree, Senior Vice
President of New South, David A. Roberts, Senior Vice President of New South,
Larry A. Nelson, Senior Vice President of New South, Suzanne H. Moore, Vice
President and Controller of the Company and New South, and Lizabeth R.
Nichols, Vice President and General Counsel of New South. The Company
maintains no key man life insurance
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policies on any of these officers. The loss of the services of any of these
officers could have a material adverse effect upon the Company.
Concentration of Control
Almost all of the equity securities in the Company are owned by members of
the Ratliff family (the "Common Stockholders"). Accordingly, the Common
Stockholders are able to control the election of the Board of Directors of the
Company and thus the direction and future operations of the Company without
any approving vote of the holders of the Preferred Securities offered hereby.
See "Security Ownership of Certain Beneficial Owners."
Potential Conflicts of Interest
Certain decisions concerning the operations of, or financial dealings
between, the Company and other financial services companies controlled by the
Common Stockholders, including Collateral, present inherent conflicts of
interest between the Common Stockholders and the holders of the Preferred
Securities offered hereby. Several of the executive officers of the Company
and New South are also executive officers of Collateral or other affiliates of
the Company, and there can be no assurance that the nature and extent of the
demands placed upon such executive officers by Collateral or such other
affiliates will not diminish the time which such executive officers are able
to devote to New South. See "Directors and Executive Officers" and "Certain
Relationships and Related Transactions."
Although New South is primarily a residential mortgage lender, it actively
funds and purchases commercial real estate loans originated by Collateral and
expects to continue to do so. The Company is required by applicable
regulations to ensure that the terms of such transactions are consistent with
safe and sound banking practices, and the Company evaluates the terms of its
affiliated transactions by comparison with those available to the Company from
unaffiliated third parties. Although it is expected that the terms of any such
transactions between New South and Collateral will be on terms no less
favorable than those that could be obtained from an independent third party,
the Company cannot predict with certainty either the nature of, or the
financial terms of, any transactions which may arise in the future. See
"Certain Relationships and Related Transactions." Moreover, there can be no
assurance that Collateral will not seek to re-enter the residential mortgage
lending arena. See "The Company," "Business" and "Certain Relationships and
Related Transactions."
In addition, the Company and Collateral are dependent on outside sources for
the funding of their respective lending operations, and, from time to time,
the Company or New South may seek funding from or provide funding to
Collateral.
Competition
New South faces substantial competition in purchasing and originating loans
and in attracting deposits. Competitors include other thrifts and thrift
holding companies, national and state banks, trust companies, insurance
companies, mortgage banking operations, credit unions, finance companies,
money market funds and other financial and non-financial companies which may
offer products similar to those offered by New South. Many competing providers
have greater financial resources than New South, offer additional services,
have wider geographic presence or more accessible branch and loan production
offices. See "Business--Competition."
Developments in Technology
The Company is heavily dependent upon complex computer systems for all
phases of its operations. The year 2000 issue--common to most corporations--
concerns the inability of certain software and databases to
25
<PAGE>
properly recognize date sensitive information beginning January 1, 2000. This
problem could result in a disruption to the Company's operations, if not
corrected. Financial services institutions are particularly sensitive to such
disruptions. The Company uses third party vendors for many of its systems. As
a result, much of the Company's remediation effort relates to monitoring and
communicating with those vendors. The Company has assessed and developed a
detailed strategy to prevent or at least minimize problems related to the year
2000 issue. In 1997, resources were committed and implementation began to
modify the affected information systems. Implementation is currently on
schedule, but the degree of success of the project cannot be determined at
this time. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000."
The market for financial services, including banking services, is
increasingly affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking, and telebanking. New South's ability to compete successfully in its
markets may depend on its ability to exploit such technological changes.
However, there can be no assurance that the development of these or any other
new technologies, or New South's success or failure in anticipating or
responding to such developments, will materially affect New South's business,
results of operations and financial condition.
Liabilities Under Representations and Warranties
Under certain circumstances, New South may become liable for certain damages
or may be required to repurchase a loan if there has been a breach of
representations or warranties made by New South in the ordinary course of
business to the purchasers and insurers of its residential mortgage loans and
automobile loans regarding compliance with laws, regulations and program
standards and as to accuracy of information. New South generally receives
similar representations and warranties from mortgage brokers and the
correspondents from whom it purchases loans. However, in the event of breaches
of such representations and warranties, New South is subject to the risk that
a mortgage broker or correspondent may not have the financial capacity to
repurchase loans when called upon to do so by New South or otherwise respond
to demands made by New South.
Litigation
In recent years, many providers of financial services have been subject to
class action lawsuits that allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges and the calculation of escrow amounts on residential mortgage loans
and the lending, collection, servicing and other dealer activities (e.g.,
sales of insurance and warranties) associated with installment (automobile)
lending. Most recently, at least 50 purported class action lawsuits have been
commenced against various mortgage companies alleging, inter alia, that the
payment of certain fees to mortgage brokers violates the anti-kickback
provisions of RESPA. If these cases are resolved against the lenders, it may
cause an industry-wide change in the way independent mortgage brokers are
compensated. Such a change may have a material adverse effect on the Company
and the entire mortgage lending industry. The Company's broker compensation
and table-funded correspondent purchase programs permit such payments.
Although the Company believes these programs comply with all applicable laws
and are consistent with long-standing industry practice and regulatory
interpretations, in the future new regulatory interpretations or judicial
decisions may require the Company to change its broker compensation and table-
funded correspondent purchase practices. Class action lawsuits may continue to
be filed in the future against the mortgage banking industry generally. No
prediction can be made as to whether the ultimate decisions in any of these
class actions will be adverse to the defendant mortgage companies. See
"Business--Legal Proceedings."
Dependence Upon Independent Mortgage Brokers and Mortgage Bankers
The Company depends largely upon independent mortgage bankers, including
smaller mortgage companies and commercial banks, and, to a lesser extent, upon
independent mortgage brokers, for its originations and purchases of
residential mortgage loans. Substantially all of the independent mortgage
brokers and mortgage bankers with whom the Company does business deal with
multiple loan originators for each prospective
26
<PAGE>
borrower. Wholesale originators, such as the Company, compete for business
based upon pricing, service, loan fees and costs and other factors. The
Company's competitors also seek to establish relationships with such
independent mortgage bankers and mortgage brokers, none of whom is obligated
by contract or otherwise to continue to do business with the Company. In
addition, the Company expects the volume of broker and mortgage banker-sourced
loans purchased by it to increase. Future operating and financial results of
the Company may be more susceptible to fluctuations in the volume and cost of
its broker and mortgage banker-sourced loans resulting from, among other
things, competition from other purchasers of such loans.
27
<PAGE>
THE COMPANY
GENERAL
The Company is a closely held unitary thrift holding company headquartered
in Birmingham, Alabama. Through its financial institution subsidiary, New
South, the Company operates two full-service retail branch offices Birmingham,
Alabama, and 46 loan production offices located in 13 states throughout the
southeastern and western United States. New South is the largest thrift and
the sixth largest depository institution, based on asset size, headquartered
in the State of Alabama.
The Company's operations principally involve residential mortgage lending,
installment (automobile) lending, residential construction and land lending
and deposit gathering activities. The Company's residential mortgage lending
efforts involve the origination and purchase of residential mortgage loans
through its loan origination offices and wholesale sources, the sale of such
loans (usually on a pooled and securitized basis) in the secondary market, and
the servicing of residential mortgage loans for investors as well as the
Company's own loan portfolio. The installment (automobile) lending program
involves indirect lending through 600 automobile dealers in six southern
states. The Company's residential construction and land lending efforts
involve making loans to builders for the construction of single family
properties and, on a more limited basis, loans for the acquisition and
development of improved residential lots. In addition, the Company actively
funds and purchases commercial real estate loans originated by Collateral
which may be sold to investors or held in New South's portfolio. See
"Business."
The Company funds its lending activities primarily with customer deposits
gathered through a broad range of banking services including certificates of
deposit, individual retirement and other time and demand deposit accounts and
money market accounts. The Company takes a wholesale approach to generating
deposits, paying high interest rates while keeping deposit gathering overhead
costs low. The Company maintains two retail branch offices, both located in
Birmingham, Alabama, and attracts the majority of its deposits through
telemarketing activities and third parties, primarily brokers. See "Business."
The Company was established in 1994 for the purpose of acquiring and holding
100% of the capital stock of New South. The Company and New South are members
of a family of financial services companies that are owned primarily by
members of the Ratliff family. Since W. T. Ratliff founded Collateral
Investment Company in 1933, these companies have been engaged in virtually all
aspects of real estate lending, investment, brokerage and management, as well
as various financial services businesses. See "Certain Relationships and
Related Transactions."
Prior to the formation of the Company, New South was a wholly owned
subsidiary of Collateral. Although Collateral and the Company are each
financial services companies and are each controlled by W.T. Ratliff, Jr. and
members of his family, Collateral and the Company have different strategic
goals for their respective lending operations and serve different customers.
Generally, Collateral intends to focus its business on commercial lending and
servicing commercial mortgage loans, while New South intends to focus its
business on residential mortgage lending, installment (automobile) lending and
servicing residential mortgage loans and installment (automobile) loans. In
addition, the Company actively funds and purchases certain commercial real
estate loans originated by Collateral.
Although Collateral's present emphasis rests on commercial lending, prior to
1997, Collateral also conducted residential mortgage lending operations
consisting primarily of direct originations of residential mortgage loans
which were generally underwritten and processed in accordance with the
guidelines issued by FNMA, FHLMC, GNMA, FHA or VA (i.e., conforming
residential mortgage loans) through 39 retail mortgage origination offices
located in 13 southern states. Effective July 1, 1997, Collateral transferred
all 39 of its loan origination offices to New South (the "Transfer"). Prior to
the Transfer, New South's residential mortgage lending operations consisted
primarily of indirect originations of residential mortgage loans which were
generally not underwritten and processed in accordance with government or
federal agency guidelines (i.e., nonconforming residential mortgage loans)
through correspondents and mortgage brokers, although it originated some
nonconforming residential mortgage loans on a direct basis through seven
origination offices.
28
<PAGE>
As a result of the Transfer, New South now originates conforming and
nonconforming residential mortgage loans on a direct and indirect basis
through 49 origination offices and a network of loan correspondents and
mortgage brokers. The 39 offices previously owned by Collateral continue to
originate primarily conforming residential mortgage loans, while the seven
offices historically operated by New South continue to originate primarily
nonconforming residential mortgage loans. Management believes the Transfer
will enable New South to increase residential mortgage loan production
efficiencies while increasing its loan servicing portfolio. New South also
originates conforming and nonconforming residential mortgage loans on an
indirect basis through correspondents and mortgage brokers.
New South currently performs all servicing associated with nonconforming
residential mortgage loans and installment (automobile) loans that it
originates. However, pursuant to a subservicing agreement between Collateral
and New South (the "Subservicing Agreement"), Collateral performs all
servicing, on behalf of New South, in connection with conforming residential
mortgage loans originated by New South. The Company anticipates terminating
this Subservicing Agreement at the point when the balance of these loans which
New South owns or services exceeds the balance of these loans which Collateral
services for others. At this time, which remains to be determined, all current
Collateral employees performing these functions will become employees of New
South, causing all servicing functions to be performed centrally by New South.
See "Certain Relationships and Related Transactions."
If, in the future, the number of holders of the Company's common stock is
reduced to 75 or less, and it is determined that the Company and New South
would otherwise qualify for S corporation status, the remaining holders of the
Company's common stock may elect to have the Company treated as an S
corporation under the Code. If this election were made, the Company could then
elect to treat New South as a qualified subchapter S subsidiary (a "QSSS").
Under the Code, a QSSS is not treated as a separate corporation from its
parent, but rather all of the assets, liabilities, and items of income,
deduction and credit of the QSSS are treated as such items of the parent. In
other words, the Company and New South would be treated as one S corporation
for federal income tax purposes.
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement, dated as of April 2, 1998, executed by the Company,
as depositor, and Bankers Trust (Delaware), as Delaware Trustee, and (ii) a
certificate of trust filed with the Delaware Secretary of State on April 2,
1998. The initial trust agreement will be amended and restated in its entirety
by the Trust Agreement substantially in the form filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. This Trust
Agreement will, among other things, appoint the Property Trustee which shall
hold legal title to the Subordinated Debentures in trust for the benefit of
the holders of the Trust Securities and the several Administrative Trustees
who shall have the power, duty and authority to cause the Trust to issue and
sell the Trust Securities and to execute any documents or certificates
necessary to effectuate such issuance and sale. The Delaware Trustee shall be
a Trustee for the sole and limited purpose of fulfilling the statutory
requirements of Section 3807 of the Delaware Business Trust Act and shall have
no authority to take any action except as required under the Delaware Business
Trust Act. The Delaware Trustee, Property Trustee and Administrative Trustees
are collectively referred to herein as the "Issuer Trustees."
The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act. The Trust exists for the exclusive purposes of (i) issuing the
Preferred Securities offered hereby representing preferred undivided
beneficial interests in the assets of the Trust, (ii) issuing the Common
Securities representing common undivided beneficial interests in the assets of
the Trust to the Company, (iii) investing the gross proceeds of the sale of
the Trust Securities in the Subordinated Debentures, and (iv) engaging in only
those other activities necessary, advisable, or incidental thereto. The
Subordinated Debentures will be the only assets of the Trust and payments on
the Subordinated Debentures will be the only revenue of the Trust. The
Subordinated Debentures will be issued by the Company pursuant to the
Indenture.
Upon issuance of the Preferred Securities, the purchasers thereof will own
all of the Preferred Securities. The Company will acquire all of the Common
Securities which will represent an aggregate liquidation amount equal to at
least 3% of the total capital of the Trust. The Common Securities will rank
pari passu, and payments will be made thereon pro rata, with the Preferred
Securities, except that upon the occurrence and during the
29
<PAGE>
continuance of an Event of Default under the Trust Agreement resulting from a
Debenture Event of Default, the rights of the Company as holder of the Common
Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Preferred Securities. See "Description of the Preferred
Securities--Subordination of Common Securities."
The Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The principal executive offices of the Trust are located
at 1900 Crestwood Boulevard, Birmingham, Alabama 35210. Its telephone number
at such address is (205) 951-4000. It is anticipated that the Trust will be
conditionally exempted from the reporting requirements of the Exchange Act.
ACCOUNTING TREATMENT
The Trust will be treated, for financial reporting purposes, as a subsidiary
of the Company and, accordingly, the accounts of the Trust will be included in
the consolidated financial statements of the Company. The Preferred Securities
will be presented as a separate line item in the consolidated balance sheet of
the Company under the caption "Guaranteed Preferred Beneficial Interests in
the Company's Subordinated Debentures," and appropriate disclosures about the
Preferred Securities, the Guarantee and the Subordinated Debentures will be
included in the notes to the Company's consolidated financial statements.
All future reports of the Company filed under the Exchange Act will (i)
present the Trust Securities issued by the Trust on the balance sheet as a
separate line item entitled "Guaranteed Preferred Beneficial Interests in the
Company's Subordinated Debentures," (ii) include in a note to the financial
statements disclosure that the sole assets of the Trust are the Subordinated
Debentures (including the outstanding principal amount, interest rate and
maturity date of such Subordinated Debentures), and (iii) include in a note to
the financial statements disclosure that the Company owns all of the Common
Securities of the Trust, the sole assets of the Trust are the Subordinated
Debentures, and the back-up obligations, in the aggregate constitute a full
and unconditional guarantee by the Company of the obligations of the Trust
under the Preferred Securities.
30
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities offered hereby will
be used by the Trust to purchase the Subordinated Debentures from the Company.
The net proceeds to the Company from the sale of Subordinated Debentures
offered hereby are estimated to be approximately $28.6 million ($32.9 million
if the Underwriter's over-allotment option is exercised in full), after
deducting the underwriting commission and estimated offering expenses. The
Company intends to use the net proceeds to repay approximately $5.0 million
drawn down under a revolving line of credit and $5.0 million payable on a term
note with a commercial lender each of which bears interest at a rate equal to
LIBOR plus 2%. Approximately $8-10 million of the proceeds will be used to
fund an anticipated common stock repurchase program with a view towards making
an election to be treated as an""S-corporation" under the Code. The balance
will be used for general corporate purposes, including, but not limited to,
increasing the size of the loan and servicing portfolios and reducing other
long-term debt and short-term borrowings of the Company and/or New South. The
precise amount and timing of the application of such proceeds will depend on
the funding requirements of and availability of other funds to the Company.
Pending such application by the Company, such net proceeds may be temporarily
invested in short-term interest-bearing securities. See "The Company,"
"Business--Funding Activities" and "Business--Potential S-election."
The OTS imposes certain capital adequacy requirements on the Company's
thrift subsidiary, New South. To the extent the Company contributes a portion
of the net proceeds received from the sale of the Preferred Securities to New
South, such proceeds would qualify as Tier 1 capital of New South under the
current capital adequacy guidelines of the OTS. Under current policy, the OTS
does not impose any capital adequacy requirements on the Company itself.
Moreover, the Company is not regulated by the Federal Reserve and is not
subject to the Federal Reserve's risk based capital adequacy guidelines.
Management is aware of various statutory and regulatory initiatives which
could reform the regulation of financial services institutions, some of which
could subject the Company to capital adequacy guidelines. No legislation on
this issue is currently pending, and, therefore, management does not
anticipate that such capital adequacy guidelines will be imposed on the
Company in the near future. If, however, the Company were to become subject to
the capital adequacy guidelines of either the Federal Reserve or OTS, it is
expected that most of the proceeds of the sale of the Preferred Securities
would qualify as Tier 1 capital of the Company in the absence of a Capital
Event. Federal Reserve guidelines for calculation of Tier 1 capital limit the
amount of cumulative preferred stock (which would include the Preferred
Securities) which can be included in Tier 1 capital to 25% of total Tier 1
capital.
31
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth for the respective periods the ratios of the
Company's consolidated earnings to fixed charges.
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK NEW SOUTH BANCSHARES, INC.
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, (1) DECEMBER 31, (1)
-------------------- ----------------------------
1993 1994 1995 1996 1997
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges:
Excluding interest on
deposits............... 4.69x 2.23x 1.65x 1.50x 1.87x
Including interest on
deposits............... 1.31 1.23 1.15 1.12 1.18
</TABLE>
- --------
(1) New South changed its fiscal year end from September 30 to December 31 in
November of 1994 (upon the formation of the Company). Amounts shown for
1993 and 1994 relate to New South only. Amounts for 1995 and thereafter
relate to the Company on a consolidated basis. Data for the Company as of
December 31, 1994 did not differ significantly from the corresponding data
for New South as of September 30, 1994 presented above.
The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes and fixed charges by fixed charges. Fixed
charges represent all interest expense (ratios are presented both excluding
and including interest on deposits). Interest expense (other than on deposits)
includes interest on federal funds purchased and securities sold under
agreements to repurchase, Federal Home Loan Bank advances, and other borrowed
funds.
32
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997 and as adjusted to give effect to the
consummation of the offering of the Preferred Securities offered hereby and
the application of the net proceeds thereof as if the sale of the Preferred
Securities had been consummated on December 31, 1997. The following should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Total long-term debt payable(1)...................... $23,420 $ 18,420
Guaranteed preferred beneficial interests in the
Company's Subordinated Debentures(2)................ 0 30,000
Stockholders' equity:
Common stock $1.00 par value; 1,500,000 authorized
shares; 1,376,956 issued and outstanding.......... 1,377 1,377
Surplus............................................ 38,896 38,896
Unrealized gains on securities available for sale.. 869 869
Retained earnings.................................. 11,172 11,172
----------- ------------
Total stockholders' equity....................... 52,314 52,314
----------- ------------
Total capitalization........................... $ 75,734 $ 100,734
=========== ============
</TABLE>
- --------
(1) Total long-term debt payable consists of $18.42 million in FHLB advances
with maturities of greater than one year and $5.0 million in a term note
payable to a commercial bank. On the balance sheet, long-term FHLB
advances are included in "Federal Home Loan Bank Advances." The term note
payable is included in the "Note Payable" category. The decrease in total
long-term debt payable in the "As Adjusted" column results from the
assumed pay-off of the $5.0 million term note. See "Use of Proceeds."
(2) See "Accounting Treatment."
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following information summarizes certain selected consolidated financial
information of New South as of and for its fiscal years ended September 30,
1993 and 1994 and of the Company (which was established in 1994 with a fiscal
year ended December 31) as of and for its fiscal years ended December 31,
1995, 1996 and 1997. The data for the Company, on a consolidated basis, as of
and for its fiscal year ended December 31, 1994, did not differ significantly
from the corresponding data for New South as of and for its fiscal year ended
September 30, 1994. The summary below should be read in conjunction with
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
included herein.
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK AS OF
AND FOR THE YEAR ENDED NEW SOUTH BANCSHARES, INC. AS OF AND
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
DATA:
Interest income......... $ 46,201 $ 44,934 $ 55,064 $ 65,535 $ 75,491
Interest expense........ 28,582 28,234 37,523 43,158 47,723
----------- ----------- ------------ ------------ ------------
Net interest income..... 17,619 16,700 17,541 22,377 27,768
Provision for possible
loan losses............ 1,025 1,485 572 2,492 2,954
----------- ----------- ------------ ------------ ------------
Net interest income
after provision for
possible loan losses... 16,594 15,215 16,969 19,885 24,814
Noninterest income:
Loan administration
income................ 3,147 5,955 4,547 4,870 4,915
Gain on sale of loans.. (2,753) (505) 629 457 5,079
Other income........... 5,788 1,968 1,490 2,998 5,320
----------- ----------- ------------ ------------ ------------
Total noninterest
income............... 6,182 7,418 6,666 8,325 15,314
Noninterest expense:
Salaries and benefits.. 4,420 5,242 5,371 7,424 16,024
Other expense.......... 9,500 10,813 12,633 15,742 15,398
----------- ----------- ------------ ------------ ------------
Total noninterest
expense.............. 13,920 16,055 18,004 23,166 31,422
Income before income
taxes.................. 8,856 6,578 5,631 5,044 8,706
Income taxes expense.... 3,052 2,785 2,265 2,482 3,990
----------- ----------- ------------ ------------ ------------
Net income.............. $ 5,804 $ 3,793 $ 3,366 $ 2,562 $ 4,716
=========== =========== ============ ============ ============
PER SHARE DATA:
Earnings per share
(basic and diluted).... $ 5.80 $ 3.79 $ 2.42 $ 1.84 $ 3.42
Weighted average shares
outstanding (in
thousands)............. 1,000 1,000 1,393 1,391 1,377
SELECTED BALANCE SHEET
DATA:
Total assets............ $ 616,949 $ 575,767 $ 746,518 $ 822,980 $ 992,065
Investment securities
available for sale..... 53,932 67,323 96,678 94,451 197,135
Loans, net of unearned
income................. 496,569 407,555 561,611 681,730 727,854
Allowance for possible
loan losses............ 4,056 5,089 4,562 5,904 7,333
Deposits................ 514,320 485,342 539,011 660,668 695,365
Federal Home Loan Bank
Advances............... 45,000 46,000 104,000 95,388 179,420
Total liabilities....... 579,599 537,504 700,738 775,039 939,751
Total stockholders'
equity................. 37,350 38,263 45,780 47,941 52,314
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK AS OF
AND FOR THE YEAR ENDED NEW SOUTH BANCSHARES, INC. AS OF AND
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average as-
sets................... 0.99% 0.59% 0.47% 0.31% 0.51%
Return on average equi-
ty..................... 17.01 9.51 7.75 5.22 9.17
Net interest spread..... 2.34 1.99 2.28 2.53 2.14
Net interest margin..... 3.08 2.64 2.65 2.94 3.21
Ratio of average
interest-earning assets
to average interest-
bearing liabilities.... 114.72 114.10 106.56 107.19 108.46
Ratio of noninterest
expense to average
assets................. 2.37 2.48 2.52 2.84 3.42
Efficiency ratio........ 78.72 75.95 77.70 87.35 77.07
Average equity to
average assets......... 5.81 6.17 6.08 6.02 5.61
ASSET QUALITY DATA:
Net charge-offs to
average loans, net of
unearned income........ (0.02) 0.09 0.22 0.18 0.21
Nonperforming assets to
total assets........... 1.11 1.36 0.78 1.07 0.94
Nonperforming loans to
total loans, net of
unearned income........ 0.98 1.34 0.69 1.21 1.12
Allowance for possible
loan losses to total
loans, net of unearned
income................. 0.82 1.25 0.81 0.87 1.01
Allowance for possible
loan losses to total
nonperforming assets... 59.03 65.23 78.43 60.00 78.97
CAPITAL RATIOS(1):
Tangible capital (tier 1
to total assets)....... 6.05 6.65 7.24 6.90 6.17
Tier 1 capital (to risk
adjusted assets)....... 9.96 10.32 11.12 10.30 9.51
Total risk-based capital
(to risk adjusted
assets)................ 10.72 11.04 11.78 11.14 10.48
</TABLE>
- --------
(1) Capital ratio data for all periods presented are for New South only.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BASIS OF PRESENTATION
The following discussion should be read in conjunction with the preceding
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto and the other financial data included
elsewhere in this Prospectus. The financial information provided below has
been rounded in order to simplify its presentation. However, the ratios and
percentages provided below are calculated using the detailed financial
information contained in the Consolidated Financial Statements, the Notes
thereto and the other financial data included elsewhere in this Prospectus.
All tables, graphs, and financial statements included in this report should be
considered an integral part of this analysis.
New South Federal Savings Bank ("New South") is the primary subsidiary of
New South Bancshares, Inc. (the "Company"). The Company is a unitary thrift
holding company formed in November of 1994. Prior to the formation of the
Company and its subsequent purchase of New South, New South's fiscal year end
was September 30. For the purposes of the five year comparisons presented
herein, New South's financial information has been included for the twelve
month periods ended September 30, 1993 and 1994. The Company's fiscal year end
is December 31. Information for the Company is presented for the calendar
years ended December 31, 1995, 1996 and 1997. In all cases, significant
summary information for the Company for the three month period ended December
31, 1994 is presented as a footnote, or a statement is made that there is no
significant difference between such amounts or ratios and the corresponding
amounts or ratios in the table.
GENERAL
The Company's operations principally involve residential mortgage lending,
installment (automobile) lending residential construction and land lending,
and deposit gathering activities. The Company's residential mortgage lending
efforts involve the origination and purchase of residential mortgage loans
through its loan origination offices and wholesale sources, the sale of such
loans (usually on a pooled and securitized basis) in the secondary market, and
the servicing of residential mortgage loans for investors as well as the
Company's own loan portfolio. The installment (automobile) lending program
involves indirect lending through 600 automobile dealers in six southern
states. The Company's residential construction and land lending efforts
involve making loans to builders for the construction of single family
properties and, on a more limited basis, loans for the acquisition and
development of improved residential lots. The Company conducts deposit
gathering activities in a traditional fashion through its two full service
branches located in Birmingham, Alabama, and through a broad range of banking
services. See "Business."
The Company's net income is comprised principally of New South's net
interest income. Net interest income is the difference between interest earned
on interest-earning assets and interest paid on interest-bearing liabilities
used to support such assets. Variations in the volume and mix of assets and
liabilities and their relative sensitivity to interest rate movements
determine changes in net interest income. Net income is also affected by the
level of the provision for possible loan losses, noninterest income and
noninterest expense. Noninterest income consists primarily of loan
administration income and origination fees related to mortgage banking
operations, net gain on the sales of securities available for sale, net gain
on the sale of loans, and other income. Noninterest expense consists primarily
of salaries and benefits, net occupancy and equipment expense, loan servicing
fees paid to affiliates, losses on loans serviced, and other expenses.
Loans are the single largest component of the Company's earning assets and
generally have a more favorable return than other categories of earning
assets. The Company's loans, net of unearned income, increased 6.8% from
$681.7 million at December 31, 1996 to $727.9 million at December 31, 1997.
This increase resulted principally from increased originations of conforming
residential mortgage loans as a result of the transfer of 39 residential
mortgage loan production offices from Collateral in the Transfer, effective
July 1, 1997.
36
<PAGE>
Deposits are New South's largest source of funds used to support earning
assets. New South's deposits increased 5.3% from $660.7 million at December
31, 1996 to $695.4 million at December 31, 1997. The growth is primarily due
to increased purchases of brokered deposits during 1997. This increase funded
increased loan originations as well as increased overhead resulting from the
Transfer. The Company has been able to attract deposits by offering nationally
competitive rates.
The Company has also increased its use of FHLB advances as an alternative
low cost funding source. These advances increased from $95.4 million at
December 31, 1996 to $179.4 million at December 31, 1997, and were secured by
a pledge of the Company's residential mortgage portfolio.
In July of 1997, Collateral transferred to New South 39 residential mortgage
loan production offices, associated employees, and related assets and
liabilities. Management believes the Transfer will enable New South to
increase residential mortgage loan production efficiencies while increasing
its loan servicing portfolio. In connection with the Transfer, New South will
make semiannual payments to Collateral through June 30, 2000 based on a
percentage of the aggregate principal balance of all residential mortgage
loans originated through the 39 loan production offices. The percentages for
the twelve month periods ending June 30, 1998, 1999 and 2000 are 0.35%, 0.20%
and 0.10%, respectively.
New South is required by the OTS to meet certain capital requirements. Among
these are minimum leverage, tangible, and risk-based capital ratios.
Historically, New South has consistently exceeded these minimum guidelines. At
December 31, 1997, New South's capital ratios place it in the "well
capitalized" category.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net interest income increased $5.4 million, or 24.1%, from $22.4 million in
1996 to $27.8 million in 1997. The increase resulted from an improvement in
the net interest margin and a higher level of average earning assets. The
improvement in the net interest margin, which increased from 2.94% in 1996 to
3.21% in 1997, primarily resulted from higher rates earned on loans (resulting
in part from changes in the mix of the loan portfolio, specifically increases
in the nonconforming residential mortgage and non-prime installment
(automobile) loans) coupled with stable funding costs. The growth in average
earning assets, which increased from $762.0 million in 1996 to $866.1 million
in 1997, primarily resulted from the transfer of the 39 residential mortgage
loan production offices from Collateral effective July 1, 1997.
The provision for possible loan losses increased $462,000, or 18.5%, from
$2.5 million in 1996 to $3.0 million in 1997. The allowance for possible loan
losses as a percentage of total loans, net of unearned income increased from
0.87% at December 31, 1996 to 1.01% at December 31, 1997. Changes in the mix
of the loan portfolio, specifically increases in the nonconforming residential
mortgages and non-prime installment (automobile) loans, contributed to the
increased provision. Nonperforming assets as a percentage of loans, net of
unearned income and foreclosed properties were 1.44% and 1.27% at December 31,
1996 and 1997, respectively. The allowance for possible loan losses as a
percentage of total nonperforming assets was 60.0% and 79.0% at December 31,
1996 and 1997, respectively.
Noninterest income increased $7.0 million, or 84.0%, from $8.3 million in
1996 to $15.3 million in 1997. This increase was primarily due to increased
gain on sales of loans and origination fees. Gain on sale of loans increased
$4.6 million from 1996 to 1997, primarily due to a $1.8 million gain on
securitization of $215 million in nonconforming residential mortgage loans in
August of 1997 and $1.9 million in servicing release fees on the sale of
residential mortgage loans during 1997. Origination fees increased $3.2
million and other income increased $1.5 million due primarily to the transfer
of the 39 residential mortgage loan origination offices from Collateral
effective July 1, 1997.
37
<PAGE>
Noninterest expense increased $8.3 million, or 35.6%, from $23.2 million in
1996 to $31.4 million in 1997. During the third quarter of 1996, the Company
incurred a one-time assessment due to federal government legislation to
recapitalize the SAIF. Excluding the Company's one-time SAIF assessment of
$3.2 million in 1996, total noninterest expense in 1997 increased $11.5
million, or 57.4%. Significant contributors to this increase were increases in
salaries and benefits of $8.6 million and increases in net occupancy and
equipment expense of $1.2 million. These increases are attributable primarily
to the transfer of the loan production offices and personnel from Collateral
in the Transfer. As a part of the Transfer, several key employees moved from
Collateral's payroll to New South's. Also contributing to the increase in
noninterest expense was an increase in other noninterest expense of $3.8
million, including $891,000 paid to Collateral pursuant to the Transfer and
other general and administrative expense increases associated with the
Transfer.
Net income increased $2.2 million, or 84.1%, from $2.6 million (or $1.84 per
share) in 1996, to $4.7 million (or $3.42 per share) in 1997. Increased net
interest income and growth in noninterest income were the primary reasons for
the growth in earnings. Excluding the after tax effect of the one-time SAIF
assessment in 1996 of $1.9 million, net income for 1997 increased $254,000.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net interest income increased $4.8 million, or 27.6%, from $17.5 million in
1995 to $22.4 million in 1996. The increase resulted from an improvement in
the net interest margin and a higher level of average earning assets. The
improvement in the net interest margin, which increased from 2.65% in 1995 to
2.94% in 1996, primarily resulted from higher rates earned on loans (resulting
in part from changes in the mix of the loan portfolio, specifically increases
in the nonconforming residential mortgage and non-prime installment
(automobile) loans) and mortgage backed securities available for sale coupled
with stable funding costs. The growth in average earning assets, which
increased from $660.7 million in 1995 to $762.0 million in 1996, primarily
resulted from internal loan growth.
The provision for possible loan losses increased $1.9 million from $572,000
in 1995 to $2.5 million in 1996. The allowance for possible loan losses as a
percentage of total loans, net of unearned income increased from 0.81% at
December 31, 1995 to 0.87% at December 31, 1996. Growth in the loan portfolio,
changes in the mix of the loan portfolio, specifically increases in the
nonconforming residential mortgages and non-prime installment (automobile)
loans, and increases in nonperforming loans each contributed to the increased
provision. Nonperforming assets as a percentage of loans, net of unearned
income and foreclosed properties were 1.03% and 1.44% at December 31, 1995 and
1996, respectively, reflecting an industry trend.
Noninterest income increased $1.7 million, or 24.9%, from $6.7 million in
1995 to $8.3 million in 1996. The primary contributor to this increase was
gain on sale of investment securities available for sale, which increased $1.2
million from 1995 to 1996.
Noninterest expense increased $5.2 million, or 28.7%, from $18.0 million in
1995 to $23.2 million in 1996. Excluding the Company's one-time SAIF
assessment of $3.2 million in 1996, total noninterest expense increased $2.0
million, or 10.9%. The primary contributor to the increase was salaries and
benefits expense, which increased $2.1 million from 1995 to 1996, due to the
addition of approximately 40 full-time employees, normal compensation
increases, and enhancements to the bonus program necessary to support the
Company's continuing growth.
The Company's net income decreased $804,000, or 23.9%, from $3.4 million (or
$2.42 per common share) in 1995 to $2.6 million (or $1.84 per common share) in
1996. Excluding the after tax effect of the one-time SAIF assessment of $1.9
million in 1996, net income increased 32.6%, from $3.4 million in 1995 to $4.5
million in 1996. Increased net interest income and average earning assets were
the primary reasons for the growth in earnings.
38
<PAGE>
NET INTEREST INCOME
General
Net interest income is determined by the yields earned on the Company's
interest-earning assets and the rates paid on its interest-bearing
liabilities, the relative amounts of interest-earning assets and interest-
bearing liabilities, and the degree of mismatch and the maturity and repricing
characteristics of its interest-earning assets and interest-bearing
liabilities. Net interest income divided by average earning assets represents
the Company's net interest margin.
Average Balances, Income, Expenses and Rates
The following table sets forth, for the periods and entities indicated,
certain information related to the Company's average balance sheet and its
average yields on assets and average costs of liabilities. Such yields are
derived by dividing income or expense by the average balance of the
corresponding assets or liabilities. Average balances have been derived from
the daily balances throughout the periods indicated.
AVERAGE BALANCES, INCOME, EXPENSES AND RATES
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1995 1996 1997
------------------------ ------------------------ ------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ -------- ------- ------ -------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned
income................ $552,698 $47,072 8.52% $654,607 $57,395 8.77% $713,935 $64,831 9.08%
Federal funds sold..... 3,067 192 6.26 3,572 216 6.05 6,512 381 5.85
Mortgage-backed
securities............ 80,013 5,545 6.93 77,506 5,603 7.23 105,536 7,436 7.05
Other investments...... 24,915 2,255 9.05 26,267 2,321 8.84 40,129 2,843 7.08
-------- ------- -------- ------- -------- -------
Total earning assets... 660,693 55,064 8.33 761,952 65,535 8.60 866,112 75,491 8.72
Securities under
repurchase
agreements............ 6,045 5,024 2,129
Allowance for possible
loan losses........... (4,754) (4,835) (6,489)
Noninterest bearing
assets................ 52,516 53,395 55,887
-------- -------- --------
Total assets........... $714,500 $815,536 $917,639
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Other interest bearing
deposits.............. $ 3,140 $ 107 3.41% $ 3,162 $ 161 5.09% $ 3,517 $ 126 3.58%
Savings deposits....... 51,254 2,295 4.48 50,142 2,275 4.54 58,663 2,595 4.42
Time deposits.......... 423,592 26,441 6.24 488,629 30,604 6.26 571,221 35,011 6.13
Other borrowings....... 43,040 2,678 6.22 44,835 2,707 6.04 51,624 3,149 6.10
Federal Home Loan Bank
advances.............. 99,005 6,002 6.06 124,093 7,411 5.97 113,512 6,842 6.03
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities........... 620,031 37,523 6.05 710,861 43,158 6.07 798,537 47,723 5.98
---- ---- ----
Noninterest bearing
deposits.............. 45,006 48,932 57,037
Accrued expenses and
other liabilities..... 6,009 6,663 10,623
Total stockholders'
equity................ 43,454 49,080 51,442
-------- -------- --------
Total liabilities and
stockholders' equity.. $714,500 $815,536 $917,639
======== ======== ========
Net interest spread.... 2.28% 2.53% 2.74%
==== ==== ====
Net interest income.... $17,541 $22,377 $27,768
======= ======= =======
Net interest margin.... 2.65% 2.94% 3.21%
==== ==== ====
</TABLE>
39
<PAGE>
Analysis of Changes in Net Interest Income
The following table sets forth the effect which the varying level of
interest-earning assets and interest-bearing liabilities and the applicable
rates have had on changes in net interest income from 1995 to 1996 and 1996 to
1997.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 COMPARED TO 1996 1996 COMPARED TO 1997
CHANGE DUE TO CHANGE DUE TO
--------------------------- --------------------------
AVERAGE AVERAGE
YIELD/RATE BALANCE NET YIELD/RATE BALANCE NET
---------- ------- ------- ---------- ------- ------
( IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS ASSETS
Total loans, net of
unearned income(1)..... $1,604 $8,719 $10,323 $2,101 $5,335 $7,436
Federal funds sold...... (8) 32 24 (7) 172 165
Mortgage-backed
securities............. 266 (208) 58 (138) 1,971 1,833
Other investments....... (59) 125 66 (314) 836 522
------ ------ ------- ------ ------ ------
Total interest in-
come................. 1,803 8,668 10,471 1,642 8,314 9,956
INTEREST BEARING
LIABILITIES
Other interest bearing
deposits............... 53 1 54 (56) 21 (35)
Savings deposits........ 30 (50) (20) (43) 363 320
Time deposits........... 103 4,060 4,163 (639) 5,046 4,407
Other borrowings........ (93) 122 29 28 414 442
Federal Home Loan Bank
advances............... (114) 1,523 1,409 69 (638) (569)
------ ------ ------- ------ ------ ------
Total interest
expense.............. (21) 5,656 5,635 (641) 5,206 4,565
------ ------ ------- ------ ------ ------
Net interest income..... $1,824 $3,012 $ 4,836 $2,283 $3,108 $5,391
====== ====== ======= ====== ====== ======
</TABLE>
- --------
(1) Loans, net of unearned income includes nonaccrual loans for all years
presented.
40
<PAGE>
Interest Sensitivity
Through policies established by an asset/liability management committee
formed by New South's Board of Directors, the Company monitors and manages the
repricing and maturity of its assets and liabilities in order to diminish the
potential adverse impact that changes in interest rates could have on its net
interest income. The asset/liability management committee uses a combination of
traditional gap analysis, which compares the repricings, maturities, and
prepayments, as applicable, of New South's interest-earning assets (RSA),
interest-bearing liabilities and off balance sheet instruments (RSL), and
interest rate sensitivity analysis to manage interest rate risk. A summary of
the December 31, 1997 gap analysis for New South Federal Savings Bank is
provided below:
SUMMARY GAP REPORT
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------------------------------------------------
IMMEDIATE OVER THREE
TO THREE MONTHS OVER ONE YEAR OVER FIVE YEARS OVER TEN
MONTHS TO ONE YEAR THROUGH FIVE YEARS THROUGH TEN YEARS YEARS TOTAL
--------- ----------- ------------------ ----------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from
banks.................. $ 16,943 $ 0 $ 0 $ 0 $ 0 $ 16,943
Time deposits in other
banks.................. 200 0 0 0 0 200
Investment securities
available for sale..... 26,984 68,999 66,039 24,112 11,001 197,135
Mortgage loans held for
sale................... 35,570 0 0 0 0 35,570
Loans net of unearned
income................. 163,789 146,030 253,066 132,610 32,359 727,854
Allowance for possible
loan losses............ 0 0 0 0 (7,333) (7,333)
--------- --------- -------- -------- --------- --------
Net Loans............... 163,789 146,030 253,066 132,610 25,026 720,521
Premises and equipment,
net.................... 0 0 0 0 2,968 2,968
Other assets............ 68 192 748 397 17,197 18,602
--------- --------- -------- -------- --------- --------
Total Assets............ $243,554 $215,221 $319,853 $157,119 $56,192 $991,939
========= ========= ======== ======== ========= ========
Noninterest bearing
deposits............... $ 0 $ 0 $ 0 $ 0 $ 74,935 $ 74,935
Interest bearing
deposits............... 256,843 174,645 115,830 36,824 36,394 620,536
--------- --------- -------- -------- --------- --------
Total deposits.......... 256,843 174,645 115,830 36,824 111,329 695,471
--------- --------- -------- -------- --------- --------
Federal funds purchased
and securities sold
under agreement to
repurchase............. 40,800 0 0 0 0 40,800
Federal Home Loan Bank
advances............... 56,000 105,000 3,388 15,000 32 179,420
Other liabilities....... 0 0 0 0 14,157 14,157
--------- --------- -------- -------- --------- --------
Total Liabilities....... 353,643 279,645 119,218 51,824 125,518 929,848
--------- --------- -------- -------- --------- --------
Shareholder's equity.... 0 0 0 0 62,091 62,091
--------- --------- -------- -------- --------- --------
Total Liabilities and
shareholder's equity... $353,643 $279,645 $119,218 $ 51,824 $187,609 $991,939
========= ========= ======== ======== ========= ========
Periodic Gap............ $(110,089) $ (64,424) $200,635 $105,295 $(131,417)
Cumulative Gap.......... $(110,089) $(174,513) $ 26,122 $131,417 $ 0
Periodic RSA/RSL........ 0.69 0.77 2.68 3.03 0.30
Cumulative RSA/RSL...... 0.69 0.72 1.03 1.16 1.00
Rate Caps Impact........ $ 305,000 $ 0 $ 0 $ 0 $ 0
Swaps Impact............ $ 45,000 $ (50,000) $(40,000) $ 45,000 $ 0
Hedged Periodic Gap..... $ 239,911 $(114,424) $160,635 $150,295 $(131,417)
Hedged Cumulative Gap... $ 239,911 $ 125,487 $286,122 $436,417 $ 305,000
Hedged Periodic
RSA/RSL................ 1.68 0.59 2.35 3.90 0.30
Hedged Cumulative
RSA/RSL................ 1.68 1.20 1.38 1.54 1.31
</TABLE>
41
<PAGE>
The Company's interest rate sensitivity analysis evaluates interest rate
risk based on the impact on the net interest income and market value of
portfolio equity ("MVPE") of various interest rate scenarios. The MVPE
analysis is required quarterly by the OTS by virtue of the Company's asset
size. The Company also uses an earnings simulation model to determine the
effect of several interest rate scenarios on the Company's net interest
income. Throughout 1996 and 1997, New South's asset/liability management
committee met semi-monthly to monitor and evaluate the interest rate risk
position of New South, and to formulate and implement strategies for
increasing and protecting the interest rate margin and net income.
Brokered deposits are considered to be highly interest-sensitive and are
reflected in all interest rate risk analyses reviewed by the asset/liability
committee.
In general, the Company is a liability sensitive institution, meaning that
the Company is more negatively impacted by increases in interest rates and
benefits from decreases in interest rates. The Company's interest rate risk
management model indicates that projected net interest income would decrease
by 9.7% assuming an instantaneous increase in interest rates of 200 basis
points, or decrease by 1.9%, assuming an instantaneous decrease of 200 basis
points. All measurements of interest rate risk sensitivity fall within
guidelines established by New South's Board of Directors.
The Company uses interest rate contracts, primarily interest rate swaps and
caps, to reduce or modify interest rate risk. The impact of these instruments
is incorporated into the interest rate risk management model. The Company
manages the credit risk of its interest rate swaps, caps and forward contracts
through (i) a review of creditworthiness of the counterparties to such
contracts, (ii) Board established credit limits for each counterparty, and
(iii) monitoring by the asset/liability management committee.
At December 31, 1997, New South had interest rate swap contracts with
notional amounts totaling $125 million. Of these, $80 million were variable-
for-fixed swap contracts designated as hedges against New South's loan
portfolio. These contracts effectively convert $80 million in variable rate
funding to a fixed rate, thus reducing the impact of an upward movement in
interest rates on the net interest margin.
The Company entered into an additional $45 million in fixed-for-variable
swaps concurrent with the issuance of $45 million in brokered certificates of
deposit. These swaps reduce the current cost of these liabilities, and convert
them to an adjustable rate. These swaps are callable at the option of the
counterparty. If called, the Company holds the right to call the certificates
of deposits.
In addition, New South had $305 million in interest rate cap contracts
outstanding at December 31, 1997. As discussed above, the Company is exposed
to rising liability costs due to the nature of its liability portfolio. The
interest rate cap contracts serve as hedges against increases in costs of
liabilities. As of December 31, 1997, only one of these contracts had reached
its strike rate, and an immaterial amount of income was received per the
contract.
42
<PAGE>
The following table sets forth the Company's interest rate contract activity
for the years 1995, 1996 and 1997.
INTEREST RATE SWAPS AND CAPS
<TABLE>
<CAPTION>
INTEREST RATE SWAPS
---------------------
INTEREST
RECEIVED PAY RATE
FIXED FIXED CAPS TOTAL
--------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1995........ $ -- $ 55,000 $ -- $ 55,000
Additions......................... -- 80,000 40,000 120,000
Maturities........................ -- (5,000) (5,000)
--------- ---------- -------- --------
Balance at December 31, 1995...... -- 130,000 40,000 170,000
Additions......................... -- -- 175,000 175,000
Maturities........................ -- (10,000) -- (10,000)
--------- ---------- -------- --------
Balance at December 31, 1996...... -- 120,000 215,000 335,000
Additions......................... 45,000 -- 90,000 135,000
Maturities........................ -- (40,000) -- (40,000)
--------- ---------- -------- --------
Balance at December 31, 1997...... $ 45,000 $ 80,000 $305,000 $430,000
========= ========== ======== ========
</TABLE>
The following table sets forth the relative maturities and interest rates
related to interest rate contracts outstanding at December 31, 1997.
MATURITIES ON CAPS AND INTEREST RATES EXCHANGED ON SWAPS
<TABLE>
<CAPTION>
YEAR OF MATURITY
--------------------------------------------
2002 &
1998 1999 2000 2001 AFTER TOTAL
------- -------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Notional amount of pay
fixed swaps............ $40,000 $ 15,000 $25,000 $ -- $ -- $ 80,000
Receive rate
variable............. 5.78% 5.84% 5.88% -- % -- % 5.82%
Pay rate fixed........ 6.11 5.70 5.99 -- -- 6.00
Notional amount of
receive fixed swap..... $ -- $ -- $ -- $ -- $45,000 $ 45,000
Receive rate fixed.... -- % -- % -- % -- % 6.97% 6.97%
Pay rate variable..... -- -- -- -- 5.77 5.77
Caps
Notional amount....... $40,000 $105,000 $50,000 $70,000 $40,000 $305,000
</TABLE>
The Company also enters into forward commitments to sell loans based on the
interest rates of loans currently in the Company's pipeline. This reduces the
impact of future changes in market rates on the value of those loans upon
delivery. All forward commitments are considered in the lower of cost or
market valuation for residential mortgage loans held for sale.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
General
Management establishes allowances for the purpose of absorbing possible
losses that may exist within the loan portfolio and that may be expected to
occur based on management's review of the economy, historical losses,
underwriting standards, changes in the composition of the loan portfolio, and
other factors. The allowance for possible loan losses is maintained at a level
considered adequate to provide for potential losses as determined by
management's continuing review and evaluation of the loans and its judgment as
to the impact of economic conditions on the portfolio. Charges are made to the
allowance for loans that are charged off during the year while recoveries of
these amounts are credited to the account. The Company follows a policy of
charging off loans determined to be uncollectible by management.
43
<PAGE>
Additions to the allowance for possible loan losses, which are expensed as
the provision for possible loan losses on the Company's income statement, are
made periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. The amount
of the provision is a function of the level of loans outstanding, the mix of
the outstanding loan portfolio, the level of nonperforming loans, and current
and anticipated economic conditions.
The Company's allowance for possible loan losses is based upon management's
judgment and assumptions regarding risk elements in the portfolio, future
economic conditions and other factors affecting borrowers. The evaluation of
the allowance for possible loan losses includes management's identification
and analysis of loss potential in various portfolio segments using a credit
grading process and specific reviews and evaluations of significant problem
credits. In addition, management monitors the overall portfolio quality
through observable trends in delinquency, charge-offs, and general and
economic conditions in the service area. The adequacy of the allowance for
possible loan losses and the effectiveness of the Company's monitoring and
analysis system are also reviewed periodically by the banking regulators and
the Company's independent auditors.
Based on present information and an ongoing evaluation, management considers
the allowance for possible loan losses to be adequate to meet presently known
and inherent risks in the loan portfolio. Management's judgment as to the
adequacy of the allowance is based upon a number of assumptions about future
events which it believes to be reasonable but which may or may not be valid.
Thus, there can be no assurance that charge-offs in future periods will not
exceed the allowance for possible loan losses or that additional increases in
the allowance for possible loan losses will not be required.
The following table sets forth certain information with respect to the
Company's allowance for possible loan losses and the composition of charge-
offs and recoveries for each of the last five reporting periods.
ALLOWANCE FOR POSSIBLE LOAN LOSSES(1)
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK AS OF NEW SOUTH BANCSHARES, INC.
AND FOR THE YEAR AS OF AND FOR THE YEAR
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------- ----------------------------
1993 1994 1995 1996 1997
--------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans net of unearned
income, outstanding at end
of period................. $ 496,569 $ 407,555 $561,611 $681,730 $727,854
========= ========= ======== ======== ========
Average loans net of
unearned income........... $ 465,911 $ 505,106 $552,698 $654,607 $713,935
========= ========= ======== ======== ========
Balance of allowance for
possible loan losses at
beginning of period....... $ 2,952 $ 4,056 $ 5,189 $ 4,562 $ 5,904
LOANS CHARGED OFF:
Residential mortgage...... (143) (74) (175) (131) (41)
Installment............... (463) (444) (448) (1,479) (2,159)
Commercial real estate.... 0 (186) (813) 0 0
--------- --------- -------- -------- --------
Total charge-offs....... (606) (704) (1,436) (1,610) (2,200)
--------- --------- -------- -------- --------
RECOVERIES OF LOANS
PREVIOUSLY CHARGED OFF:
Residential mortgage...... 38 21 62 8 15
Installment............... 186 194 173 400 660
Commercial real estate.... 461 37 2 52 0
--------- --------- -------- -------- --------
Total recoveries........ 685 252 237 460 675
--------- --------- -------- -------- --------
Net recoveries/(charge-
offs)..................... 79 (452) (1,199) (1,150) (1,525)
Addition to allowance
charged to expense........ 1,025 1,485 572 2,492 2,954
--------- --------- -------- -------- --------
Balance of allowance for
possible loan losses at
end of period............. $ 4,056 $ 5,089 $ 4,562 $ 5,904 $ 7,333
========= ========= ======== ======== ========
Allowance for possible loan
losses to period end loans
net of unearned income.... 0.82% 1.25% 0.81% 0.87% 1.01%
Net charge-offs to average
loans net of unearned
income.................... (0.02) 0.09 0.22 0.18 0.21
</TABLE>
- --------
(1) New South changed its fiscal year end from September 30 to December 31 in
November of 1994 (upon the formation of the Company). Amounts shown for
1993 and 1994 relate to New South only. Amounts for
44
<PAGE>
1995 and thereafter relate to the Company on a consolidated basis. Amounts
for the Company as of December 31, 1994 did not differ significantly from
the corresponding amounts for New South as of September 30, 1994 presented
above. For the three month period ended December 31, 1994, total charge
offs were $45,000. Total recoveries were $55,000, and additions to the
allowance charged to expense were $90,000. There were no charge offs or
recoveries in the residential construction and land or commercial
portfolios for any of the periods above.
The following table sets forth the components of the allowance for possible
loan losses related to the primary segment of the Company's loan portfolio.
All loan amounts are net of unearned income.
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES(1)
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL SAVINGS BANK AS OF
SEPTEMBER 30, NEW SOUTH BANCSHARES, INC. AS OF DECEMBER 31,
1993 1994 1995 1996 1997
------------------- ------------------- ------------------- ------------------- -------------------
% OF % OF % OF % OF % OF
LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO
ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL
ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS
---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
mortgage......... $ 616 65.96% $ 500 56.05% $ 875 62.95% $1,385 61.08% $2,373 52.67%
Installment
(automobile)..... 154 4.73 348 2.81 535 6.32 1,310 10.38 1,651 13.29
Residential
construction and
land............. 0 1.50 0 3.34 0 5.51 499 6.96 499 12.08
Commercial
real estate...... 3,286 27.71 4,241 37.69 3,152 25.14 2,710 21.52 2,810 21.76
Commercial........ 0 0.10 0 0.11 0 0.08 0 0.06 0 0.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total............. $4,056 100.00% $5,089 100.00% $4,562 100.00% $5,904 100.00% $7,333 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) New South changed its fiscal year end from September 30 to December 31 in
November of 1994 (upon the formation of the Company). Amounts shown for
1993 and 1994 relate to New South only. Amounts for 1995 and thereafter
relate to the Company on a consolidated basis. Amounts for the Company as
of December 31, 1994 did not differ significantly from the corresponding
amounts for New South as of September 30, 1994 presented above.
Nonperforming Assets
The following table sets forth the Company's nonperforming assets for the
dates indicated.
NONPERFORMING ASSETS(2)
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL NEW SOUTH BANCSHARES,
SAVINGS BANK INC.
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
------------------ -------------------------
1993 1994 1995 1996 1997
-------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans(1)............. $ 4,883 $ 5,468 $ 1,639 $ 6,168 $ 6,065
Restructured loans.............. -- -- 2,241 2,088 2,062
-------- -------- ------- ------- -------
Total nonperforming loans...... 4,883 5,468 3,880 8,256 8,127
-------- -------- ------- ------- -------
Foreclosed properties........... 1,988 2,334 1,937 1,585 1,159
Total nonperforming assets..... $ 6,871 $ 7,802 $ 5,817 $ 9,841 $ 9,286
======== ======== ======= ======= =======
Nonperforming assets
to period end loans, net of
unearned
income, and foreclosed
properties..................... 1.38% 1.91% 1.03% 1.44% 1.27%
</TABLE>
- --------
(1) Includes all loans contractually past due 90 days or more as to principal
and interest.
(2) New South changed its fiscal year end from September 30 to December 31 in
November of 1994 (upon the formation of the Company). Amounts shown for
1993 and 1994 relate to New South only. Amounts for 1995 and thereafter
relate to the Company on a consolidated basis. Amounts for the Company as
of December 31, 1994 did not differ significantly from the corresponding
amounts for New South as of September 30, 1994 presented above.
45
<PAGE>
Management closely monitors loans and other assets which are classified as
nonperforming assets. Nonperforming assets include non-accrual loans,
restructured loans, foreclosed properties and repossessions. Management
utilizes tracking and monitoring systems to identify potential problem assets
within all lending portfolios. It is the Company's policy to place on non-
accrual status any loan that is contractually 90 days or more past due with
respect to principal or interest. When a loan is placed in nonaccrual status,
all accrued but unpaid interest is reversed and deducted from interest income.
No additional interest is accrued on the loan balance until collection of both
principal and interest is reasonably certain.
The amount of interest income earned in 1997 on the $6.1 million of
nonaccruing loans outstanding at year end was approximately $340,000. If these
loans had been current in accordance with their original terms, approximately
$571,000 would have been earned on these loans in 1997. Additional interest
income of approximately $249,000 would have been earned in 1997 under the
original terms of the $2.1 million in restructured loans outstanding at
December 31, 1997. Approximately $183,000 in interest income was actually
earned in 1997 on these loans, due in part to recognition of interest foregone
in prior years.
Total nonperforming assets as a percentage of loans net of unearned income
and foreclosed properties has decreased from 1.44% at December 31, 1996 to
1.27% at December 31, 1997. The decrease is primarily due to lower levels of
foreclosed properties and stable nonperforming loans in a growing loan
portfolio.
The improvement in foreclosed properties is due to the Company's focus on
the timely disposition of foreclosed assets. During 1996, the Company
intensified efforts to identify earlier, and increase contact with, potential
delinquent customers, while enhancing collection efforts with existing
delinquent accounts. The net result is a trend of decreasing foreclosed
properties in 1996 and 1997. Foreclosed properties have decreased from $1.6
million at December 31, 1996 to $1.2 million at December 31, 1997, a decrease
of 26.9%.
The following table sets forth nonperforming loans and net charge-off
information by portfolio segment for the years presented.
NONPERFORMING LOANS AND NET CHARGE-OFFS(1)
<TABLE>
<CAPTION>
NONPERFORMING LOANS AS OF DECEMBER NET CHARGE-OFFS AS OF DECEMBER
31, 31,
----------------------------------- ----------------------------------
1996 1997 1996 1997
----------------- ----------------- ----------------- ----------------
% OF % OF % OF % OF
AVERAGE AVERAGE AVERAGE AVERAGE
LOANS PER LOANS PER LOANS PER LOANS PER
BALANCE CATEGORY BALANCE CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
------- --------- ------- --------- ------ --------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage.... $6,001 1.39% $5,514 1.29% $ 123 0.03% $ 26 0.01%
Installment
(automobile)........... 167 0.32 524 0.69 1,079 2.07 1,499 1.98
Commercial real estate.. 2,088 1.56 2,062 1.52 (52) (0.04) -- 0.00
Commercial.............. -- 0.00 27 1.29 -- 0.00 -- 0.00
------ ------ ------ ------
Total.................. $8,256 1.26 $8,127 1.14 $1,150 0.18 $1,525 0.21
====== ====== ====== ======
</TABLE>
(1) New South changed its fiscal year end from September 30 to December 31 in
November of 1994 (upon the formation of the Company). Amounts shown for
1993 and 1994 relate to New South only. Amounts for 1995 and thereafter
relate to the Company on a consolidated basis. Amounts for the Company as
of December 31, 1994 did not differ significantly from the corresponding
amounts for New South as of September 30, 1994 presented above. There were
no nonperforming loans or net charge-offs in the residential construction
and land portfolio for the periods presented above.
Total nonperforming loans remained stable from December 31, 1996 to December
31, 1997.
Total nonperforming loans increased from $3.9 million at December 31, 1995
to $8.3 million at December 31, 1996. This increase is attributable to
increases in nonperforming residential mortgage loans. Nonconforming
residential mortgage loans, which generally have a higher risk of loss than
conforming residential mortgage loans, increased from 13.7% of loans, net of
unearned income at December 31, 1995 to 29.8% of loans, net of unearned income
at December 31, 1996.
46
<PAGE>
NONINTEREST INCOME AND EXPENSE
Noninterest Income
Noninterest income consists primarily of mortgage banking activities,
including sales of loans, origination fees, and servicing fees; and gains
(losses) on securities sales.
The following table sets forth, for the periods indicated, the principal
components of noninterest income.
NONINTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan administration income....................... $ 4,547 $ 4,870 $ 4,915
Origination fees................................. 300 540 3,722
Gain/(loss) on sale of investment securities
available for sale.............................. 464 1,689 (645)
Gain on sale of loans............................ 629 457 5,079
Other income..................................... 726 769 2,243
------- ------- --------
Total noninterest income....................... $ 6,666 $ 8,325 $ 15,314
======= ======= ========
</TABLE>
During 1997, loan origination fees totaled $3.7 million, an increase of $3.2
million from 1996. This increase is attributable to the transfer of the 39
residential mortgage loan production offices from Collateral in the Transfer.
The Company sells a substantial portion of its originated loans into the
secondary market, principally by securitizing pools of loans and through sales
to private investors. Generally, New South retains all or a portion of the
servicing rights of the loans that it sells. These periodic sales have been
used to build a servicing portfolio while generating cash to fund new loans.
Gain on sales of loans totaled $5.1 million in 1997, a $4.6 million increase
from $457,000 in 1996. In August of 1997, the Company issued a securitization
of $215 million nonconforming residential mortgage loans in a FHLMC Real
Estate Mortgage Investment Conduit ("REMIC"). This transaction helped build
the servicing portfolio while generating cash to fund new loans. The sale
transaction, and related servicing assets created thereby, resulted in a gain
of $1.8 million. Additional sales of residential mortgage loans on a servicing
released basis as a result of the Transfer resulted in gain on sale of $1.9
million.
Servicing income is another significant component of noninterest income. The
following table sets forth, for the periods indicated, loans serviced for
others.
LOANS SERVICED FOR OTHERS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Government National Mortgage Association......... $317,326 $265,475 $261,581
Federal Home Loan Mortgage Corporation........... 71,932 114,612 188,463
Federal National Mortgage Association............ 78,419 94,196 88,038
Other investors.................................. 248,987 316,490 461,531
-------- -------- --------
Total loans serviced for others................ $716,664 $790,773 $999,613
======== ======== ========
</TABLE>
47
<PAGE>
Other noninterest income increased $1.5 million from 1996 to 1997. A portion
of this increase is due to underwriting fees of $392,000 earned after the
transfer of the 39 residential mortgage loan production offices transferred by
Collateral. Gain on sales of foreclosed properties increased $203,000 largely
due to increased foreclosure activity, timely dispositions, and more extensive
use of competitive bidding to maximize profits. In addition, office rental
property was sold to an affiliate for a gain of $158,000 during 1997.
Noninterest Expense
Noninterest expense consists primarily of salaries and benefits, occupancy
and equipment costs, servicing fees paid to Collateral pursuant to the
Subservicing Agreement covering all conforming residential mortgage loans for
which New South holds the mortgage servicing rights, and other noninterest
expenses.
The following table sets forth, for the periods indicated, the principal
components of noninterest expense.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and benefits............................... $ 5,371 $ 7,424 $16,024
Net occupancy and equipment expense................. 1,009 799 1,955
Loan servicing fees paid to affiliates.............. 3,584 3,468 3,642
Loss on loans serviced.............................. 1,694 1,271 1,423
Federal Deposit Insurance Corporation premium....... 1,114 4,368 418
Management fees paid to affiliates.................. 1,704 1,704 --
Other expense....................................... 3,528 4,132 7,960
------- ------- -------
Total noninterest expense......................... $18,004 $23,166 $31,422
======= ======= =======
</TABLE>
The most significant contributor to the overall increase in total
noninterest expenses during 1997 was the transfer of 39 residential mortgage
loan production offices from Collateral. As a result of the Transfer, New
South added approximately 300 employees to its payroll and assumed occupancy
costs related to the 39 loan production offices. The additional employees
included senior management and other support employees. Primarily as a result
of the Transfer, salaries and benefits expense and net occupancy and equipment
expense increased $8.6 million and $1.2 million, respectively, from 1996 to
1997.
Due to offsetting expenses owed to Collateral for services prior to the
Transfer, no management fees were due from Collateral in 1997. Had offsetting
expenses not been incurred, amounts payable from Collateral would have been
$282,272. See "Certain Relationships and Related Transactions."
Other noninterest expenses increased $3.8 million, or 92.6%, from 1996 to
1997. Fees on originated loans paid in 1997 to Collateral under the terms of
an agreement related to the Transfer totaled $891,000. Other expense increases
that are attributable to the Transfer, in whole or in part, include telephone
expenses of $320,000, professional fees of $163,000, travel expenses of
$125,000, outside loan brokerage fees of $160,000, computer fees of $160,000,
and postage of $379,000. In addition, the Company began its first mass media
advertising campaign in 1997. Total expenses for the advertising campaign were
$395,000.
In 1996, total noninterest expense increased $5.2 million, or 28.7%, from
1995. Excluding the one-time pre-tax SAIF assessment of $3.2 million in 1996,
total noninterest expense increased $2.0 million, or 10.9%. Salaries and
benefits expense increased $2.1 million, or 38.2% from 1995 to 1996 due to the
addition of approximately 40 full time employees during 1996, normal
compensation increases, and enhancements to the bonus program.
48
<PAGE>
EARNING ASSETS
Loans
Loans are the single largest category of earning assets and typically
provide higher yields than other categories. Total loans net of unearned
income increased 6.8%, from $681.7 million at December 31, 1996 to $727.9
million at December 31, 1997.
The following table sets forth the composition of the loan portfolio by
category at the dates indicated.
LOANS BY CATEGORY(1)
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK NEW SOUTH BANCSHARES
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
------------------- --------------------------
1993 1994 1995 1996 1997
--------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential mortgage
Conforming.................... $ 295,633 $ 222,773 $278,749 $214,865 $252,568
Nonconforming................. 37,927 9,726 77,106 203,405 132,700
--------- --------- -------- -------- --------
Total residential mortgage
loans...................... 333,560 232,499 355,855 418,270 385,268
Installment (automobile)
Prime(2)...................... 23,493 10,626 29,769 61,323 84,769
Non-prime..................... 0 815 5,749 9,668 12,147
--------- --------- -------- -------- --------
Total installment
(automobile) loans......... 23,493 11,441 35,518 70,991 96,916
Residential construction and
land........................... 7,467 13,602 30,941 47,423 87,889
Commercial real estate.......... 137,601 153,612 141,196 146,700 158,377
Commercial...................... 475 472 408 403 1,467
--------- --------- -------- -------- --------
Total loans................. 502,596 411,626 563,918 683,787 729,917
Less unearned income............ 6,027 4,071 2,307 2,057 2,063
--------- --------- -------- -------- --------
Loans net of unearned
income..................... $ 496,569 $ 407,555 $561,611 $681,730 $727,854
========= ========= ======== ======== ========
</TABLE>
- --------
(1) New South changed its fiscal year end from September 30 to December 31 in
November of 1994 (the formation of the Company). Amounts shown for 1993
and 1994 relate to New South only. Amounts for 1995 and thereafter relate
to the Company on a consolidated basis. Amounts for the Company as of
December 31, 1994 did not differ significantly from the corresponding
amounts for New South as of September 30, 1994 presented above.
(2) Includes certain other non-automobile installment loans. See "Business."
The principal component of the Company's loan portfolio is residential
mortgage loans. At December 31, 1997, residential mortgage loans comprised
52.9% of the total loan portfolio, compared to 61.4% of the total loan
portfolio at December 31, 1996. This decrease is primarily due to the August
1997 REMIC securitization and growth in other loan categories, specifically
installment (automobile), commercial real estate, and residential construction
and land.
Residential mortgage loans consist of conforming loans, which are originated
primarily through the Company's loan production offices, and nonconforming
loans, which are originated primarily through correspondent relationships or
through the Company's retail branch network. Generally, conforming residential
mortgage loans adhere to FNMA, FHLMC, or GNMA underwriting requirements.
Nonconforming residential mortgage loans typically do not exceed the standard
agency maximum loan size guidelines, but the borrower may fail to meet one or
more other guidelines relating to creditworthiness, such as acceptable debt
ratios and acceptable consumer loan payment delinquencies. See "Business--
Residential Mortgage Lending."
Installment (automobile) loans consist almost exclusively of automobile
lending. Most of these loans are originated on an indirect basis through a
network of over 600 automobile dealers located in Alabama, Georgia,
49
<PAGE>
Florida, Tennessee, Mississippi, and Texas. Dealers are selected based on
their financial history and other references. The majority of New South's
installment (automobile) loans are considered to be "prime" loans by industry
standards. New South does offer a nonprime product to certain qualifying
consumers who report credit bureau scores slightly below the "prime" threshold
due to minor delinquencies on certain accounts. See "Business--Installment
(Automobile) Lending."
As a percentage of loans, net of unearned income, total installment
(automobile) loans increased from 10.4% at December 31, 1996 to 13.3% at
December 31, 1997. This growth is the result of the Company's strategy to
increase this portfolio through additional relationships with new dealers in
new markets and the marketing of the nonprime lending program in the dealer
network.
The Company originates and purchases residential mortgage and installment
(automobile) loans with the idea that they may be sold based on liquidity
needs, loan portfolio mix, or other asset liability strategies. Loans may be
securitized or sold directly into the secondary market. The composition of the
Company's loan portfolio is significantly influenced by the timing and amount
of these sales.
The Company also makes residential construction and land development loans.
As a percentage of loans, net of unearned income loans, these loans increased
from 7.0% at December 31, 1996 to 12.1% at December 31, 1997. The growth is
generally attributable to expansion into new geographic markets. All loans in
this category mature in one year or less and have a variable interest rate.
See "Business--Other Lending."
New South maintains a minimal amount of commercial loans to certain
independent automobile dealers to finance such dealers' used automobile
inventory (i.e., "floor plan" loans), all of which are revolving in maturity
and have a variable interest rate. See "Business--Other Lending."
The amounts of total gross loans, excluding mortgage and installment,
outstanding at December 31, 1997 are presented below. All of the Company's
loans in these categories are variable rate.
MATURITY AND INTEREST RATE SENSITIVITY OF SELECTED LOAN CATEGORIES AT DECEMBER
31, 1997
<TABLE>
<CAPTION>
ONE YEAR OR LESS
FLOATING RATE
----------------
(IN THOUSANDS)
<S> <C>
Residential construction and land........................ $87,889
Commercial............................................... 1,467
-------
$89,356
=======
</TABLE>
Investment Securities
Investment securities are a significant component of the Company's total
earning assets. Total investment securities averaged $145.7 million in 1997,
compared to $103.8 million in 1996 and $104.9 million in 1995. At December 31,
1997, all investment securities were classified as available for sale and
recorded at market value. The Company elected to classify its entire
securities portfolio as available for sale in order to maximize flexibility in
meeting funding requirements.
The following table sets forth the book value of the securities held by the
Company for the dates indicated.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage-backed securities ("MBS").................... $71,650 $70,516 $140,059
U.S. Treasury and federal agency securities........... 12,222 12,495 39,593
Other securities...................................... 12,806 11,440 17,483
------- ------- --------
Total securities available for sale................. $96,678 $94,451 $197,135
======= ======= ========
</TABLE>
50
<PAGE>
The following table sets forth the scheduled maturities and average yields
of securities held at December 31, 1997.
AVAILABLE-FOR-SALE SECURITIES
RELATIVE CONTRACTUAL MATURITIES AND WEIGHTED AVERAGE YIELDS
<TABLE>
<CAPTION>
DUE AFTER ONE DUE AFTER FIVE
DUE WITHIN BUT WITHIN BUT WITHIN DUE AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
------------- -------------- ---------------- -------------- TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------- ----- -------- ------ ------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities(1).......... $ -- $ -- $ 51,923 6.51% $88,133 6.90% $140,056
U.S. Treasury and
federal agency
securities............. 2,648 5.42% 36,945 6.72% -- -- 39,593
Other securities(2)..... 2,608 7.31 5,092 4.30 3 9.00 349 0.10 8,052
------ ------- ---- -------- ------- --------
Total.................. $5,256 6.83 $42,037 6.42 $ 51,926 6.51 $88,482 6.88 $187,701
====== ======= ======== ======= ========
Percentage of total
portfolio.............. 2.80% 22.40% 27.66% 47.14%
</TABLE>
- --------
(1) Maturity of MBS and interest only strips were determined based on
contractual maturity.
(2) Federal Home Loan Bank Stock and other equity securities of $9,434,000 is
not included.
At December 31, 1997, 71.0% of the securities portfolio consisted of
mortgage-backed securities. Generally, these securities consist of pooled,
homogenous residential mortgage loans originated or purchased by New South and
securitized with GNMA, FNMA, or FHLMC guarantees. These securities are subject
to the risk of prepayment on the underlying mortgages. At December 31, 1997,
20.1% of the securities portfolio consisted of United States Treasury and
federal agency securities, which are backed by the full faith and credit of
the United States government or its agencies.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing liabilities increased $87.6 million, or 12.3%, to
$798.5 million in 1997 from $710.9 million in 1996. This increase was due to
an increase in average interest bearing deposits which increased $91.1
million, or 16.8%, to $633.4 million in 1997 from $542.4 million in 1996.
Deposits
Deposits are a significant source of funding for the Company. The Company's
loan-to-deposit ratio was 104.7% at December 31, 1997 and 103.2% at December
31, 1996. The Company has been able to attract deposits from throughout the
United States by consistently paying nationally competitive rates.
The following table sets forth the deposits of the Company by category for
the dates indicated.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Time............................................. $423,592 $488,629 $571,221
Savings.......................................... 51,254 50,142 58,663
Non-interest bearing demand...................... 45,006 48,932 57,037
Interest-bearing demand.......................... 3,140 3,162 3,517
-------- -------- --------
Total average deposits......................... $522,992 $590,865 $690,438
======== ======== ========
</TABLE>
The increase in average deposits is primarily due to the increase in average
time deposits, which increased $82.6 million, or 16.9%, from $488.6 million at
December 31, 1996 to $571.2 million at December 31, 1997.
51
<PAGE>
Contributing to the 1997 increase in average time deposits was the Company's
advertising campaign designed to increase its reputation as a provider of
nationally competitive interest rates on certificates of deposit.
The use of brokered certificates of deposit also contributed to the increase
in average time deposits. The Company pays fees to regional and national
brokers to attract deposits on the Company's behalf and it also purchases
existing deposits from brokers. The deposits which are solicited for a fee are
typically available for a total cost which is traditionally below the cost of
obtaining funding through the Company's retail network. Brokered deposits
totaled $229.9 million, or 33.1% of total deposits at December 31, 1997,
compared to $162.2 million, or 24.5% of total deposits at December 31, 1996.
The maturity distribution of the Company's time deposits over $100,000 at
December 31, 1997 is set forth in the following table.
CERTIFICATES OF DEPOSIT GREATER THAN $100,000
MATURITY SCHEDULE
(IN THOUSANDS)
<TABLE>
<S> <C>
Three months or less.................................................. $ 97,277
Over three months through six months.................................. 29,171
Over six months through twelve months................................. 18,270
Over twelve months.................................................... 57,967
--------
$202,685
========
</TABLE>
Approximately 48.0% of the Company's time deposits over $100,000 had
scheduled maturities within three months and approximately 62.4% had
maturities within six months. These deposits are primarily obtained through
the broker network described above.
Borrowed Funds
Borrowed funds consist primarily of federal funds purchased, securities sold
under agreements to repurchase, and advances from the FHLB. The following
table sets forth information regarding the Company's borrowings over the
periods indicated.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE AVERAGE
AVERAGE MAXIMUM ENDING INTEREST RATE AT RATE
BALANCE OUTSTANDING BALANCE YEAR-END PAID
-------- ----------- -------- ---------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1995
Federal funds purchased
and securities sold
under agreement to
repurchase............ $ 36,707 $ 41,811 $ 41,811 5.77% 7.30%
Federal Home Loan Bank
advances.............. 99,005 124,000 104,000 6.09 6.06
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1996
Federal funds purchased
and securities sold
under agreement to
repurchase............ 35,502 52,000 -- 0.00 7.62%
Federal Home Loan Bank
advances.............. 124,093 170,388 95,388 6.35 5.97
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1997
Federal funds purchased
and securities sold
under agreement to
repurchase............ 41,624 73,100 40,800 7.10 7.57%
Federal Home Loan Bank
advances.............. 113,572 179,420 179,420 6.07 6.03
</TABLE>
Average FHLB advances during 1997 were $113.5 million compared to $124.1
million during 1996, a decrease of $10.6 million. The Company intends to
continue to use these advances as a significant funding source. Total advances
were $179.4 million at December 31, 1997.
52
<PAGE>
CAPITAL
The OTS requires thrift financial institutions to maintain capital at
adequate levels based on a percentage of assets and off-balance sheet
exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-
based standard, capital is classified into two tiers. Tier 1 capital of New
South consists of common stockholders' equity, excluding the unrealized gain
(loss) on securities available-for-sale, minus certain intangible assets. New
South's Tier 2 capital consists of the general reserve for possible loan
losses subject to certain limitations. Consolidated regulatory capital
requirements do not apply to thrift holding companies.
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tier 1 capital................................... $ 56,825 $ 61,221
Tier 2 capital................................... 4,604 6,237
Total qualifying capital......................... 61,429 67,458
Risk-adjusted assets (including off-balance sheet
exposures)...................................... 551,459 643,884
Tier 1 risk-based capital ratio.................. 6.90% 6.17%
Total risk-based capital ratio................... 11.14 10.48
Tier 1 leverage ratio............................ 10.30 9.51
</TABLE>
New South has consistently exceeded regulatory minimum guidelines and it is
the intention of management to continue to monitor these ratios to ensure
regulatory compliance and maintain adequate capital for New South. New South's
current capital ratios place New South in the "well capitalized" category.
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
Liquidity management involves monitoring the Company's sources and uses of
funds in order to meet its day-to-day cash flow requirements while maximizing
profits. Liquidity represents the ability of a company to convert assets into
cash or cash equivalents without significant loss and to raise additional
funds by increasing liabilities. Without proper liquidity management, the
Company would not be able to perform the primary function of financial
intermediary and would, therefore, not be able to meet the needs of the
communities it serves.
Liquidity management is made more complex because different balance sheet
components are subject to varying degrees of management control. For example,
the timing of maturities of the investment securities available for sale
portfolio is very predictable and is subject to a high degree of control at
the time investment decisions are made. However, net deposit inflows and
outflows are less predictable and are not subject to nearly the same degree of
control.
New South is required by OTS regulations to maintain minimum levels of
liquid assets. This requirement, which may be changed at the discretion of the
OTS depending upon economic conditions and net deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required minimum ratio
is currently 5%. New South has generally maintained liquid assets
substantially in excess of the minimum requirements.
The Company depends on deposits, including brokered certificates of deposit,
FHLB advances, and reverse repurchase agreements, as primary sources of
liquidity. Brokered deposits approximated 33% of total deposits as of December
31, 1997. These brokered deposits are either deposits solicited by the Company
from seven national and regional brokerage firms, which accounted for
approximately $163,495,000 of deposits at December 31, 1997, or are
unsolicited and are brought to New South by virtue of the Company's
competitive rates and willingness to accept brokered deposits. The former
category of brokered deposits is utilized as an alternative funding source
that is often cheaper than retail deposits or other funding sources. However,
management is cognizant that this funding source is highly interest-sensitive
and never considers brokered deposits either singly
53
<PAGE>
or as a whole to be a permanent funding source. In the unlikely event that the
Company is unable to replace or maintain a current level of brokered
certificate of deposit funding, the Company can either increase efforts in the
retail deposit market, or can utilize any of the various alternative funding
sources available. There is no given month in which the inability to replace
brokered deposits would unduly constrain New South's liquidity, given
alternative funding sources. As of December 31, 1997, alternative funding
sources included $24.0 million of unused credit for Federal funds purchases,
$5.0 million of unused revolving credit facilities, a $20.0 million unused
warehousing line of credit from another financial institution, and $30.5
million unused FHLB borrowing capacity. The Company also had $53.5 million
mortgage-backed securities available to serve as security for borrowings.
Reliance on all funding sources is monitored on an ongoing basis to assure no
undue reliance upon a single source and to assure that adequate reserve
sources are available if needed.
YEAR 2000
The Company is heavily dependent upon complex computer systems for all
phases of its operations. The year 2000 issue--common to most corporations--
concerns the inability of certain software and databases to properly recognize
date sensitive information beginning January 1, 2000. This problem could
result in a disruption to the Company's operations, if not corrected.
Financial services institutions are particularly sensitive to such
disruptions. The Company uses third party vendors for many of its systems. As
a result, much of the Company's remediation effort relates to monitoring and
communicating with those vendors. The Company has assessed and developed a
detailed strategy to prevent or at least minimize problems related to the year
2000 issue. In 1997, resources were committed and implementation began to
modify the affected information systems. Total costs related to the project
are estimated to be between $750,000 and $2.0 million of which $150,000 was
incurred in 1997. Implementation is currently on schedule, but the degree of
success of the project cannot be determined at this time. Management believes
that the final outcome will not have a material adverse effect on New South's
business, results of operations, or financial condition. See "Risk Factors--
Risk Factors Relating to the Company--Developments in Technology."
54
<PAGE>
BUSINESS
GENERAL
The Company is a closely held unitary thrift holding company headquartered
in Birmingham, Alabama. Through its financial institution subsidiary, New
South, the Company operates two full-service retail branch offices in
Birmingham, Alabama, and 46 loan production offices located in 13 states
throughout the southeastern and western United States. New South is the
largest thrift and the sixth largest depository institution, based on asset
size, headquartered in the State of Alabama.
The Company's operations principally involve residential mortgage lending,
installment (automobile) lending, residential construction and land lending
and deposit gathering activities. The Company's residential mortgage lending
efforts involve the origination and purchase of residential mortgage loans
through its loan origination offices and wholesale sources, the sale of such
loans (usually on a pooled and securitized basis) in the secondary market, and
the servicing of residential mortgage loans for investors as well as the
Company's own loan portfolio. The installment (automobile) lending program
involves indirect lending through 600 automobile dealers in six southern
states. The Company's residential construction and land lending efforts
involve making loans to builders for the construction of single family
properties and, on a more limited basis, loans for the acquisition and
development of improved residential lots. In addition, the Company actively
funds and purchases commercial real estate loans originated by Collateral
which may be sold to investors or held in New South's portfolio.
The Company funds its lending activities primarily with customer deposits
gathered through a broad range of banking services including certificates of
deposit, individual retirement and other time and demand deposit accounts and
money market accounts. The Company takes a wholesale approach to generating
deposits, paying high interest rates while keeping deposit gathering overhead
costs low. The Company maintains two retail branch offices, both located in
Birmingham, Alabama, and attracts the majority of its deposits through
telemarketing activities and third parties, primarily brokers.
STRATEGY
The Company's strategy is to increase its earnings through increased loan
originations and increased asset size while maintaining high levels of asset
quality. The principal components of the Company's strategy include:
. Continued Expansion of the Residential Mortgage Loan Production
Network. The Company will continue to increase its volume of residential
mortgage loan origination by expanding into new geographic markets as
opportunities arise. New South's strategy involves entering areas with
stable and growing economies by developing relationships with highly
productive loan officers who can effectively manage the Company's
origination efforts in those areas, or mortgage brokers who find the
Company's loan products attractive to offer to their customers.
. Increased Automobile Loan Originations. The Company has grown its
automobile dealer network to over 600 dealers, consisting, at this time,
primarily of franchised new car dealers. The Company plans to grow its
existing dealer network both by further penetrating its current market
as well as expanding into new markets. Management will also place
greater emphasis on increasing the proportion of approved applications
that are actually funded and increasing the Company's relationships with
independent car dealers, which have generally proven to be more stable
and profitable long-term relationships. In addition, the Company plans
to evaluate select market opportunities to grow non-prime lending.
. Increased Residential Construction and Land Loans. The Company plans to
increase residential construction and land loans through relationships
with builders in new geographic markets and through increased
penetration in existing markets. Management believes that this increase
may lead to additional originations of residential mortgage loans.
55
<PAGE>
. Improved Cross-Selling Activities. In 1997, the Company created a cross-
marketing unit to focus on increasing sales of New South's various
products and products offered through third party vendors to existing
customers. The Company utilizes programs designed to analyze customer
purchasing needs and uses this information to cross-sell its products
via direct mail and telemarketing campaigns.
. Increased Loan Portfolio Servicing Efficiency. The Company is in the
process of upgrading its computer systems and re-engineering employee
work flow with a view towards lowering the per loan cost of servicing.
In addition, management believes the Company will achieve some economies
of scale through growth of the servicing portfolios. At December 31,
1997, the Company serviced approximately $1.7 billion in loans,
approximately $1.0 billion of which is serviced for others.
. Continued Expansion of Retail Deposit Activities. While the Company
plans to continue its emphasis on wholesale funding sources,
management's strategy is to expand its retail deposit activities.
Through the increased use of mass media advertising and direct mail
solicitation to existing retail customers and prospective customers, the
Company hopes to increase the average deposits of existing retail
customers and to add new customers. At this time, the Company intends to
concentrate its mass media advertising efforts in the Birmingham market,
in order to increase the Company's market share in the Birmingham,
Alabama area.
CERTAIN LENDING DATA
The following table sets forth selected data relating to the composition of
loans originated by New South during each of the last three fiscal years,
categorized by loan types discussed below.
LOAN ORIGINATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Residential
Conforming(1)............................ $ -- $ -- $ 304,508
Nonconforming............................ 70,963 159,077 186,150
Installment (automobile)
Prime(2)................................. 105,967 88,175 67,926
Non-prime................................ 2,648 7,244 7,856
Residential construction and land.......... 34,226 86,927 129,277
Commercial real estate(3).................. 13,180 20,353 109,511
Commercial................................. 1,311 5,829 1,846
---------- ---------- ----------
Total.................................. $ 228,295 $ 367,605 $ 807,074
========== ========== ==========
</TABLE>
- --------
(1) Includes only those loans originated from July 1, 1998, the effective date
of the Transfer.
(2) Includes certain other non-automobile loans. See "--Installment
(Automobile) Lending."
(3) Consists entirely of commercial real estate loans generated by Collateral,
for which Collateral earns an origination fee, which loans are funded by
New South and closed in New South's name. See "--Other Lending."
56
<PAGE>
The following table sets forth selected data relating to the composition of
loans held by New South in its own portfolio as of December 31 of each of the
last three fiscal years, categorized by loan types discussed below.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Residential
Conforming..................................... $278,749 $214,865 $252,568
Nonconforming.................................. 77,106 203,405 132,700
Installment (automobile)
Prime (1)...................................... 29,769 61,323 84,769
Non-prime...................................... 5,749 9,668 12,147
Residential construction and land................ 30,941 47,423 87,889
Commercial real estate........................... 141,196 146,700 158,377
Commercial....................................... 408 403 1,467
-------- -------- --------
Total........................................ $563,918 $683,787 $729,917
======== ======== ========
</TABLE>
- --------
(1) Includes certain other non-automobile loans.
RESIDENTIAL MORTGAGE LENDING
Conforming Loans
New South's primary line of business is the origination (and subsequent
sale) of residential mortgage loans which New South classifies as conforming
residential mortgage loans. These loans are typically single family loans
which generally have been underwritten and processed in accordance with
standard government or federal agency guidelines including FNMA, FHLMC, GNMA,
FHA and VA. The conforming residential mortgage loans are fixed-rate and
adjustable-rate first residential mortgage loans with 15 year or 30 year terms
generally secured by owner-occupied residences. New South's adjustable-rate
mortgages (ARMs) generally have interest rates that adjust semi-annually or
annually. The maximum loan amount for a conforming residential mortgage loan
which will be purchased by FHLMC or FNMA currently is $227,150, with a typical
term of 360 months, and an average interest rate of approximately 7.0%. In
1997, conforming residential mortgage loan originations were $304.5 million,
which accounted for 62.1% of New South's residential mortgage loan
originations and 37.7% of New South's total loan originations. At December 31,
1997, New South had $252.6 million of conforming residential mortgage loans in
its portfolio, representing 65.6% of New South's residential mortgage loan
portfolio and 34.6% of New South's total loan portfolio.
New South originates conforming residential mortgage loans primarily on a
direct basis through 42 origination offices, 39 of which were transferred from
Collateral in the Transfer, although it augments this line of business with
indirect originations through mortgage brokers and correspondents. All
conforming residential mortgage loans originated, either on a direct or
indirect basis, must conform to New South's underwriting guidelines for
conforming residential mortgage loan products which generally conform to
standard government and federal agency guidelines. See "Residential Mortgage
Lending--Underwriting" and "--Production."
Nonconforming Loans
New South originates residential mortgage loans which it classifies as
nonconforming residential mortgage loans. These loans typically do not exceed
the standard agency maximum loan size guidelines, but may fail to meet one or
more other guidelines relating to creditworthiness, such as acceptable debt
ratios and acceptable consumer loan payment delinquencies. New South
originates only fixed rate nonconforming residential mortgage loans. The
average nonconforming residential mortgage loan amount is $60,000 with average
interest rates of 9.10% and average maturities of up to 15 years. In 1997,
nonconforming residential mortgage loan originations
57
<PAGE>
were $186.2 million, which accounted for 37.9% of New South's residential
mortgage loan originations and 23.1% of New South's total loan originations.
At December 31, 1997, New South had $132.7 million of nonconforming
residential mortgage loans representing 34.4% of New South's residential
mortgage loan portfolio and 18.2% of New South's total loan portfolio.
New South originates nonconforming residential mortgage loans primarily on
an indirect basis through mortgage brokers and correspondents, although it
also originates nonconforming loans on a direct basis through seven loan
origination offices. All nonconforming residential mortgage loans originated,
either on a direct or indirect basis, must conform to New South's underwriting
guidelines for nonconforming residential mortgage loan products which have
been internally developed by New South's management to analyze a variety of
factors, including the proposed equity in the collateral, the credit history
and debt-to-income ratio of the borrower, the property type, and the
characteristics of the underlying first mortgage, if any. Applying these
guidelines, New South will internally classify a proposed nonconforming
residential mortgage loan product as either Grade AA, A, B or C according to
credit risk and establish the terms of the loan in accordance with such
internal classification. Of the $186.2 million of nonconforming residential
mortgage loans originated by New South during 1997, 35.5% was classified as
Grade AA, 42.7% Grade A, 16.6% Grade B, and 5.2% Grade C. See "Residential
Mortgage Lending--Underwriting" and "--Production."
Underwriting
All residential mortgage loans originated by New South, including those
originated on an indirect basis through mortgage brokers and correspondents,
must satisfy New South's underwriting standards. These guidelines are revised
continuously based on opportunities and prevailing conditions in the market,
as well as generally accepted criteria in the market for securities backed by
such residential mortgage loans. New South believes that the guidelines are
consistent with standards generally used by lenders in the business of making
residential mortgage loans. The following is a brief description of New
South's underwriting guidelines currently in effect for conforming residential
mortgages and nonconforming residential mortgage loans.
On both conforming and nonconforming residential mortgage loans, the homes
pledged to secure such residential mortgage loans may be either owner occupied
(which includes second homes) or non-owner occupied investor properties which,
in either case, are single-family residences (which may be detached, part of a
two-to-four-family dwelling, manufactured homes, condominium units or units in
a planned unit development). Commercial properties or agricultural land are
not generally accepted as collateral; however, they may be added as additional
security.
In most cases, the value of each property proposed as security for a
conforming and nonconforming residential mortgage loan is determined by a full
appraisal. A limited appraisal, conducted on a drive-by basis, is sometimes
utilized for loans with current loan to value ("CLTV") under 50%. Appraisals
are performed by professional appraisers who have been approved by New South
or who are employed by an appraisal service company approved by New South. New
South evaluates appraisers based on established criteria and appraisal
requirements, and maintains a current approved appraiser list.
In connection with purchase-money loans, New South's guidelines for both
conforming and nonconforming residential mortgage loans require (i) an
acceptable source of down payment funds, (ii) verification of the source of
the down payment funds, and (iii) adequate cash reserves.
New South's guidelines for both conforming and nonconforming residential
mortgage loans generally require title insurance coverage issued by an
approved American Land Title Association or California Land Title Association
title insurance company on each residential mortgage loan it originates or
purchases. The applicant is required to secure property insurance in an amount
equal to the lesser of (i) an amount sufficient to cover the new residential
mortgage loan and any prior mortgage loan and (ii) the cost of rebuilding the
subject property (which generally does not include land value).
58
<PAGE>
Conforming Residential Mortgages Loans. New South's underwriting guidelines
for conforming residential mortgage loans generally follow FNMA, FHLMC, GNMA,
FHA, and VA guidelines, and may also follow other requirements set by
potential private investors in securitizations. New South employees use an
industry standard automated underwriting process on most conforming loan
applications which analyzes the borrower's credit score (as reported by a
nationally recognized credit reporting agency such as Equifax) and the value
of the property which will secure the loan, all with a view towards evaluating
the loan for sale in the secondary market. This automated process is designed
to reduce processing and underwriting time, to improve overall loan approval
productivity, to improve credit quality and to reduce potential investor
repurchase requests.
Nonconforming Residential Mortgages Loans. New South's underwriting
guidelines for nonconforming residential mortgage loans are designed to assess
both the prospective borrower's ability to repay the loan and the adequacy of
the real property used as collateral for the loan. In general, these
guidelines require an analysis of the equity in the collateral, the payment
history and debt-to-income ratio of the borrower, the property type, and the
characteristics of the underlying first mortgage, if any. Based on these
considerations, New South will classify a proposed nonconforming residential
mortgage loan as either Grade AA, A, B or C according to credit risk and
establish the terms of the loan in accordance with such internal
classification.
On Grade AA loans, the borrower must have a good credit history during the
last three years, and any bankruptcies must have been discharged for a minimum
of three years. On Grade A loans, the borrower must have a satisfactory credit
history (i.e. some minor slow payments are allowed), with any bankruptcies
having been discharged a minimum of four years. On Grade B loans, the borrower
must also have a satisfactory credit history (i.e. some minor slow payments
are allowed), but bankruptcies may have been discharged for a minimum of two
years provided credit has been reestablished within the last 24 months. On
Grade C loans, the borrower may have derogatory credit, and any bankruptcies
must have been discharged a minimum of two years, with re-established credit
within the last 12 months.
On Grade AA loans, New South's guidelines require that the CLTV of a
mortgage loan generally be less than 90%. On Grade A and B loans, New South's
guidelines require that the CLTV be less than 85%. On Grade C loans, New
South's guidelines require that the CLTV be less than 80%. A second mortgage
loan in an amount of $25,000 or less may have a CLTV of up to 100%. New
South's guidelines do not permit the origination or purchase of residential
mortgage loans where the senior mortgagee may share in any appreciation in the
value of the related mortgaged property.
Production
New South originates conforming and nonconforming residential mortgage loans
both on a direct basis through 49 loan origination offices and on an indirect
basis through mortgage brokers and correspondents throughout the United
States.
Conforming Residential Mortgage Loans. Presently, New South originates
conforming residential mortgage loans primarily on a direct basis through 41
loan production offices located in the States of Alabama (15), Tennessee (3),
Georgia (5), North Carolina (2), Florida (4), Texas (2), Nevada (2), Kentucky
(1), Louisiana (1), Virginia (3), Arkansas (1), Mississippi (1), and Arizona
(1). These offices originate primarily single-family residential mortgage
loans. These offices derive originations from a number of sources such as
referrals from realtors, walk-in customers, borrowers, and advertising.
New South augments its direct originations of conforming residential
mortgage loans with indirect originations through over 250 wholesale
customers, including independent mortgage brokers and correspondents,
community banks, and other financial institutions in 14 states. These mortgage
brokers and correspondents originate such loans using New South's underwriting
criteria and standards and close such loans using funds advanced by New South
simultaneously with, or following, closing. In some cases, loans are purchased
at some point following closing in a secondary market transaction.
59
<PAGE>
Nonconforming Residential Mortgage Loans. New South originates nonconforming
residential mortgage loans primarily on an indirect basis through mortgage
brokers and correspondents. These "wholesale" mortgage brokers and
correspondents originate the loans using New South's underwriting guidelines.
New South either funds these loans at closing or commits to purchase these
loans within a set period of time after closing. All mortgage brokers and
correspondents must certify to New South that the loans were originated in
accordance with New South's underwriting standards, and the loans are subject
to repurchase by the mortgage brokers and correspondents for a variety of
reasons, such as fraud and misrepresentation. Mortgage brokers and
correspondents are solicited by sales representatives of New South and are
approved by New South generally after a review of: (i) financial statement
strength; (ii) the length of time in the business; and (iii) the background
and experience of personnel including the principals of the company.
New South augments its indirect originations of nonconforming residential
mortgage loans with direct originations through seven loan production offices
in the States of Alabama (2), Florida (4), and Virginia (1). These seven
offices have historically been operated by New South and were not acquired
from Collateral in the Transfer. Like conforming residential mortgage loans,
originations through these offices are derived from a number of sources such
as referrals from realtors, brokers, walk-in customers, borrowers, and
advertising.
INSTALLMENT (AUTOMOBILE) LENDING
New South offers installment (automobile) loans secured by automobiles,
light-duty trucks, vans, boats, and other vehicles. New South began offering
an installment (automobile) lending program in 1989 to automobile dealers in
the southern United States. New South has an extensive automobile dealer
network consisting of over 600 dealers in the States of Alabama, Florida,
Georgia, Mississippi, Tennessee and Texas.
Prime Loans
The majority of New South's installment (automobile) loans are considered to
be "prime" loans by industry standards. Generally, the industry classifies
prime and nonprime customers based on the creditworthiness of the consumer.
New South's current guidelines for its prime lending products require an
applicant to have, among other factors, a credit bureau score of at least 580.
On used cars, the terms of the contract are also based, in part, on the actual
mileage of the vehicle. The Company also classifies as prime an immaterial
amount of other non-automobile installment loans secured by deposits, boats
and recreational vehicles and some signature loans. During 1997, New South's
average size prime loan for both new and used cars was $13,000 with an average
term of 41 months at 10.1% interest rate.
New South purchases prime products (typically fully secured, fixed rate
retail installment contracts) from dealers for 100% of the principal amount of
the loan on a non-recourse basis. In 1997, prime installment (automobile) loan
originations were $67.9 million, which accounted for 89.6% of New South's
installment (automobile) originations and 8.4% of New South's total loan
originations. At December 31, 1997, prime installment (automobile) loans
constituted 87.5% of New South's installment (automobile) loan portfolio and
11.6% of its total loan portfolio.
Nonprime Loans
New South offers a nonprime product to certain qualifying consumers who
report credit bureau scores slightly below the "prime" threshold due to minor
delinquencies on certain accounts. Terms of "nonprime" installment
(automobile) loans are established by New South underwriters based on a
variety of factors in accordance with New South's underwriting guidelines
which have been specifically designed to evaluate nonprime customers.
Importantly, the automobile payment cannot exceed 15% of a nonprime borrower's
gross income. During 1997, New South's average nonprime loan for new and used
cars was $13,000, with an average term of 41 months at 17.3% interest. In some
cases, New South purchases nonprime loans from dealers at a non-refundable
discount. In 1997, nonprime installment (automobile) loan originations were
$7.9 million, which accounted for 10.4% of New South's installment
(automobile) originations and 1.0% of New South's total loan originations. At
December 31, 1997, nonprime installment (automobile) loans constituted 12.5%
of New South's installment (automobile) loan portfolio and 1.7% of New South's
total loan portfolio.
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<PAGE>
Underwriting
All prime and nonprime consumer installment (automobile) loans purchased or
originated by New South are analyzed using a judgmental credit analysis by
loan officers. Applications are faxed to New South by the dealers. Upon
receipt, the application is reviewed for completeness and compliance with New
South's guidelines and applicable consumer regulations. When a loan package is
incorrect or incomplete, the loan officer notifies the dealer and works to
resolve the problem.
Upon receipt of an application, a New South loan officer will obtain and
review a credit report on the proposed borrower from a major credit reporting
agency. The applicant's current installment debts, charge card accounts,
residential mortgage loans, past credit history, previous repossessions, prior
loans charged off by other lenders, real estate liens and wage attachments are
considered. New South also verifies the applicant's employment and salary. New
South evaluates applications considering the information provided in the
application, credit reports, and the relationship between the applicant's
income and expenses, including expenses relating to the proposed motor vehicle
loan. Based upon this information, the loan officer comes to a conclusion as
to the creditworthiness of the applicant.
While no specific loan to value ratio guidelines are adhered to for motor
vehicle loans, loan to value ratios on new vehicles generally reflect the
equivalent of the dealer's cost for the new vehicle. Loan officers are given
authority to approve loans in excess of dealer cost up to certain limits which
are determined based on the loan officer's lending experience. The Black Book
Used Car Official Guide ("Black Book") is used to determine the loan value on
used vehicles in all states except Texas where the NADA Guide is used. Five
loan officers have the authority to advance up to 115% of clean Black Book
value for used automobiles, assuming the borrower meets certain
creditworthiness criteria. Exceptions to these loan to value guidelines must
be reviewed by a senior loan officer prior to approval.
If the loan is approved by New South and the dealer selects New South as the
lender, New South will issue a bank check and forward it to the dealer. Some
dealers maintain checking accounts with the bank to expedite the receipt of
funds. Funds are not disbursed on any contracts until all documentation is
received in the correct form.
New South will also finance the cost of credit life insurance, accident and
health insurance, and warranties up to a maximum of 20% of the unpaid balance
of the cash price of the automobile as shown on the contract. Any exception
must be approved by a senior vice president of New South.
Production
New South's automobile dealer network consists primarily of new car
franchise dealers. Although independent car dealers make up less than 15% of
the dealer network, management believes that these relationships may be more
stable and profitable to the Company. Dealers are carefully selected by New
South on the basis of set criteria. Generally, for each dealer, New South
evaluates: (i) current year end and quarterly financial statements; (ii) Dun &
Bradstreet Reports on the dealer's business; and (iii) the length of time the
dealer has been in business. In addition, independent car dealers are required
to furnish New South with a credit report and historical financial information
to determine creditworthiness. New South monitors each dealer's performance on
a monthly basis, particularly the loss experience on the installment contracts
purchased from each dealer.
OTHER LENDING
Residential Construction and Land Loans
New South originates residential real estate construction loans to
individuals, as well as providing construction and land development loans in
residential subdivisions to professional home builders and developers. New
South is active in making loans to builders for the construction of single
family properties and,
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on a more limited basis, loans for the acquisition and development of improved
residential lots. These loans are made on a commitment term that generally is
for a period of one year. New South reviews each individual builder's
experience and reputation, general financial condition, and inventory levels
in order to limit risks. All construction loans are secured by a first lien on
the property and construction in progress. Additionally, the construction
status is reviewed by on-site inspections. The builders' ongoing financial
position is monitored on a periodic basis. This type of lending has been one
of New South's fastest growing lending activities. At December 31, 1997, New
South had $87.9 million of residential construction and land loans
representing 12.0% of New South's total loan portfolio.
Commercial Real Estate Loans
New South funds and closes in its name certain commercial real estate loans
originated by Collateral. These loans are secured by various types of
commercial real estate, including multifamily properties, retail shopping
centers, mobile home parks, hotels, manufactured home communities and a wide
variety of other commercial properties. Many of these loans may be sold in the
secondary market by New South, as have loans in the past. Investors include
commercial banks, life insurance companies, pension funds, conduit programs,
and government sponsored entities. Many of these loans have been committed for
sale to a third party prior to closing in New South's name, and providing this
interim funding has been a relatively profitable and low risk activity for New
South in recent years. In addition, New South may hold these loans in its own
portfolio, capitalizing on opportunities generated by Collateral. The average
commercial real estate loan is approximately $2.0 million, with a term of 7 to
10 years, and an interest rate range of 180 to 220 basis points over U.S.
Treasury securities with comparable maturities. New South has $158.4 million
in commercial real estate loans as of December 31, 1997, which represents
21.7% of New South's total loan portfolio.
Commercial Loans
New South makes available to certain independent automobile dealers used
automobile "floor plan" credit lines, which are revolving credit lines used
for financing the used automobile inventory of independent automobile
dealerships. New South will make advances on a dealer's credit line when the
dealer purchases an automobile and provides New South with proper evidence of
title to the property. In management's view, high quality independent car
dealers represent a market niche New South is attempting to develop by
providing them with a comprehensive package of products.
Underwriting
Residential construction and land loans are evaluated under the same general
underwriting criteria used for nonconforming residential mortgage loans,
focusing on the equity in the collateral, the payment history and debt-to-
income ratio of the borrower, the property type, and the characteristics of
the underlying first mortgage, if any. New South's underwriting guidelines for
commercial real estate loans consist of verification of the borrower's
financial statements, credit history and references, as well as an analysis of
the property, the borrower, and the market. Detailed appraisals are required
on every property securing a commercial loan. New South requires and reviews
updated financial information on borrowers and on each property's performance
on an annual basis. Commercial loans are underwritten by New South applying
generally the same evaluation criteria used in the selection of independent
car dealers for participation in New South's installment (automobile) lending
program. In many instances, mortgages on real estate or other additional
collateral is required.
Production
Residential construction and land loans are primarily originated on a direct
basis through New South's conforming residential mortgage loan origination
offices. Commercial real estate loans are originated primarily by Collateral
on an indirect basis through mortgage bankers and brokers nationwide. New
South develops prospects for commercial loans primarily through its existing
customer base of independent automobile dealers who have sold retail
installment contracts to New South.
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FUNDING ACTIVITIES
The Company funds its lending activities primarily through deposits. In
addition, a significant source of cash flow for New South is the sale of
residential mortgage loans and installment (automobile) loans (either on the
secondary market or as securitizations) and advances from the FHLB. To a
lesser extent, New South receives funds from traditional commercial borrowings
as well as from net interest income, mortgage loan servicing fees and loan
principal repayments.
Deposits
New South conducts deposit gathering activities in a traditional fashion
through its two full service branches located in Birmingham, Alabama. In
addition, New South operates an active telephone banking center that handles
incoming inquiries and conducts an outgoing telemarketing program for deposit
products. The telephone banking center is staffed from 8:00 a.m. to 5:00 p.m.
C.S.T. Monday through Friday and handles both inbound and outbound calls.
Outbound calls are made to former and current customers. New South monitors
the performance of its staff weekly to determine number of calls placed and
answered.
New South has not built an extensive branch network and does not rely
heavily on a local retail deposit base and has primarily utilized certificates
of deposit to compete for consumer deposits. New South attracts deposits from
throughout the country and several foreign countries by paying very
competitive rates. New South is consistently cited in various national
publications which track the highest interest rates paid on bank certificates
of deposit. As of December 31, 1997, these rates have attracted over 18,000
investors to New South's certificates of deposit, retirement accounts and
money market accounts. Deposits are primarily generated from the States of
Alabama (30%), New York (28%), Florida (7%), Texas (6%), and California (3%).
New South's management believes that it is able to offer very competitive
rates on deposits based on a number of factors including, among others, the
absence of overhead expenses associated with a widespread retail branching
network and the ability of management to effectively manage interest rate
risk. New South's senior management reviews rates regularly and adjusts them
based on a review of New South's cash flow needs, New South's cost of funds,
surveys of rates offered by competing institutions, and the U.S. Treasury
yield curve.
New South also distributes its deposit products through brokers to
individuals and institutional purchasers. In 1995, New South initiated a
brokered certificate of deposit program to offer certificate of deposits in
increments of $1.0 million to $20.0 million through selected brokers who meet
New South's guidelines. These guidelines include, among other things, a
positive review of financial statements and ability to provide services to a
broad customer base. At December 31, 1997, brokered certificates of deposit,
including those not solicited by New South for a fee, were $229.9 million, or
33.1% of total deposits.
Sales/Securitizations
New South sells a substantial portion of its loan production into the
secondary market, principally by securitizing pools of loans and through sales
to private investors. With respect to conforming residential mortgage loans,
if a loan meets government or federal agency guidelines and has been
originated through its conforming residential mortgage origination offices
(which include the 39 origination offices transferred from Collateral in the
Transfer), it is typically sold immediately, either through the FNMA, FHLMC or
GNMA programs or to private investors. With respect to nonconforming
residential mortgage loans, New South generally holds these loans in its
portfolio unless New South determines that it is economically necessary or
desirable to sell the loan in light of then existing price, capital
constraints, liquidity needs and prepayment risks. Generally, New South
retains a portion of the servicing rights to the loans that it sells. For the
twelve month period ended December 31, 1997, New South sold approximately
$509.2 million in mortgage backed securities, residential mortgage loans and
installment (automobile) loans.
In August 1997, New South issued a securitization of $215 million
residential mortgage loans in a FHLMC REMIC. New South was only the second
institution to issue such a securitization, a REMIC, with a FHLMC
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guaranty. All of the mortgages underlying the REMIC certificates are closed-
end, fixed-rate, primarily one-to-four family first or second lien, home
equity loans secured by property located in 19 states. New South continues to
service the residential mortgage loans under the terms of a pooling and
servicing agreement, dated August 1, 1997. New South earns a servicing fee
from collections of interest on the residential mortgage loans, net investment
income, assumption fees, and late payment charges.
Borrowings
The FHLB makes advances to New South on a secured basis, and the terms and
rates charged for FHLB advances vary in response to general economic
conditions. As of December 31, 1997 and 1996, FHLB advances amounted to $179.4
million and $95.3 million, respectively. The advances outstanding as of
December 31, 1997 bore interest at rates ranging from 5.75% to 7.89% and were
collateralized by stock in the FHLB and a blanket assignment of residential
mortgage loans.
During 1997, New South entered into a $20.0 million warehousing line of
credit agreement with a commercial bank. Borrowings are to be secured by
pledging specific residential mortgage loans and will bear a market interest
rate. During 1997, there were no amounts outstanding on the line of credit.
In addition, the Company has a $15.0 million credit facility agreement with
a commercial bank consisting of a $10.0 million revolving credit line and $5.0
million in long term debt secured by the stock of New South. The amounts
outstanding bear interest at the LIBOR plus 2%, payable quarterly. The Company
receives dividends from New South in amounts necessary to cover the required
interest payments and any principal payments due on the debt. As of December
31, 1997 and 1996, $5.0 million was outstanding on the line of credit and $5.0
million was outstanding on the term debt. These funds have been injected into
New South as capital, enabling New South to grow significantly.
In 1997, New South was granted by three commercial banks federal funds lines
of credit in the amounts of $5.0 million, $10.0 million and $15.0 million. At
December 31, 1997, $6.0 million was outstanding on one of these lines of
credit.
Additionally, New South has a $30.0 million credit facility agreement with a
commercial bank consisting of a $20.0 million warehousing line of credit and a
$10.0 million seven-day line of credit. The warehouse line shall be secured by
residential mortgage loans and the seven-day line shall be unsecured. As of
December 31, 1997, there were no outstanding amounts on the lines of credit.
In 1998, New South entered into a credit facility agreement with a
commercial bank consisting of a $20.0 million warehousing line of credit and a
$10.0 million servicing line of credit where the aggregate may not exceed
$20.0 million. During 1998, there have been no amounts outstanding on these
lines of credit.
LOAN SERVICING
Residential Mortgage Loan Servicing
New South services residential mortgage loans secured by single family
residences for its portfolio and for others including GNMA, FNMA, FHLMC, and
private mortgage investors. Mortgage loan servicing includes collecting
payments of principal and interest from borrowers, remitting aggregate loan
payments to investors, accounting for principal and interest payments, holding
escrow funds for payment of mortgage related expenses such as taxes and
insurance, making advances to cover delinquent payments, inspecting the
mortgaged premises as required, contacting delinquent mortgagors, supervising
foreclosures, and property dispositions in the event of unremedied defaults,
and other miscellaneous duties related to loan administration. New South
collects servicing fees generally ranging from 0.25% to 1.55% of each mortgage
loan principal balance at the time of payment. New South currently services
over $1.0 billion of residential mortgage loans for nine investors.
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The Company has prescribed procedures for servicing its mortgage loans which
generally consist of the customary and usual standards of practice of prudent
institutional mortgage loan servicers and the servicing guidelines of FHLMC,
FNMA, FHA and VA.
All reasonable efforts are made to collect all payments called for under the
terms of the mortgage loans. The purpose of all collection efforts is to bring
a delinquent mortgage current in as short a time as possible. On one-payment
delinquencies, the Company immediately takes action to prevent it from
becoming more serious. Two types of late notices are used. A payment reminder
notice is mailed no later than the 10th day of delinquency. A late payment
notice is sent for any payment that has not been received by the 16th day
after it is due. The notice states the amount of late charges that are due.
Telephone contacts are made between the 17th and 20th days of the delinquency,
but earlier contact between the 7th and 10th days of the delinquency may be
made for habitual delinquents.
A face-to-face interview is arranged with mortgagors between the 50th and
60th days of the delinquency. For accounts that have become 60 days or more
delinquent, the collection follow-up is increased and efforts to establish a
work out plan with the borrower are instituted. A full financial analysis of
the borrower is performed when the borrower requests assistance and every
reasonable effort is made to have at least one face-to-face interview with the
mortgagor before beginning any foreclosure proceedings.
The Company's policy allows for reasonable discretion to extend appropriate
relief to borrowers who encounter hardship and who are cooperative and
demonstrate proper regard for their obligation. The Company may, at its own
discretion, waive any late payment charge, prepayment charge, assumption fee
or any penalty interest on the Company's portfolio loans in connection with or
the extension of any past due payment for a period (with respect to each
payment as to which the due date is extended).
New South has entered into a Subservicing Agreement with Collateral to
service the majority of all conforming residential mortgage loans for New
South. It is anticipated that this Subservicing Agreement will be terminated
at the point when the balance of these loans which New South owns or services
exceeds the balance of these loans which Collateral services for others. At
this time, which remains to be determined, all current Collateral employees
performing these functions will become employees of New South, causing all
servicing functions to be performed centrally by New South. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships and Related Transactions."
Installment (Automobile) Loan Servicing
From time to time, New South has sold a portion of its installment
(automobile) loan originations while retaining servicing for a servicing fee
and, in some instances, a 10% participation. As servicer, New South collects
and posts all payments, responds to inquiries of customers, investigates
delinquencies, sends payment coupons to customers, oversees the collateral in
cases of default and accounts for collections. New South's collections
department takes all actions necessary to maintain the security interest
granted in the financed automobiles, including investigating delinquencies,
communicating with the consumer to ensure timely payments are made and when
required, contracts with third parties to recover and sell the financed
automobile. New South currently services over $70.3 million of installment
(automobile) loans for five investors.
The Company has established a process, both in writing and by telephone, to
ensure timely payments of obligations under the retail installment contract. A
payment is considered past due if the customer fails to make any full payment
on or before the due date as specified by the terms of the retail installment
contract. Company employees typically contact delinquent consumers within
three days after the due date and collection efforts continue until payment
has been received. The Company believes that early and frequent contact with
the consumer reinforces the consumer's recognition of his or her contractual
obligation.
The Company has flexibility in working with consumers in the collection of
payments. Specifically, if a consumer is unable to make a scheduled payment,
the Company may permit deferred payment. The consumer
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must pay a fee and must sign a deferment agreement as acceptance of the
contract modification. The scheduled payment is then deferred for the period
of 30 days. Generally, no more than one deferment may be granted in any 12
month period.
When the Company determines that collection efforts are likely to be
unsuccessful, it commences repossession procedures against the underlying
collateral and assigns the accounts to an outside recovery agency.
Repossession generally occurs after a customer has missed three consecutive
monthly payments. In such cases, the net amount due under the retail
installment contract is reduced to the estimated fair value of the collateral,
less estimated costs of disposition. Repossessed automobiles are generally
resold through wholesale auctions.
POTENTIAL S-ELECTION
If, in the future, the number of holders of the Company's common stock is
reduced to 75 or less, and it is determined that the Company and New South
would otherwise qualify for S corporation status, the remaining holders of the
Company's common stock may elect to have the Company treated as an S
corporation under the Code. If this election were made, the Company could then
elect to treat New South as a qualified subchapter S subsidiary (a "QSSS").
Under the Code, a QSSS is not treated as a separate corporation from its
parent, but rather all of the assets, liabilities, and items of income,
deduction and credit of the QSSS are treated as such items of the parent. In
other words, the Company and New South would be treated as one S corporation
for federal income tax purposes.
PROPERTIES
The principal executive offices of the Company are located at 1900 Crestwood
Boulevard, Birmingham, Alabama in a 63,000 square foot building owned by
Collateral. New South owns a 42,789 square foot facility located at 215 North
21st Street in Birmingham, Alabama of which 55% is occupied by New South. The
remaining space is leased to multiple tenants. In addition, New South leases
space at 2000 Crestwood Boulevard, Birmingham, Alabama in a 15,000 square foot
building. New South leases offices that are used in the normal course of
business. At December 31, 1997, New South had 49 offices in 46 cities which
were leased. Substantially all leases are for periods of from one to five
years. The aggregate monthly rent is approximately $62,000. See "Certain
Relationships and Related Transactions."
SEASONALITY
The mortgage banking industry is generally subject to seasonal trends. These
trends reflect the general pattern of resale of homes, which typically peak
during the spring and summer seasons and decline to lower levels from mid-
November through January. Refinancings tend to be less seasonal and more
closely related to changes in interest rates. The mortgage servicing business
is generally not subject to seasonal trends, except to the extent that growth
of the portfolio is generally higher in periods of greater mortgage loan
originations.
EMPLOYEES
At December 31, 1997, the Company and its subsidiaries employed
approximately 508 persons. These employees are covered by contributory major
medical insurance, group life and long-term disability insurance plans. The
costs of these benefits in 1997 amounted to approximately $485,000. New South
also matches employee contributions to its 401(k) Plan. See Note 11 to
Consolidated Financial Statements included herein.
COMPETITION
The Company faces substantial competition for loans and deposits as well as
other sources of funding in its areas of operation. The Company competes in
all of its lending lines of business with thrifts, commercial banks, credit
unions, mortgage companies and specialty finance companies, many of which
operate nationwide lending networks comparable to or more extensive than that
operated by New South. In each case, the Company must compete on the basis of
service quality, product offerings and rates. In the mortgage banking and
residential
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construction business, the Company must cultivate relationships with builders,
mortgage brokers, real estate brokers and investors. In the installment
(automobile) lending business, the Company must cultivate relationships with
automobile dealers. In all of its lending activities, the Company believes
that it has positioned itself with a product mix that attracts business from
its competitors which may not have sufficient loan origination volume to
obtain preferential pricing directly in the secondary market.
The Company must also compete for funding. The Company competes, at its two
retail branch locations, for deposits from local customers. More importantly,
the Company must compete nationwide for deposits to fund its lending
activities. The Company competes for deposits with thrifts, commercial banks,
and credit unions and the Company's deposit products must compete with the
investment products offered by a broad variety of financial institutions
including thrifts, commercial banks, credit unions, brokerage firms,
investment banks, insurance companies and other financial services companies.
The Company attempts to offer deposit products including certificates of
deposit, individual retirement and other time and deposit accounts and money
market accounts with competitive rates.
In its lending and deposit gathering activities, many of the Company's
competitors are, or are affiliated with, organizations with substantially
larger assets and capital bases (including regional and multinational banks
and bank holding companies). The Company's competitors, also, often have
larger origination networks for loans and a larger customer base to sell
deposit products.
LEGAL PROCEEDINGS
The Company, in the ordinary course of business, from time to time, has been
named in lawsuits. The Company believes that it has meritorious defenses to
these lawsuits.
Certain of these lawsuits are class actions which request unspecified or
substantial damages. New South is currently a named defendant in four class
actions pending in the state and federal courts of Alabama. These matters have
arisen in the normal course of business and are related to lending,
collections, servicing and other activities and allege breach of contract,
breach of fiduciary duty or violation of federal or state laws. In the first
case, the plaintiff has asserted a putative class action claim involving the
finance rate and credit life and disability insurance on automobile loans; in
the second case, the plaintiff has asserted a putative class action claim
involving an extended service contract on an automobile loan; in the third
case, the plaintiff has asserted a putative class action claim on the purchase
of forced place insurance to secure New South's interest on an automobile
loan; and, in the fourth case, the plaintiff has asserted a putative class
action claim regarding late charges assessed on automobile loans.
In each case, a class has not yet been certified. Because these issues are
complex and for other reasons, it may take years to resolve these actions.
Based on legal counsel's opinion, management is of the opinion that the
ultimate resolution of each of these class actions will not have a material
adverse effect on the Company's financial condition or results of operations.
SUPERVISION AND REGULATION
GENERAL
New South is chartered as a federal savings bank under the Home Owners' Loan
Act, as amended (the "HOLA"), which is implemented by regulations adopted and
administered by the OTS. As a federal savings bank, New South is subject to
regulation, supervision and regular examination by the OTS. Federal banking
laws and regulations control, among other things, New South's required
reserves, investments, loans, mergers and consolidations, payment of dividends
and other aspects of its operations. The deposits of New South are insured by
the SAIF administered by the FDIC to the maximum extent provided by law
($100,000 for each depositor). In addition, the FDIC has certain regulatory
and examination authority over OTS-regulated savings institutions, such as New
South, and may recommend enforcement actions against New South to the OTS,
even though the FDIC is not the primary regulator of New South. The
supervision and regulation of New South is intended primarily for the
protection of the deposit insurance fund and New South's depositors rather
than for holders of the Company's stock or for the Company as the holder of
the stock of New South.
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In addition as a unitary savings and loan holding company, the Company is
registered with and is subject to OTS regulation and supervision under the
HOLA. The Company also is required to file certain reports with, and otherwise
comply with the rules and regulations of, the Commission under the federal
securities laws.
The following discussion is intended to be a summary of certain statutes,
rules and regulations affecting New South and the Company. A number of other
statutes and regulations have an impact on their operations. The following
summary of applicable statutes and regulations does not purport to be complete
and is qualified in its entirety by reference to such statutes and
regulations.
SUPERVISION AND REGULATION OF NEW SOUTH
Proposed Legislation. Legislation introduced in the United States Congress
in 1997 would, if enacted, require each federal savings institution (such as
New South) to convert to a national bank or a state commercial bank, savings
bank or savings association charter and would require each savings and loan
holding company (such as the Company) to become a bank holding company or
"financial services" holding company. The proposed legislation includes
limited grandfather provisions for business activities of federal savings
institutions that do not conform to applicable banking regulations. Holding
companies that were formerly savings and loan holding companies would not be
subject to any additional activity restrictions as long as their subsidiaries
continued to comply with certain lending restrictions currently applicable to
federal thrifts and were not acquired by another company. Based upon an
analysis of the current provisions of the legislation proposed to date, the
management of the Company does not believe that the enactment of such
legislation would have a material adverse effect on its financial condition or
results of operations.
Business Activities. New South derives its lending and investment powers
from the HOLA and the regulations of the OTS thereunder. Under these laws and
regulations, New South may invest in residential mortgage loans secured by
residential and commercial real estate, commercial and consumer loans, certain
types of commercial paper and debt securities, and certain other assets. New
South may also establish service corporations that may engage in activities
not otherwise permissible for New South, including certain real estate equity
investments and securities and insurance brokerage. These investment powers
are subject to various limitations.
OTS Capital Requirements; Reserve Requirements. Under federal law and OTS
regulations, savings associations are required to comply with each of three
separate capital adequacy standards: a "tangible capital" requirement; a
"leverage ratio;" and a "risk-based capital" requirement. The OTS is
authorized to establish individual capital requirements for a savings
association consistent with these capital standards. As noted below under
"Prompt Corrective Action," the OTS was required by the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") to promulgate
additional capital requirements that in certain respects have superseded the
capital requirements discussed immediately below.
Tangible Capital. The OTS capital regulations require tangible capital of at
least 1.5% of adjusted total assets (as defined by regulation). Tangible
capital generally includes common stockholders' equity and retained earnings,
noncumulative perpetual preferred stock and related surplus. In addition, all
intangible assets, other than a limited amount of properly valued purchased
mortgage servicing rights ("PMSRs"), must be deducted from tangible capital.
Leverage Ratio. The leverage ratio adopted by the OTS requires savings
associations to maintain core capital in an amount equal to at least 3.0% of
adjusted total assets. "Core capital" includes common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and any
related surplus, and minority interests in the equity accounts of fully
consolidated subsidiaries, certain goodwill and certain mortgage servicing
rights less certain intangible assets, mortgage servicing rights and
investments in nonincludable subsidiaries. In general, intangible assets must
be deducted in computing core capital because they are excluded from assets
under the OTS' capital rules. There are exceptions to this rule of deduction,
however. PMSRs, originated mortgage servicing rights ("OMSRs") and purchased
credit card relationships ("PCCRs") may comprise in the aggregate up to 50% of
an association's core capital, with PCCRs not exceeding 25% of core capital,
provided that such rights must be valued at the lower of 90% of fair market
value or 100% of the remaining unamortized book value of the asset.
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Risk-based Capital. The risk-based capital standard for savings institutions
requires the maintenance of total capital (which is defined as core capital
and supplementary capital less certain holdings) to risk-weighted assets of at
least 8.0%. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks OTS
believes are inherent in the type of asset. The components of core capital are
equivalent to those discussed earlier under the 3.0% leverage standard. The
components of supplementary capital currently include cumulative preferred
stock, long term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock and allowance for loan and
lease losses. Allowance for loan and lease losses includable in supplementary
capital is limited to a maximum of 1.25% of risk-adjusted assets. Overall, the
amount of supplemental capital counted toward total capital cannot exceed 100%
of core capital.
FDICIA requires the OTS (and the other federal banking agencies) to revise
their risk-based capital standards, with appropriate transition rules, to
ensure that they take account of interest-rate risk, concentration of credit
risk, and the risks of non-traditional activities. In 1993, the OTS adopted a
final rule adding an interest rate risk ("IRR") component that would be
incorporated into its risk-based capital rule. Under the final rule, which
became effective in 1994, only a savings association with "above normal"
interest rate risk exposure (i.e., where an institution's net portfolio value
or "NPV" would decline by more than 2% in the event of a hypothetical 200-
basis point move in interest rates) would be required to deduct an IRR
component from its capital. The NPV is defined as the net present value of
expected cash inflows and outflows from an institution's assets, liabilities,
and off-balance sheet items. The IRR component deduction that such an
institution would be required to make from its capital would be equal to one-
half of its above normal interest rate risk exposure (i.e., 50% of the amount
by which the decline in its NPV exceeds a 2.0% decline). The deduction would
become effective two quarters after the date of the report on which the IRR
component was based. Savings associations with less than $300 million in
assets and risk-based capital ratios in excess of 12% are not subject to an
IRR component deduction.
On August 31, 1995, the OTS issued an interim rule providing that the amount
of risk-based capital that may be required to be maintained by an institution
for recourse assets cannot be greater than the total of the recourse
liability. The interim rule provides that whenever the calculation of risk-
based assets (including assets sold with recourse) would result in a capital
charge greater than the institution's maximum recourse liability on the assets
sold, instead of including the assets sold in the institution's risk-weighted
assets, the institution may increase its risk-based capital by its maximum
recourse liability. In addition, qualified savings associations may include in
their risk-weighted assets, for the purpose of capital standards and other
measures, only the amount of retained recourse of small business obligation
transfers multiplied by the appropriate risk weight percentage. The interim
rule sets reserve requirements and aggregate limits for recourse held under
the modified treatment. Only well-capitalized institutions and adequately
capitalized institutions with OTS permission may use this reduced capital
treatment.
On August 16, 1996, the federal banking agencies jointly proposed to revise
their respective risk-based capital rules relating to treatment of certain
collateralized transactions. These types of transactions generally include
claims held by banks (such as loans and repurchase agreements) that are
collateralized by cash or securities issued by the U.S. Treasury or U.S.
Government agencies. If adopted, the proposal would permit certain partially
collateralized claims to qualify for the 0% risk category. To qualify for the
0% risk category, the portion of the claim that will be continuously
collateralized must be specified either in terms of dollar amount or
percentage of the claim. For off-balance sheet derivative contracts, the
collateralized portion of the transaction could be specified by dollar amount
or percentage of the current or potential future exposure.
Effective September 1, 1995, the interest rate risk rule was amended to
include, in evaluating capital adequacy, an assessment of the exposure to
declines in the economic value of an association's capital due to changes in
interest rates.
Based upon calculations performed by the OTS, New South's interest rate risk
exposure has been determined to be in compliance with guidelines established
by New South's Board of Directors as of September 30, 1997.
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On June 26, 1996, the Office of the Comptroller of the Currency, the Federal
Reserve Board and the FDIC issued a joint agency policy statement that
provides the standards that the federal banking agencies will use to evaluate
the adequacy and effectiveness of an institution's interest rate risk
management. The joint policy addresses fundamental elements for sound interest
rate risk management, including appropriate board and senior management
oversight and the need for a comprehensive risk management process that
identifies, measures, monitors and controls risk. An institution with material
weaknesses in its risk management process or high levels of exposure relative
to its capital will be directed to take corrective action, including raising
additional capital, strengthening management expertise, improving management
information and measurement systems, reducing levels of exposure, or some
combinations of these actions, depending on the facts and circumstances of the
individual institutions.
The OTS issued a Thrift Bulletin in August 1995 that describes how and under
what circumstances an institution may (1) appeal its interest rate risk
component by requesting an adjustment to the interest rate risk component
generated by the OTS model or (2) seek approval to use its own internal
interest rate risk model to calculate the interest rate risk component. The
Thrift Bulletin provides that to be eligible to seek an adjustment to the
interest rate risk component, an institution must show that its interest rate
risk component, as calculated by the OTS, would cause the institution to move
to a lower prompt corrective action category and that the accuracy of the OTS'
estimate of interest rate risk exposure can be materially improved through the
use of more refined data or more appropriate assumptions tailored to the
specific institution. The Thrift Bulletin also outlines the circumstances
under which well capitalized institutions may request to use their own
internal interest rate risk model in place of the OTS model in calculating
interest rate risk capital requirements. The internal model must meet certain
OTS standards, including reasonable assumptions about future interest rates,
prepayment rates for assets and attrition rates for liabilities.
The FDICIA also required that the OTS (and other federal banking agencies)
revise the risk-based capital standards with appropriate transition rules to
take into account concentration of credit risks and risks of nontraditional
activities. Effective January 17, 1995, the OTS (along with the other federal
banking agencies) issued final regulations which explicitly identify
concentration of credit risk and other risks from nontraditional activities,
as well as an institution's ability to manage these risks, as important
factors in assessing an institution's overall capital adequacy. These final
regulations do not contain any specific mathematical formulas or capital
requirements.
For purposes of determining all three capital components, federal law and
the OTS regulations require that investments in and extensions of credit to
certain non-includable subsidiaries be deducted from capital. However, under
the Housing and Community Development Act of 1992, the OTS, by order, may
prescribe a percentage of a thrift's investment in a non-includable subsidiary
held as of April 12, 1989 that may be included in a particular institution's
capital, if it determines that the use of such a percentage would not increase
the risk to the institution's insurance fund, and would not result in the
institution being in an unsafe or unsound condition. The higher percentage
limit allowed by the OTS may not exceed: (i) 40% from July 1, 1995 to June 30,
1996; and (ii) 0%, thereafter. Certain exemptions also generally apply where
the subsidiary: (i) is engaged in the activities solely as an agent for its
customers; (ii) is engaged solely in mortgage-banking activities; (iii) (1) is
an insured depository institution or a company the sole investment of which is
an insured depository institution and (2) was acquired by the association
prior to May 1989; or (iv) is a federal savings association that existed as
such on August 9, 1989, and was, or acquired its principal assets from, an
association that was chartered before October 15, 1982, as a state savings or
cooperative bank.
The table below sets forth New South's compliance with its regulatory
capital requirements at December 31, 1997.
<TABLE>
<CAPTION>
NEW SOUTH'S CAPITAL CAPITAL REQUIREMENTS EXCESS CAPITAL
--------------------- ---------------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- ----------- ---------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital........ $ 61,221 6.17% $ 29,758 3.00% $31,463 3.17%
Core capital............ 61,221 6.17 14,879 1.50 46,342 4.67
Total risk-based
capital................ 67,458 10.48 51,511 8.00 15,947 2.48
</TABLE>
70
<PAGE>
Pursuant to regulations of the Federal Reserve, all FDIC-insured depository
institutions must maintain average daily reserves against their transaction
accounts. No reserves are required to be maintained on the first $4.3 million
of transaction accounts, and reserves equal to 3% must be maintained on the
next $52.0 million of transaction accounts, plus reserves equal to 10% on the
remainder. These percentages are subject to adjustment by the Federal Reserve.
Because required reserves must be maintained in the form of vault cash or in a
noninterest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's interest
earning assets. As of December 31, 1997, New South met its reserve
requirements.
Federal Deposit Insurance. New South is required to pay assessments based on
a percentage of its insured deposits to the FDIC for insurance of its deposits
by the SAIF.
The FDICIA was enacted to recapitalize the Bank Insurance Fund ("BIF") and
impose certain supervisory and regulatory reforms on insured depository
institutions. Pursuant to the FDICIA, the FDIC established a risk-based
assessment system for determining the deposit insurance assessments to be paid
by insured depository institutions. The assessment rate depends on the capital
category and supervisory category to which an institution is assigned. For the
first nine months of 1996, the assessment rate for SAIF-insured institutions
ranged from 0.23% of deposits for well-capitalized institutions in the highest
supervisory subgroup to 0.31% of deposits for undercapitalized institutions in
the lowest supervisory subgroup.
In late 1995, the FDIC amended the risk-based assessment schedule for
depository institutions with deposits insured by the BIF, resulting in a
significant reduction in FDIC assessments for BIF-insured but not SAIF-insured
institutions. In response to this assessment disparity, the Deposit Insurance
Funds Act of 1996 (the "1996 Act"), enacted on September 30, 1996, amended the
Federal Deposit Insurance Act (the "FDI Act") in several ways to recapitalize
the SAIF and reduce the disparity between the assessment rates for the BIF and
the SAIF. The 1996 Act authorized the FDIC to impose a special assessment on
all institutions with SAIF-assessable deposits in the amount necessary to
recapitalize the SAIF to the required reserve ratio of 1.25%. SAIF-insured
institutions on November 27, 1996 paid a special assessment equal to 65.7
basis points per $100 of each institution's SAIF-assessable deposits as of
March 31, 1995. The 1996 Act provides the amount of the special assessment
that will be deductible for federal income tax purposes for the taxable year
in which the special assessment is paid. Based on the foregoing, New South
recorded an expense for the special assessment in 1996 of $3.2 million, or
$1.9 million net of tax. In view of the recapitalization of the SAIF, in
December 1996 the FDIC reduced the assessment rate for SAIF-assessable
deposits for periods beginning on October 1, 1996. As a result, the insurance
assessment rates for SAIF-insured institutions, like New South, were set at 18
to 27 basis points for the last quarter of 1996 and zero to 27 basis points
for 1997. In addition, SAIF-insured institutions will be required, until
December 31, 1999, to pay assessments to the FDIC at the annual rate of 6.44
basis points to help fund interest payments on certain bonds issued by the
Financing Corporation ("FICO"), an agency of the federal government
established to recapitalize the predecessor to the SAIF. During this period,
BIF member banks will be assessed for payment of the FICO obligations at the
annual rate of 1.29 basis points. After December 31, 1999, BIF and SAIF
members will be assessed at the same rate for FICO obligations.
The 1996 Act also provides that the FDIC cannot assess regular insurance
assessments for the SAIF or the BIF unless required to maintain or to achieve
the designated reserve ratio of 1.25%, except for assessments on institutions
that are not classified as "well-capitalized" or that have been found to have
"moderately severe" or "unsatisfactory" financial, operational or compliance
weaknesses. New South is classified as "well-capitalized" and has not been
found by the OTS to have such supervisory weaknesses. Accordingly, assuming
that the designated reserve ratio is maintained by the SAIF after the
collection of the special SAIF assessment, New South, as long as it maintains
its capital and supervisory status, will pay substantially lower FDIC
assessments compared to those it paid in recent years.
Qualified Thrift Lender Test. The HOLA and OTS regulations require all
savings institutions to meet a Qualified Thrift Lender ("QTL") test. Under the
QTL test, as modified by FDICIA, a savings association is
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<PAGE>
required to maintain at least 65% of its "portfolio assets"(total assets less
(i) specified liquid assets up to 20% of total assets, (ii) intangible assets,
including goodwill, and (iii) the value of property used to conduct business)
in certain "qualified thrift investments" (such as home residential mortgage
loans and other residential real estate-related assets) on a monthly average
basis in nine out of every 12 months.
A savings institution that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. An
initial failure to qualify as a QTL results in a number of sanctions,
including the imposition of certain operating restrictions and a restriction
on obtaining additional advances from its Federal Home Loan Bank. If a savings
institution does not requalify under the QTL test within the three-year period
after it fails the QTL test, it would be required to terminate any activity
not permissible for a national bank and repay as promptly as possible any
outstanding advances from its Federal Home Loan Bank. In addition, the holding
company of such an institution, such as the Company, would similarly be
required to register as a bank holding company with the Federal Reserve Board.
See "Supervision and Regulation--Supervision and Regulation of the Company."
At December 31, 1997, New South qualified as a QTL.
Legislation enacted into law on September 30, 1996 made certain amendments
to the HOLA that significantly liberalize the QTL test. First, the new law
permits loans to small businesses, student loans and credit card loans to be
counted as Qualified Thrift Investments without percentage limits. The current
10% limit on all other loans to households is eliminated by the new law, and
such loans may now be counted toward the QTL test within the 20% of portfolio
assets limit. Second, the statute amends the QTL test to provide that a
savings institution may be considered a QTL either (i) by satisfying the
HOLA's QTL requirements or (ii) by qualifying as a "domestic building and loan
association" as defined under the Code.
Standards for Safety and Soundness. The FDI Act, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994,
requires the OTS, together with the other federal bank regulatory agencies, to
prescribe standards, by regulation or guideline, relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth, asset quality,
operational and managerial standards as the agencies deem appropriate. The OTS
and the federal bank regulatory agencies adopted, effective August 9, 1995, a
set of guidelines prescribing safety and soundness standards pursuant to the
statute. The safety and soundness guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
and compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholder.
In addition, on July 10, 1995, the OTS and the federal bank regulatory
agencies proposed guidelines for asset quality and earnings standards. Under
the proposed standards, a savings institution would be required to maintain
systems, commensurate with its size and the nature and scope of its
operations, to identify problem assets and prevent deterioration in those
assets as well as to evaluate and monitor earnings and ensure that earnings
are sufficient to maintain adequate capital and reserves. Management believes
that the asset quality and earnings standards, in the form proposed by banking
agencies, would not have a material effect on the operations of New South.
Prompt Corrective Action. Under FDICIA, the federal banking regulators are
required to take prompt corrective action in respect of depository
institutions that do not meet certain minimum capital requirements, including
a leverage limit and a risk-based capital requirement. All institutions,
regardless of their capital levels, are restricted from making any capital
distribution or paying any management fees that would cause the institution to
become undercapitalized. As required by FDICIA, banking regulators, including
the OTS, have issued regulations that classify insured depository institutions
by capital levels and provide that the applicable agency will take various
prompt corrective actions to resolve the problems of any institution that
fails to satisfy the capital standards.
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<PAGE>
At December 31, 1997, New South met all of its capital requirements on a
fully phased-in basis and had the requisite capital levels to be deemed a
"well capitalized" institution under the OTS' prompt corrective action
regulations.
Limitations on Capital Distributions. OTS regulations currently impose
limitations upon capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
stockholders of another institution in a cash-out merger and other
distributions charged against capital. A savings institution must give notice
to the OTS at least 30 days before payment of a proposed capital distribution,
and capital distributions in excess of specified earnings or by certain
institution are subject to approval by the OTS. A savings institution that has
capital in excess of all regulatory capital requirements before and after a
proposed capital distribution and that is not otherwise restricted in making
capital distributions may, after prior notice but without the approval of the
OTS, make capital distributions during a calendar year equal to the greater of
(i) 100% of its net earnings to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the
calendar year, or (ii) 75% of its net earnings for the previous four quarters.
Any additional capital distributions would require prior OTS approval. New
South currently satisfies all of its capital requirements on a fully-phased-in
basis and therefore is permitted to pay dividends in accordance with the
distribution rules described above.
In addition to the foregoing, earnings of New South appropriate to bad debt
reserves and deducted for foreign income tax purposes are not available for
payment of dividends or other distributions to the Company without payment of
taxes at the then current tax rate by New South on the amount of earnings
removed from the reserves for such distributions.
Real Estate Lending Standards. Under joint regulations of the federal
banking agencies, including the OTS, savings institutions must adopt and
maintain written policies that establish appropriate limits and standards for
extensions of credit that are secured by liens or interests in real estate or
are made for the purpose of financing permanent improvements to real estate.
These policies must establish loan portfolio diversification standards,
prudent underwriting standards, including loan-to-value limits, that are clear
and measurable, loan administration procedures and documentation, approval and
reporting requirements. An institution's real estate lending policy must
reflect consideration of Interagency Guidelines for Real Estate Lending
Policies (the "Interagency Guidelines") that have been adopted by the federal
bank regulators. The Interagency Guidelines, among other things, call upon
depository institutions to establish internal loan-to-value limits specified
in the Interagency Guidelines for the various types of real estate loans. The
Interagency Guidelines state that it may be appropriate in individual cases to
originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits.
Federal Consumer Credit and Non-Discrimination Regulation. New South's
mortgage lending activities are subject to the provisions of various federal
and state statutes, including, among others, the Truth in Lending Act, the
Equal Credit Opportunity Act, the RESPA, the Fair Housing Act and the
regulations promulgated thereunder. These statutes and regulations, among
other things, prohibit discrimination on the basis of race, gender or other
designated characteristics, prohibit unfair and deceptive trade practices,
require the disclosure of certain basic information to mortgage borrowers
concerning credit terms and settlement costs, and otherwise regulate terms and
conditions of credit and the procedures by which credit is offered and
administered. Each of the foregoing statutes provides for various
administrative, civil and, in limited circumstances, criminal enforcement
procedures, and violations thereof may also lead to class actions seeking
actual and/or punitive damages.
New South attempts in good faith to comply with the provisions of these
statutes and their implementing regulations; however, the provisions are
complex and even inadvertent non-compliance could result in liability to New
South. During the past several years, numerous individual claims, purported
class actions and federal enforcement proceedings have been commenced against
a number of financial institutions alleging that one or more of these
provisions have been violated. While New South has incurred no material
detriment as a result of
73
<PAGE>
these actions, there can be no assurance that one or more aspects of its
lending program will not be found to have been in violation of these statutes.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements
or programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its
community and to take that record into account in its evaluation of certain
applications by the institution. FIRREA amended the CRA to require all
institutions to make public disclosure of their CRA performance using the
ratings of "outstanding," "satisfactory," "needs to improve," or "substantial
noncompliance." New South received an outstanding rating in its last CRA
examination by the OTS dated February 12, 1996.
On May 4, 1995, the bank regulatory agencies, including the OTS, adopted new
uniform CRA regulations that provide guidance to financial institutions on
their CRA obligations and the methods by which those obligations will be
assessed and enforced. The regulations establish three tests applicable to New
South: (i) a lending test to evaluate direct lending in low-income areas and
indirect lending to groups that specialize in community lending; (ii) a
service test to evaluate its delivery of services to such areas, and (iii) an
investment test to evaluate its investment in programs beneficial to such
areas. The new CRA regulations became effective on July 1, 1995, but reporting
requirements were not effective until January 1, 1997. Evaluation under the
regulations was not mandatory until July 1, 1997. New South believes its
current operations and policies substantially comply with the regulations, and
therefore no material changes to operations or policies are expected.
Agencies. New South's lending activities, including its mortgage banking
operations, are subject to the rules and regulations of the FHA, VA, FNMA,
FHLMC and GNMA and other regulatory agencies with respect to originating,
processing, underwriting, selling and servicing residential mortgage loans. In
addition, there are other federal and state statutes and regulations affecting
such activities. Moreover, lenders such as New South are required annually to
submit audited financial statements to FNMA, FHLMC and GNMA and to comply with
each regulatory entity's own financial requirements. New South's business is
also subject to examination by FNMA, FHLMC and GNMA to assure compliance with
applicable regulations, policies and procedures.
Transactions with Affiliates. New South is subject to restrictions imposed
by federal law on extensions of credit to, and certain other transactions
with, the Company and other affiliates and on investments in the stock or
other securities thereof. Such restrictions prevent the Company and such other
affiliates from borrowing from New South unless the loans are secured by
specified collateral, and require such transactions to have terms comparable
to terms of arms-length transactions with third persons. Further, such secured
loans and other transactions and investments by New South are generally
limited in amount as to the Company and as to any other affiliate to 10% of
New South's capital and surplus and as to the Company and all other affiliates
to an aggregate of 20% of New South's capital and surplus. These regulations
and restrictions may limit the Company's ability to obtain funds from New
South for its cash needs, including funds for acquisitions and for payment of
dividends, interest and operating expenses. New South's ability to extend
credit to its directors, executive officers, and 10% stockholders, as well as
to entities controlled by such persons, is governed by the requirements of
Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the
Federal Reserve thereunder.
Liquidity Requirements. New South is required by OTS regulation to maintain
an average daily balance of liquid assets (cash, certain time deposits,
bankers' acceptances, highly rated corporate debt and commercial paper,
securities of certain mutual funds and specified United States government,
state or federal agency obligations) equal to the monthly average of not less
than a specified percentage (currently 5%) of its net withdrawable savings
deposit plus short-term borrowings. The average daily liquidity ratio of New
South for the month ended December 31, 1997 was 10.5%. New South is also
required to maintain average daily balances of
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<PAGE>
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable savings accounts and borrowings payable in one year or
less. New South was in compliance with the 1% requirement at December 31,
1997. Monetary penalties may be imposed for failure to meet liquidity
requirements.
Branching. Subject to certain limitations, the HOLA and the OTS regulations
currently permit federally chartered savings institutions such as New South to
establish branches in any state of the United States. The authority to
establish such branches is available (i) in states that expressly authorize
branches of savings institutions located in another state or (ii) to a federal
savings institution that qualifies as a "domestic building and loan
association under the Code. See "--Qualified Thrift Lender Test." The
authority for a federal savings institution to establish an interstate branch
network would facilitate a geographic diversification of the institution's
activities. This authority under the HOLA and the OTS regulations preempts any
state law purporting to regulate branching by federal savings institutions.
Federal Home Loan Bank System. The Federal Home Loan Bank System consists of
12 district Federal Home Loan Banks subject to supervision and regulation by
the Federal Housing Finance Board ("FHFB"). The Federal Home Loan Banks
provide a central credit facility primarily for member institutions. As a
member of the FHLB, New South is required to acquire and hold shares of
capital stock in the FHLB in an amount at least equal to 1% of the aggregate
unpaid principal of its home residential mortgage loans, home purchase
contracts, and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings), from the FHLB, whichever is greater. New South was
in compliance with this requirement, with an investment in FHLB stock at
December 31, 1997 of $9.3 million. Long-term FHLB advances may only be made
for the purpose of providing funds for residential housing finance. At
December 31, 1997, New South had total advances of $179.4 million outstanding
from the FHLB.
SUPERVISION AND REGULATION OF THE COMPANY
The Company is a unitary thrift holding company under the HOLA and, as such,
is subject to OTS regulation, supervision and examination. In addition, the
OTS has enforcement authority over the Company and may restrict or prohibit
activities that are determined to represent a serious risk to the safety,
soundness or stability of New South or any other subsidiary savings
institution.
Under the HOLA, a thrift holding company may not (i) acquire, with certain
exceptions, more than 5% of a non-subsidiary savings institution or a non-
subsidiary savings and loan holding company; or (ii) acquire or retain control
of a depository institution that is not insured by the FDIC.
As a thrift holding company, the Company generally is not subject to any
restriction as to the types of business activities in which it may engage,
provided that New South continues to satisfy the QTL test. See "Supervision
and Regulation--Supervision and Regulation of New South--Qualified Thrift
Lender Test." Upon any non-supervisory acquisition by the Company of another
savings institution that is held as a separate subsidiary, the Company would
become a multiple savings and loan holding company and would be subject to
limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings and loan holding company and
its non-insured institution subsidiaries primarily to activities permissible
for bank holding companies under the Bank Holding Company Act, subject to the
prior approval of the OTS, and to other activities authorized by OTS
regulation.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning the beneficial
ownership of the Company's common stock as of December 31, 1997 by each person
(or group within the meaning of Section 13(d)(3) of the Exchange Act) known by
the Company to own beneficially more than five percent of the Company's common
stock:
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND NATURE OF BENEFICIALLY
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OWNED(1)
- ---------------- ----------------------- ------------
<S> <C> <C>
Mary R. Johnson-Butterworth
4731 Old Leeds Road
Birmingham, Alabama 35213................ 84,959(2) 6.17%
W. T. Ratliff, Jr.
2621 Altadena Road
Birmingham, Alabama 35243................ 370,173 26.88
J.K.V. Ratliff
46 Greenway Road
Birmingham, Alabama 35213................ 194,409 14.12
William T. Ratliff, III
3944 Forest Glen Drive
Birmingham, Alabama 35213................ 112,018(3) 8.14
Amelie L. Ratliff
5 Fuller Street, #1
Brookline, Massachusetts 02146........... 82,158(4) 5.97
Daniel T. Ratliff
31315 Pine Run Drive
Ono Island
Orange Beach, Alabama 36561.............. 86,346(5) 6.27
Carlton McCoy Ray
9949 Southwind Drive
Indianapolis, Indiana 46256.............. 76,970 5.59
</TABLE>
- --------
(1) Unless otherwise indicated, the persons named above have the sole power to
vote or direct the voting and to dispose or direct the disposition of any
security.
(2) Includes 7,376 shares held by Mrs. Johnson-Butterworth as custodian for
the benefit of her minor children.
(3) Includes 20,136 shares held by Mr. Ratliff, III as custodian for the
benefit of his minor children, nieces and nephews.
(4) Includes 4,688 shares held by Ms. Ratliff as custodian for the benefit of
her minor son.
(5) Includes 9,376 shares held by Mr. Daniel T. Ratliff as custodian for the
benefit of his minor children.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors ("Board of Directors") is divided into
three classes, and each of the Company's three directors is elected into one
of these three classes to hold office for a term of three years or until their
successors have been elected and qualified. Executive officers serve at the
pleasure of the Board of Directors and directors are elected at the annual
meeting of stockholders. The directors, executive officers and other key
employees of the Company and their ages as of April 1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
DIRECTOR ELECTED TO SERVE UNTIL ANNUAL MEETING IN 2000 (CLASS III)
William T. Ratliff, Jr.... 73 Director and Vice President of the Company;
Director of New South
DIRECTOR ELECTED TO SERVE UNTIL ANNUAL MEETING IN 2001 (CLASS I)
J.K.V. Ratliff............ 69 Director and Vice President of the Company
DIRECTOR ELECTED TO SERVE UNTIL ANNUAL MEETING IN 1999 (CLASS II)
William T. Ratliff, III... 44 Chairman of the Board and President of the
Company;
Chairman of the Board and Chief Executive
Officer of New South
EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Robert M. Couch........... 41 Executive Vice President of the Company;
Director, President and Chief Operating
Officer of New South
Suzanne H. Moore.......... 42 Vice President and Controller of the Company
and New South
David E. Mewbourne........ 49 Executive Vice President of New South
Roger D. Murphree......... 52 Senior Vice President of New South
David A. Roberts.......... 45 Director and Senior Vice President of New
South
Larry A. Nelson........... 49 Senior Vice President of New South
Lizabeth R. Nichols....... 42 Vice President and General Counsel of New
South
</TABLE>
The business experience of each of the persons named above during the past
five years is discussed below.
Mr. William T. Ratliff, Jr. has been a Director and Vice President of the
Company since its organization in 1994. He has been a Director of New South
since its organization in 1985. He has served as Chief Executive Officer of
Collateral (or its predecessor Collateral Investment Company) for 31 years
until 1986. Mr. Ratliff, Jr. is the father of Mr. Ratliff, III, the Chairman
and President of the Company, and the brother of Mr. J.K.V. Ratliff, a
Director and Vice President of the Company.
Mr. J.K.V. Ratliff has been a Director and Vice President of the Company
since its organization in 1994. He has been a Director and Vice President of
Collat, Inc., an affiliate, since 1986. Mr. J.K.V. Ratliff has been Assistant
to the President and a Director of Collateral Agency, Inc., an affiliate,
since its inception in 1956. Mr. Ratliff has also served as a director and
Vice President of Collateral Investment Corp., an affiliate, since September
1990. Mr. J.K.V. Ratliff is the brother of Mr. Ratliff, Jr., a Director and
Vice President of the Company, and the uncle of Mr. Ratliff, III, the Chairman
and President of the Company.
Mr. William T. Ratliff, III has been President and a Director of the Company
since its organization in October 1994 and Chairman of the Board and Chief
Executive Officer of New South since 1985. Mr. Ratliff, III, has been the
Chairman of the Board of Triad Guaranty, Inc., an affiliate, since 1993 and
Chairman of the Board of Triad Guaranty Insurance Corporation, an affiliate,
since 1989. He has been President of Collateral Investment Corp., an
affiliate, since 1990 and was President and an individual General Partner of
Collateral from 1987 to 1995. From March 1994 until December 1996, Mr. Ratliff
served as President of Southwide Life Insurance Corp., an affiliate. He served
as Executive Vice President of Southwide Life Insurance Corp., an affiliate,
from 1986 to 1993. Mr. Ratliff, III joined Collateral in 1981. Mr. Ratliff,
III is the son of Mr. Ratliff, Jr., a Director and Vice President of the
Company, and the nephew of Mr. J.K.V. Ratliff, a Director and Vice President
of the Company.
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<PAGE>
Mr. Robert M. Couch has been Executive Vice President of the Company since
1994. Mr. Couch is responsible for the day-to-day operations of the Company.
He has been President and Chief Operating Officer of New South since June 1997
and a Director since January 1995. From March 1995 to June 1997, he served as
Vice Chairman of New South. From August 1995 to present, Mr. Couch has been
President of Collateral. From October 1993 to August 1995, Mr. Couch served as
Executive Vice President of Collateral. Prior to joining New South in 1993, he
served as General Counsel and Chief Financial Officer of Synovus Bancshares of
Alabama, Inc. (formerly First Commercial Bancshares, Inc.).
Ms. Suzanne H. Moore has been Vice President and Controller of the Company,
New South and Collateral since September 1997. From April 1989 to August 1997,
Ms. Moore served as Vice President and Controller of NationsBank Commercial
Corporation, a factoring company after serving in various financial positions
with NationsBank since 1976.
Mr. David E. Mewbourne has been Executive Vice President of New South since
July 1997. Mr. Mewbourne is responsible for the day to day operations of the
residential mortgage loan production, underwriting and servicing. From 1995 to
June 1997, he was Senior Vice President of New South. Mr. Mewbourne has been
Senior Vice President of Collateral, since March 1993. From June 1987 to March
1995, he served as Executive Vice President of AmSouth Mortgage Company.
Mr. Roger D. Murphree has been Senior Vice President of New South since
December 1997. Mr. Murphree is responsible for secondary marketing sales,
securitizations, and portfolio trading for the Company. From 1995 to December
1997, he served as Vice President of New South. Mr. Murphree has been employed
by New South since 1985. Mr. Murphree has served as Senior Vice President of
Collateral since June 1995.
Mr. David A. Roberts has been a Director of New South since September 1997
and Senior Vice President since July 1997. Mr. Roberts is responsible for the
commercial real estate lending activities. Mr. Roberts has also served as
Executive Vice President of Collateral since August 1997. From February 1995
to July 1997, he served as Senior Vice President of Collateral. From June 1990
to February 1995, he served as Vice President of Collateral.
Mr. Larry A. Nelson has been Senior Vice President of New South since
December 1997. Mr. Nelson is responsible for the day-to-day operations of
installment (automobile) lending. From 1989 to 1997, he served as Vice
President of New South.
Ms. Lizabeth R. Nichols has been Vice President and General Counsel of New
South since February 1998. From January 1997 to January 1998, Ms. Nichols
served as Vice President and Legal Counsel of New South. Ms. Nichols has
served as Vice President of Collateral since January 1997. From October 1993
to September 1996, Ms. Nichols was Vice President and Associate General
Counsel of Protective Life Corporation, an insurance holding company and was
an employee until January 1997. Prior to 1993, Ms. Nichols served in various
capacities with Protective Life Corporation.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information concerning the beneficial
ownership of the Company's common stock as of December 31, 1997, by (i) each
director of the Company, (ii) the President of the Company and each other
executive officer of the Company whose total annual salary and bonus earned
during the fiscal year ended December 31, 1997 exceeded $100,000 (the "Named
Executive Officers"), and (iii) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNERSHIP(1) CLASS(1)
- ---- -------------------------- ----------
<S> <C> <C>
William T. Ratliff, Jr.................. 370,173 26.88%
J.K. V. Ratliff......................... 194,409 14.12
William T. Ratliff, III................. 112,018(2) 8.14
All directors and executive officers as
a group:............................... 676,600 49.14
</TABLE>
- --------
(1) Unless otherwise indicated, the persons named above have the sole power to
vote or direct the voting and to dispose or direct the disposition of any
security.
(2) Includes 20,136 shares held by Mr. Ratliff, III as custodian for the
benefit of his minor children, nieces and nephews.
DIRECTOR COMPENSATION
No Directors receive fees for their service on the Board of Directors.
Executive officers of the Company who are also directors of the Company do not
receive remuneration other than salaries and bonuses for serving on the Board
of Directors.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board of Directors held
one regularly scheduled meeting, which was attended by all directors.
COMMITTEES OF THE BOARD OF DIRECTORS
There are no committees of the Board of Directors.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Named
Executive Officers from New South during the fiscal year ended December 31,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- ------------------ -------- -------- ---------------
<S> <C> <C> <C>
William T. Ratliff, III
President of the Company ................. $127,000 $ 40,000 $2,375
Robert M. Couch
Executive Vice President of
the Company............................... 198,000(2) 160,000 2,375
David E. Mewbourne
Executive Vice President of
New South................................. 166,042 125,000 2,375
Roger D. Murphree
Senior Vice President of New South........ 83,646 25,000 1,747
</TABLE>
- --------
(1) Consists solely of amounts contributed by the Company to the executive
officer's 401(k) plan.
(2) Includes $39,600 reimbursed by Collateral under the Administrative
Services Agreement (as defined herein) for services rendered by Mr. Couch
to Collateral. See "Certain Relationships and Related Transactions."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
Certain affiliated corporations and limited partnerships in which Messrs.
Ratliff, Jr., J.K.V. Ratliff and Ratliff, III are majority owners have been
customers of New South in the ordinary course of business. These affiliated
corporations and limited partnerships include Collateral, Safemate Life
Insurance Company, Collateral Agency, Inc., Triad Guaranty, Inc., and
Southland National Insurance Corporation. Outside of normal customer
relationships, no directors or officers of the Company, no stockholders
holding over five percent (5%) of the Company's voting securities, and no
corporations or limited partnerships with which such persons or entities were
associated, maintain or have maintained since December 31, 1996, any
significant business or personal relationship with the Company or New South,
except as described below. The terms of each of the transactions presented
herein are similar to those that could have been obtained through negotiations
with unaffiliated third parties.
COLLATERAL TRANSACTIONS
Transfer. New South assumed 39 residential loan production offices,
associated employees, and related assets and liabilities from Collateral in
July 1997 under the terms of two separate agreements. As a result of the
Transfer, New South added approximately 300 employees to its payroll, with
associated increases of expenses of $8.6 million. In connection with the
Transfer, New South agreed to make semi-annual payments to Collateral through
June 30, 2000 based on a percentage of the aggregate principal balance of all
residential mortgage loans originated through the 39 loan production offices.
The percentage for the twelve month periods ending June 30, 1998, 1999, and
2000 are 0.35%, 0.20% and 0.10% respectively. For the six month period between
July 1, 1997 (the effective date of the Transfer) and December 31, 1997, these
fees totalled $891,000. In addition, New South paid Collateral $316,000 during
1997 under the terms of a Lease Agreement effective July 1, 1997 for the
furniture and fixtures associated with the 39 loan production offices. The
Lease Agreement is for a term of 11 months.
Subservicing Agreement. New South has entered into a Subservicing Agreement
with Collateral to service certain conforming residential mortgage loans for
New South. The Subservicing Agreement has an indefinite term but may be
terminated by New South with 60 days notice, provided New South pays
Collateral a penalty equal to 1% of the aggregate amount of servicing
outstanding on the date of termination. Collateral has the right to terminate
the Subservicing Agreement with 30 days notice without penalty. Under the
terms of the Subservicing Agreement, New South is required to reimburse
Collateral for any non-recoverable losses. The total amount of non-recoverable
losses paid by New South to Collateral in 1997 was $71,000. In addition, New
South paid Collateral $3,642,000 in fees under the Subservicing Agreement in
1997.
Trust and Banking Services. New South's Trust Department acts as document
custodian under the terms of a Custodial Agreement dated December 30, 1990 and
Safekeeping Agreement dated April 12, 1994 for certain of Collateral's
mortgage banking activities. Under the terms of the Custodial Agreement, New
South serves as custodian of documents evidencing and relating to mortgages to
be pooled under contracted agreements associated with GNMA, FNMA and FHLM
mortgage backed securities programs. The fees payable under the Custodial
Agreement are calculated on a per file basis. The Custodial Agreement may be
terminated by either party with 30 days prior notice. Under the Safekeeping
Agreement, New South serves as custodian for safekeeping certain commercial
real estate loan files. The Safekeeping Agreement is for an indefinite term,
and may be terminated by either party with 30 days notice. The fees to be paid
to New South under the Safekeeping Agreement are calculated on a per file
basis. New South received $191,022 in fees from Collateral in 1997 for
custodial and safekeeping services.
Collateral maintains deposits with New South in the normal course of
business. At December 31, 1997, these deposits totaled $39.9 million in
noninterest bearing accounts under escrow accounts for Collateral as trustee
for certain investors and mortgagors. Collateral and its affiliates also
maintain business checking and money market accounts at New South. At December
31, 1997, amounts totaling approximately $1.6 million were maintained in such
accounts at New South in the normal course of business.
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<PAGE>
Loan Purchases. During 1997, New South purchased $55.0 million of mortgage
loans from Collateral at cost. New South sold $20.6 in mortgage loans to
Collateral in 1997. These purchases and sales were governed by terms of the
Loan/Mortgage--Securities Master Participation Agreement dated March 30, 1988.
This Agreement is for an indefinite term and can be terminated by either party
upon an event of default by Collateral or insolvency of either party. New
South's participation percentage is 90% on all loans and mortgage-backed
securities.
Lease Agreements. New South leases furnished office space from certain
affiliates. Under the terms of two Commercial Lease Agreements, New South paid
Collateral $136,540 in rent for lease of office space at 2000 Crestwood
Boulevard, 1900 Crestwood Boulevard, and the Southwide Life Building during
1997. The Commercial Lease Agreements are each for terms of one year and are
automatically renewable. Either party may terminate same with sixty days
notice.
OTHER AFFILIATE TRANSACTIONS
Administrative Services Agreement. New South provides data processing,
legal, management, corporate accounting, human resources, mail,
telecommunications and public relations services to certain affiliated
companies under the terms of an Agreement for Administrative Services
effective January 1, 1991 (the "Administrative Services Agreement"). The
Administrative Services Agreement is for a term of one year, and is
automatically renewable. The Administrative Services Agreement may be
terminated by any party with sixty days notice. Administrative services are
provided at actual costs, with fees being due quarterly. Due to offsetting
expenses owed by New South to Collateral for services rendered by Collateral
to New South prior to the Transfer, no sums were due from Collateral under
this Administrative Services Agreement in 1997. Had these offsetting expenses
not been incurred, amounts payable from Collateral under this Administrative
Services Agreement in 1997 would have been $282,272. The percentage allocation
of New South's total operating costs assessed each affiliate for these
services are indicated below.
<TABLE>
<CAPTION>
CORPORATE DATA MAIL COMPLIANCE/ HUMAN PUBLIC TELECOM-
ACCOUNTING PROCESSING ROOM LEGAL RESOURCES RELATIONS MUNICATIONS
---------- ---------- ---- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Collateral Mortgage,
Ltd.................... 25% 20% 20% 5% 15% 25% 16%
Safemate Life Insurance
Company................ 0 0 0 0 1 0 0
Collateral Agency,
Inc.................... 5 10 5 0 2 0 2
Triad Guaranty Inc...... 0 0 0 0 0 0 0
Southland National
Insurance Corporation.. 0 0 0 20 5 0 0
</TABLE>
Executive officers of New South also serve as executive officers and/or
directors of one or more affiliate companies. Certain compensation allocations
are made as to certain individuals' time devoted to duties as an executive
officer of New South and its affiliates, and New South receives reimbursement
for compensation paid to such executive officers which is allocable to these
other affiliates. Of the amounts of compensation shown in the Summary
Compensation Table approximately 44% of Mr. Ratliff, III's and 80% of Mr.
Couch's total compensation is attributable to services performed for or on
behalf of New South.
Investment Advisory Agreements. In 1997, Collateral received investment fees
of $240,807 and $14,755, respectively from Triad Guaranty Insurance
Corporation and Southland National Insurance Corporation under the terms of
Investment Advisory Agreements dated January 1, 1996. These Agreements have an
indefinite term and may be terminated by either party with 60 days notice. For
investment advisory services rendered, Collateral receives a fee based on the
value of the assets actively managed. Collateral's advisory services are
provided by New South personnel in the Capital Markets department who also
serve as officers of Collateral. Approximately 20% of New South's Capital
Markets department time is expended on these investment advisory services.
Real Estate Purchase Agreement. New South sold an office rental property to
Collateral Agency, Inc., an affiliate, for a purchase price of $1.12 million
in 1997 under the terms of a Real Estate Purchase Agreement dated June 7,
1997. New South realized a gain of $158,000 on the sale.
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<PAGE>
Loan Sale Agreement. New South paid Collateral Investment Corp., an
affiliate, $996,972 for five commercial loans previously purchased from the
Resolution Trust Corporation pursuant to a Loan Sale Agreement dated November
25, 1997.
Stock Purchase Agreement. The Company paid Collateral Investment Corp.
$197,488 for the purchase of 100% of the common stock of Collateral Agency of
Texas, Inc., a grandfathered insurance agency, pursuant to Stock Purchase
Agreement dated December 31, 1997.
INDEBTEDNESS OF MANAGEMENT
Certain directors and executive officers of New South and its affiliates are
currently indebted to New South for mortgage loans. These loans (i) were made
in the ordinary course of business, (ii) were made on substantially the same
terms, including interest and collateral, as those prevailing at the time for
comparable transactions with other persons, and (iii) did not involve more
than the normal risk of collectibility or present other unfavorable features.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will represent preferred undivided beneficial
interests in the assets of the Trust, and the holders thereof will be entitled
to a preference over the Common Securities in certain circumstances with
respect to Distributions and amounts payable on redemption of the Trust
Securities or liquidation of the Trust. See "Description of the Preferred
Securities--Subordination of Common Securities." The Trust Agreement will be
qualified under the Trust Indenture Act. All material terms of the Trust
Agreement are summarized below. The following description does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the Trust Agreement and the Trust Indenture Act. Certain capitalized terms
used herein are defined in the Trust Agreement.
GENERAL
The Preferred Securities will be limited to $30 million aggregate
liquidation amount at any one time outstanding (unless the Underwriters
exercise their over-allotment option, in which event the aggregate liquidation
amount of the Preferred Securities will be $34,500,000). The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities of the Trust except as described under "--
Subordination of Common Securities" below. Legal title to the Subordinated
Debentures will be held by the Property Trustee in trust for the benefit of
the holders of the Preferred Securities and the Common Securities. The
Guarantee will not guarantee payment of Distributions or amounts payable on
redemption of the Preferred Securities or liquidation of the Trust when the
Trust does not have funds on hand legally available for such payments. See
"Description of the Guarantee."
DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Trust, and Distributions on the Preferred Securities will
be payable at the annual rate of % of the stated Liquidation Amount of
$10.00, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year to the holders of the Preferred Securities at the
close of business on the fifteenth day (whether or not a Business Day (as
defined below)) next preceding the relevant Distribution Date. Distributions
will accumulate from the Issue Date. The first Distribution payment date for
the Preferred Securities will be September 30, 1998. The amount of
Distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months. In the event that any date on which
Distributions are payable on the Preferred Securities is not a Business Day,
then payment of the Distributions payable on such date will be made on the
next succeeding day that is a Business Day (and without any additional
Distributions or other payment in respect of any such delay), in each case
with the same force and effect as if made on the date such payment was
originally payable. A "Business Day" shall mean any day other than a Saturday
or Sunday, or a day on which banking institutions in New York, New York are
authorized by law or executive order to be closed.
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<PAGE>
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company has the right under the Indenture to defer payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not exceeding twenty (20) consecutive quarterly periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity. As a consequence of any such deferral of interest payments by
the Company, quarterly Distributions on the Preferred Securities will also be
deferred by the Trust during any such Extension Period. Distributions to which
holders of the Preferred Securities are entitled will accumulate, with
interest thereon at the rate per annum of % compounded quarterly, to the
extent permitted by applicable law, from the relevant payment date for such
Distributions. The term "Distributions" as used herein shall include any such
additional interest.
During any such Extension Period, the Company may extend such Extension
Period, provided that such extension does not cause such Extension Period to
exceed twenty (20) consecutive quarterly periods or to extend beyond the
Stated Maturity. Upon the termination of any such Extension Period and the
payment of all amounts then due, and subject to the foregoing limitations, the
Company may elect to begin a new Extension Period. The Company must give the
Property Trustee, the Administrative Trustees and the Debenture Trustee notice
of its election of any Extension Period or any extension thereof at least five
Business Days prior to the earlier of (i) the date the Distributions on the
Preferred Securities would have been payable except for the election to begin
or extend such Extension Period and (ii) the date the Administrative Trustees
are required to give notice to any securities exchange or to holders of the
Preferred Securities of the record date or the date such Distributions are
payable, but in any event not less than five Business Days prior to such
record date. There is no limitation on the number of times that the Company
may elect to begin an Extension Period. See "Description of the Subordinated
Debentures--Option to Extend Interest Payment Date" and "Certain Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu in all respects with or junior in interest to the Subordinated
Debentures subject to certain exceptions described herein or (iii) make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in right of payment to the Subordinated Debentures (other than
(a) dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee, (d) as a result of a reclassification of the
Company's capital stock or the exchange or conversion of one class, or series
of the Company's capital stock for another class or series of the Company's
capital stock, (e) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, and (f)
purchases or issuances of common stock in connection with any of the Company's
stock option, stock purchase, stock loan or other benefit plans for its
directors, officers or employees or any of the Company's dividend reinvestment
plans, in each case as now existing or hereafter established or amended). See
"Description of the Subordinated Debentures--Option to Extend Interest Payment
Date."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
The revenue of the Trust available for distribution to holders of its
Preferred Securities will be limited to payments under the Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. If the Company does not make interest payments
on such Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (if and to the extent the Trust has funds legally available for
the payment of such Distributions
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<PAGE>
and cash sufficient to make such payments) is guaranteed by the Company on a
limited basis as set forth herein under "Description of the Guarantee."
SPECIAL EVENT REDEMPTION
If a Capital Event, Tax Event or Investment Company Event (each as defined
herein) occurs, then the Company will have the right, within 90 days following
the occurrence of such event to prepay the Subordinated Debentures in whole
(but not in part) in the manner set forth under "Description of the
Subordinated Debentures--Special Event Prepayment," and therefore to cause a
mandatory redemption of the Preferred Securities prior to the Stated Maturity.
Each of a Capital Event, Tax Event or an Investment Company Event are
sometimes referred to herein as a "Special Event."
OPTIONAL REDEMPTION AFTER , 2003
The Company will have the right to prepay the Subordinated Debentures, in
whole at any time, or in part from time to time, at its option at any time
after , 2003, and thereby cause a mandatory redemption of a proportionate
amount of the Preferred Securities.
REDEMPTION
Upon the mandatory repayment of the Subordinated Debentures at the Stated
Maturity or upon the earlier Prepayment of the Subordinated Debentures (upon
the occurrence of a Special Event at any time or at the option of the Company
after , 2003), the proceeds from such repayment shall be applied by the
Property Trustee to redeem the Trust Securities, upon not less than 30 nor
more than 60 days notice prior to the date fixed for repayment or redemption,
at a redemption price equal to 100% of the aggregate Liquidation Amount of the
Trust Securities so redeemed, plus accumulated and unpaid Distributions due
thereon to the date of payment, if any (the "Redemption Price").
LIQUIDATION OF TRUST AND DISTRIBUTION OF SUBORDINATED DEBENTURES
The Trust shall automatically dissolve and its affairs shall be wound up
upon the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company; (ii) the distribution of the Subordinated
Debentures to the holders of the Trust Securities, if the Company, as Sponsor,
has given written direction to the Property Trustee to dissolve the Trust
(which direction is optional and wholly within the discretion of the Company,
as Sponsor); (iii) redemption of all of the Trust Securities as described
under "--Redemption" above; (iv) expiration of the term of the Trust; and (v)
the entry of an order for the dissolution of the Trust by a court of competent
jurisdiction.
The Company will have the right at any time to liquidate the Trust and cause
Subordinated Debentures to be distributed to the holders of the Preferred
Securities in exchange therefor upon liquidation of the Trust. Under current
United States federal income tax law, a distribution of Subordinated
Debentures in exchange for Preferred Securities should not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however,
the distribution of the Subordinated Debentures could be a taxable event to
holders of the Preferred Securities. See "Certain Federal Income Tax
Consequences."
In the event of any termination of the Trust, the Trust shall be liquidated
by the Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to the holders of the
Trust Securities the Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practicable, in which event such
holders will be entitled to receive out of the assets of the Trust legally
available for distribution to holders, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, an amount equal to the
aggregate of the Liquidation Amount plus accumulated and unpaid Distributions
thereon to the date of
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<PAGE>
payment (such amount being the "Liquidation Distribution"). If the Liquidation
Distribution can be paid only in part because the Trust has insufficient
assets on hand legally available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on the Preferred
Securities and the Common Securities shall be paid on a pro rata basis, except
that if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a priority over the Common Securities. See
"Description of the Preferred Securities--Subordination of Common Securities."
After the liquidation date is fixed for any distribution of Subordinated
Debentures to holders of the Trust Securities, (i) the Trust Securities will
no longer be deemed to be outstanding, (ii) each registered global certificate
representing Trust Securities and held by The Depository Trust Company ("DTC")
or its nominee will receive a registered global certificate or certificates
representing the Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Trust Securities not held
by DTC or its nominee will be deemed to represent Subordinated Debentures
having a principal amount equal to the Liquidation Amount of such Trust
Securities, and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon the Company will issue to such holder, and the
Debenture Trustee will authenticate, a certificate representing such
Subordinated Debentures.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Trust Securities if a dissolution and liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase, or
the Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities.
REDEMPTION PROCEDURES
The Trust Securities shall be redeemed at the Redemption Price with the
proceeds from the contemporaneous repayment or prepayment of the Subordinated
Debentures. Any redemption of Trust Securities shall be made and the
Redemption Price shall be payable on the Redemption Date only to the extent
that the Trust has funds legally available for the payment of such Redemption
Price. See "Description of the Preferred Securities--Subordination of Common
Securities."
If the Trust gives a notice of redemption in respect of the Preferred
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are legally available, with respect to the Preferred
Securities held by DTC or its nominees, the Property Trustee will deposit
irrevocably with DTC funds sufficient to pay the Redemption Price. See
"Description of the Preferred Securities--Form, Denomination, Book-Entry
Procedures and Transfer." With respect to the Preferred Securities held in
certificated form, the Property Trustee, to the extent funds are legally
available, will irrevocably deposit with the paying agent for the Preferred
Securities funds sufficient to pay the Redemption Price and will give such
paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing
the Preferred Securities. See "--Payment and Paying Agency" below.
Distributions payable on or prior to the Redemption Date shall be payable to
the holders of such Preferred Securities on the relevant record dates for the
related Distribution Dates. If notice of redemption shall have been given and
funds deposited as required, then upon the date of such deposit, all rights of
the holders of the Preferred Securities will cease, except the right of the
holders of the Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price, and the Preferred Securities will
cease to be outstanding. In the event that any Redemption Date of Preferred
Securities is not a Business Day, then the Redemption Price payable on such
date will be paid on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay). In the
event that payment of the Redemption Price is improperly withheld or refused
and not paid either by the Trust or by the Company pursuant to the Guarantee
as described under "Description of the Guarantee," Distributions on Preferred
Securities called for redemption will continue to accumulate at the then
applicable rate, from the Redemption Date originally established by the Trust
to the date such Redemption Price is actually paid, in which case the actual
payment date will be the Redemption Date for purposes of calculating the
Redemption Price.
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<PAGE>
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Company defaults in payment of the applicable
Prepayment Price on, or in the repayment of, the Subordinated Debentures, on
and after the Redemption Date Distributions will cease to accrue on the Trust
Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and the Common Securities, as applicable, shall be made pro rata
based on the Liquidation Amount of the Preferred Securities and Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date a Debenture Event of Default shall have occurred and be continuing, no
payment of any Distribution on, or Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Preferred Securities for all Distribution periods terminating on
or prior thereto or, in the case of Preferred Securities called for redemption
on a Redemption Date on or prior thereto, the full amount of the Redemption
Price therefor, shall have been made or provided for, and all funds available
to the Property Trustee shall first be applied to the payment in full in cash
of all Distributions on, or Redemption Price of, the Preferred Securities then
due and payable.
In the case of any Event of Default, the Company as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of the Preferred Securities and not on behalf
of the Company as holder of the Common Securities, and only the holders of the
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "Description of the
Subordinated Debentures--Debenture Events of Default") constitutes an "Event
of Default" under the Trust Agreement.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Preferred Securities,
the Administrative Trustees and the Company, as Sponsor, unless such Event of
Default shall have been cured or waived. The Company, as Sponsor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities as
described under "--Liquidation of Trust and Distribution of Subordinated
Debentures" and "--Subordination of Common Securities" above.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
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voting rights are vested exclusively in the Company as the holder of the
Common Securities. No resignation or removal of an Issuer Trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Issuer Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of such Issuer Trustee, shall be the successor of such Issuer
Trustee under the Trust Agreement, provided such corporation shall be
otherwise qualified and eligible.
MERGERS, CONVERSIONS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE
TRUST
The Trust may not merge or convert with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below. The Trust may, at the request of the Company, as
Sponsor, with the consent of the Administrative Trustees but without the
consent of the Property Trustee, the Delaware Trustee or holders of the
Preferred Securities, merge or convert with or into, consolidate, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to a trust organized as such under
the laws of any State; provided, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Trust with respect to the
Preferred Securities or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities
(the "Successor Securities") so long as the Successor Securities rank the same
as the Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) the Company
expressly appoints a trustee of such successor entity possessing the same
powers and duties as the Property Trustee with respect to the Subordinated
Debentures, (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities
are then listed, if any, (iv) such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
conversion, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
Preferred Securities (including any Successor Securities) in any material
respect (other than with respect to a dilution of such holder's interest in
the new entity), (vi) such successor entity has a purpose identical to that of
the Trust, (vii) prior to such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Company has
received an opinion from independent counsel to the Trust experienced in such
matters to the effect that (a) such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect (other
than with respect to a dilution of such holder's interest in the new entity),
and (b) following such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such
successor entity will be required to register as an investment company under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and (viii) the Company or any permitted successor or assignee owns all of the
common securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate, merge or convert with or into, or be
replaced by or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any other entity or permit any
other entity to consolidate, amalgamate, merge or convert with or into, or
replace it if such consolidation, amalgamation, merger, conversion,
replacement, conveyance, transfer or lease would cause the Trust or the
successor entity not to be classified as a grantor trust for United States
federal income tax purposes.
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VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "--Mergers, Conversions, Consolidations,
Amalgamations or Replacements of the Trust" above, "Removal of Issuer
Trustees" and "Description of the Guarantee--Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the holders of the
Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company and the
Issuer Trustees, without the consent of the holders of the Trust Securities
(i) to cure any ambiguity, correct or supplement any provisions in the Trust
Agreement that may be inconsistent with any other provision of the Trust
Agreement, or to add any other provisions with respect to matters or questions
arising under the Trust Agreement, which shall not be inconsistent with the
other provisions of the Trust Agreement, or (ii) to modify, eliminate or add
to any provisions of the Trust Agreement to such extent as shall be necessary
(A) to ensure that the Trust will be classified for United States federal
income tax purposes as a grantor trust at all times that any Trust Securities
are outstanding, (B) to ensure that the Trust will not be required to register
as an "investment company" under the Investment Company Act, or (C) to ensure
that the proceeds from the sale of the Trust Securities will constitute "Tier
1 capital" under capital adequacy requirements which may be applicable to the
Company; provided, however, that in the case of clause (i), such action shall
not adversely affect in any material respect the interests of the holders of
the Trust Securities, and any amendments of the Trust Agreement shall become
effective when notice thereof is given to the holders of the Trust Securities.
The Trust Agreement may be amended by the Issuer Trustees and the Company (i)
with the consent of holders representing a majority (based upon Liquidation
Amount) of the outstanding Trust Securities, and (ii) upon receipt by the
Issuer Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Trust's status as a grantor trust for
United States federal income tax purposes or the Trust's exemption from status
as an "investment company" under the Investment Company Act, provided that,
without the consent of each holder of Trust Securities, the Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution or
other payment on or in respect of the Trust Securities or otherwise adversely
affect the amount of any other payment required to be made in respect of the
Trust Securities as of a specified date or (ii) restrict the right of a holder
of Trust Securities to institute suit for the enforcement of any such payment
on or after such date.
So long as any Subordinated Debentures are held by the Property Trustee, the
Issuer Trustees shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or execute
any trust or power conferred on the Property Trustee with respect to the
Subordinated Debentures, (ii) waive certain past defaults under the Indenture,
(iii) exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the Subordinated Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Subordinated Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the holders of a majority in
Liquidation Amount of all outstanding Preferred Securities; provided, however,
that where a consent under the Indenture would require the consent of each
holder of Subordinated Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior approval of each holder of the
Preferred Securities. The Issuer Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of such holders. The Property Trustee
shall notify each holder of Preferred Securities of any notice of default with
respect to the Subordinated Debentures. In addition to obtaining the foregoing
approvals of such holders of the Preferred Securities, prior to taking any of
the foregoing actions, the Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation for United States
federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Preferred Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of Preferred Securities in the
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manner set forth in the Trust Agreement. No vote or consent of the holders of
Preferred Securities will be required for the Trust to redeem and cancel the
Preferred Securities in accordance with the Trust Agreement.
Notwithstanding that holders of the Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Issuer Trustees or any
affiliate of the Company or any Issuer Trustees shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Preferred Securities initially will be represented by one or more
Preferred Securities certificates in global form (the "Global Preferred
Securities"). The Global Preferred Securities will be deposited upon issuance
with the Property Trustee as custodian for DTC, in New York, New York, and
registered in the name of DTC or its nominee, Cede & Co., in each case for
credit to an account of a direct or indirect participant in DTC as described
below. Except as set forth below, the Global Preferred Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Preferred
Securities may not be exchanged for Preferred Securities in certificated form
except in the limited circumstances described below. See "--Exchange of Book-
Entry Preferred Securities for Certificated Preferred Securities" below.
Other Preferred Securities will be issued only in registered, certificated
(i.e., non-global) form. Other Preferred Securities may not be exchanged for
beneficial interests in any Global Preferred Securities except in the limited
circumstances described below. See "--Exchange of Certificated Preferred
Securities for Book-Entry Preferred Securities" below.
Depositary Procedures. DTC has advised the Trust and the Company that DTC is
a limited-purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the "Indirect Participants"). Persons
who are not Participants may beneficially own securities held by or on behalf
of DTC only through the Participants or the Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of
the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Preferred Securities, DTC
will credit the accounts of Participants designated by the Underwriters with
portions of the Liquidation Amount of the Global Preferred Securities and (ii)
ownership of such interests in the Global Preferred Securities will be shown
on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Preferred Securities).
Except as described below, owners of interests in the Global Preferred
Securities will not have Preferred Securities registered in their name, will
not receive physical delivery of Preferred Securities in certificated form and
will not be considered the registered owners or holders thereof under the
Trust Agreement for any purpose.
Payments in respect of the Global Preferred Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms
of the Trust Agreement, the Property Trustee will treat the persons in whose
names the Preferred Securities, including the Global Preferred Securities, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property
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Trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Preferred Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Preferred Securities or (ii) any other matter relating to the actions
and practices of DTC or any of its Participants or Indirect Participants. DTC
has advised the Trust and the Company that its current practice, upon receipt
of any payment in respect of securities such as the Preferred Securities, is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
Liquidation Amount of beneficial interests in the relevant security as shown
on the records of DTC unless DTC has reason to believe it will not receive
payment on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Preferred Securities will be governed
by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Property Trustee, the Trust or the Company.
Neither the Trust or the Company nor the Property Trustee will be liable for
any delay by DTC or any of its Participants in identifying the beneficial
owners of the Preferred Securities, and the Trust or the Company and the
Property Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the Global Preferred Securities will trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Preferred Securities only at the
direction of one or more Participants to whose account with DTC interests in
the Global Preferred Securities are credited and only in respect of such
portion of the Liquidation Amount of the Preferred Securities as to which such
Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Trust Agreement, DTC reserves the right
to exchange the Global Preferred Securities for Preferred Securities in
certificated form and to distribute such Preferred Securities to its
Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Preferred Securities among its participants, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Trust nor the
Company nor the Property Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Preferred Securities for Certificated Preferred
Securities. A Global Preferred Security is exchangeable for Preferred
Securities in registered certificated form if (i) DTC notifies the Trust that
it is unwilling or unable to continue as Depositary for the Global Preferred
Security and the Trust thereupon fails to appoint a successor Depositary
within 90 days or has ceased to be a clearing agency registered under the
Exchange Act, (ii) the Company in its sole discretion elects to cause the
issuance of the Preferred Securities in certificated form or (iii) there shall
have occurred and be continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default under the Trust
Agreement. In addition, beneficial interests in a Global Preferred Security
may be exchanged for certificated Preferred Securities upon request but only
upon at least 20 days prior written notice given to the Property Trustee by or
on behalf of DTC in accordance with customary procedures. In all cases,
certificated Preferred Securities delivered in exchange for any Global
Preferred Security or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the Depositary (in accordance with its customary procedures) unless the
Property Trustee determines otherwise in compliance with applicable law.
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Exchange of Certificated Preferred Securities for Book-Entry Preferred
Securities. Other Preferred Securities, which will be issued in certificated
form, may not be exchanged for beneficial interests in any Global Preferred
Security unless such exchange occurs in connection with a transfer of such
Other Preferred Securities and the transferor first delivers to the Property
Trustee a written certificate (in the form provided in the Trust Agreement) to
the effect that such transfer will comply with the appropriate transfer
restrictions applicable to such Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities held in global form shall be
made to DTC in its capacity as the Depositary, which shall credit its
participants accounts on the applicable Distribution Dates. In respect of
Preferred Securities that are not held by the Depositary, such payments shall
be made by check mailed to the address of the holder entitled thereto as such
address shall appear on the register. The paying agent (the "Paying Agent")
shall initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees and the
Company. The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Property Trustee and the Company. In the event
that the Property Trustee shall no longer be the Paying Agent, the
Administrative Trustees shall appoint a successor (which shall be a bank or
trust company acceptable to the Administrative Trustees and the Company) to
act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of the Preferred Securities will be effected
without charge by or on behalf of the Trust but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Trust will not be required to register or cause to be
registered the transfer of the Preferred Securities after they have been
called for redemption
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Agreement at the request of any holder of Trust
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. The Property Trustee
is not required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if repayment or adequate
indemnity is not reasonably assured to the Property Trustee. From time to
time, the Property Trustee and/or its affiliates extend credit and may provide
investment banking and other financial services to the Company. See "The
Trust."
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act of 1940, as amended or classified as an association
taxable as a corporation for United States federal income tax purposes and so
that the Subordinated Debentures will be treated as indebtedness of the
Company for United States federal income tax purposes. In this connection, the
Company and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust or the
Trust Agreement, that the Company and the Administrative Trustees determine in
their discretion to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect the interests of the holders
of the Trust Securities.
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Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
The Subordinated Debentures are to be issued under the Indenture. The
Indenture will be qualified under the Trust Indenture Act and will incorporate
certain provisions of the Trust Indenture Act. All material terms of the
Indenture are summarized below. This summary of certain terms and provisions
of the Subordinated Debentures 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.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in Subordinated Debentures issued by the
Company. The Subordinated Debentures will bear interest at the annual rate of
% of the principal amount thereof, payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year (each, an "Interest Payment
Date"), commencing September 30, 1998, to the person in whose name each
Subordinated Debentures is registered, subject to certain exceptions, at the
close of business on the date fifteen days prior to the relevant Interest
Payment Date. It is anticipated that, until the liquidation, if any, of the
Trust, each Subordinated Debentures will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
amount of interest payable for any period will be computed on the basis of a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), in each case with the same force and
effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of % thereof, compounded quarterly. The term "interest",
as used herein, shall include quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date
and Additional Sums (as defined herein), as applicable. The Subordinated
Debentures will be issued in denominations of $10.00 and integral multiples
thereof. The Subordinated Debentures will mature on , 2028 (the "Stated
Maturity"), except as described below.
The Subordinated Debentures will be unsecured and subordinate and rank
junior in right of payment to the extent and in the manner set forth in the
Indenture to all Senior Debt. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Debt, or other obligations. See "--Subordination" below. In addition, the
Company is a holding company and almost all of the operating assets of the
Company and its consolidated subsidiaries are owned by such subsidiaries.
Accordingly, the Company relies primarily on dividends from such subsidiaries
to meet debt service obligations and pay operating expenses. The inability of
the Company's direct and indirect subsidiaries to pay dividends to the Company
in an amount sufficient to meet debt service obligations and pay operating
expenses would have a material adverse effect on the Company and the Trust.
Because the Company is a holding company, the right of the Company to
participate in any distribution of the assets of a subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of the subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, including New South, and the
holders of the Preferred Securities should look only to the assets of the
Company for distributions on the Preferred Securities.
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In addition, as the Company is a non-operating holding company, almost all
of the operating assets of the Company are owned by the Company's
subsidiaries. The Company relies primarily on dividends from such subsidiaries
to meet its obligations for payment of principal and interest on its
outstanding debt obligations, if any, and corporate expenses. New South is
subject to certain restrictions imposed by federal law on any extensions of
credit to, and certain other transactions with, the Company and certain other
affiliates, and on investments in stock or other securities thereof. Such
restrictions prevent the Company and such other affiliates from borrowing from
New South unless the loans are secured by various types of collateral.
Further, such secured loans, other transactions and investments by New South
are generally limited in amount as to the Company and as to each of such other
affiliates to 10% of New South's capital and surplus and as to the Company and
all of such other affiliates to an aggregate of 20% of New South's capital and
surplus. In addition, payment of dividends to the Company by New South is
subject to ongoing review by banking regulators and is subject to various
statutory limitations and in certain circumstances requires prior approval by
banking regulatory authorities. Under current OTS regulations, at December 31,
1997, New South could have declared dividends to the Company of approximately
$13.5 million, of which approximately $1.1 million have been subsequently
declared and paid to the Company. Federal and state regulatory agencies also
have the authority to limit further New South's payment of dividends based on
other factors, such as the maintenance of adequate capital for New South,
which could reduce the amount of dividends otherwise payable.
FORM, REGISTRATION AND TRANSFER
If the Subordinated Debentures are distributed to the holders of the Trust
Securities, the Subordinated Debentures may be represented by one or more
global certificates registered in the name of Cede & Co. as the nominee of
DTC. The depositary arrangements for such Subordinated Debentures are expected
to be substantially similar to those in effect for the Preferred Securities.
For a description of DTC and the terms of the depositary arrangements relating
to payments, transfers, voting rights, redemptions and other notices and other
matters, see "Description of the Preferred Securities--Form, Denomination,
Book-Entry Procedures and Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal of and premium, if any, and any interest on
Subordinated Debentures will be made at the office of the Debenture Trustee in
the Borough of Manhattan in The City of New York or at the office of such
Paying Agent or Paying Agents as the Company may designate from time to time,
except that at the option of the Company payment of any interest may be made,
except in the case of Subordinated Debentures in global form, (i) by check
mailed to the address of the Person entitled thereto as such address shall
appear in the register for Subordinated Debentures or (ii) by transfer to an
account maintained by the Person entitled thereto as specified in such
register, provided that proper transfer instructions have been received by the
relevant Record Date. Payment of any interest on any Subordinated Debentures
will be made to the Person in whose name such Subordinated Debentures is
registered at the close of business on the Record Date for such interest,
except in the case of defaulted interest. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent; however, the Company will at all times be required to maintain a Paying
Agent in each Place of Payment for the Subordinated Debentures.
Any monies deposited with the Debenture 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 Subordinated Debentures and remaining unclaimed for
two years after such principal and premium, if any, or interest has become due
and payable shall, at the request of the Company, be repaid to the Company and
the holder of such Subordinated Debentures shall thereafter look, as a general
unsecured creditor, only to the Company for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing, the
Company will have the right under the Indenture at any time during the term of
the Subordinated Debentures to defer the payment of interest at any time or
from time to time for a period not exceeding twenty (20) consecutive,
quarterly periods with
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respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity. At the end of an Extension Period, the Company
must pay all interest then accrued and unpaid (together with interest then
accrued at the annual rate of %, compounded quarterly, to the extent
permitted by applicable law). During an Extension Period, interest will
continue to accrue and the Trust, as the holder of the Subordinated Debentures
(and holders of the Trust Securities while Trust Securities are outstanding)
will be required to accrue interest income for United States federal income
tax purposes prior to the receipt of cash attributable to such income. See
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in right of
payment to the Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
right of payment to the Subordinated Debentures (other than (a) dividends or
distributions in shares of, or options, warrants or rights to subscribe for or
purchase shares of, common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, (d) as a result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock, (e)
the purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, and (f) purchases or issuances of
common stock under any of the Company's stock option, stock purchase, stock
loan or other benefit plans for its directors, officers or employees or any of
the Company's dividend reinvestment plans, in each case as now existing or
hereafter established or amended).
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed twenty (20) consecutive quarterly
periods or to extend beyond the Stated Maturity. Upon the termination of any
such Extension Period and the payment of all amounts then due on any Interest
Payment Date, the Company may elect to begin a new Extension Period, subject
to the above requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. If the Property Trustee is the
only registered holder of the Subordinated Debentures at the time the Company
elects such Extension Period, the Company must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of
any Extension Period (or an extension thereof) at least five Business Days
prior to the earlier of (i) the date the Distributions on the Trust Securities
would have been payable except for the election to begin or extend such
Extension Period or (ii) the date the Administrative Trustees are required to
give notice to any securities exchange or to holders of Preferred Securities
of the record date or the date such Distributions are payable, but in any
event not less than five Business Days prior to such record date. The
Debenture Trustee shall give notice of the Company's election to begin or
extend a new Extension Period to the holders of the Preferred Securities.
There is no limitation on the number of times that the Company may elect to
begin an Extension Period.
SPECIAL EVENT PREPAYMENT
If a Capital Event, Tax Event or an Investment Company Event (as defined
below) (each, a "Special Event") shall occur, the Company may, at its option,
prepay the Subordinated Debentures in whole (but not in part) at any time
within 90 days of the occurrence of such Special Event, at a prepayment price
(the "Prepayment Price") equal to 100% of the principal amount of such
Subordinated Debentures plus accrued and unpaid interest thereon, if any, to
the date of such prepayment.
A "Capital Event" means the receipt by the Company and the Trust of an
opinion of Balch & Bingham LLP, or any other independent bank regulatory
counsel experienced in such matters, to the effect that, as a result
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of (a) any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or
any rules, guidelines or policies of the OTS, the Federal Reserve or any other
federal bank regulatory agency or (b) any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such pronouncement or
decision is announced on or after the date the Subordinated Debentures is
issued by the Company to the Trust pursuant to the Indenture (the "Issue
Date"), (i) the Company is or within 90 days will be subject to capital
adequacy requirements and such requirements do not or will not permit the
Preferred Securities to constitute, subject to limitations on inclusion of the
Preferred Securities as Tier 1 capital imposed by Federal Reserve capital
guidelines in effect as of the date of this Prospectus, Tier 1 capital (or its
then-equivalent) or (ii) the amount of net proceeds received from the sale of
the Preferred Securities and contributed by the Company to New South does not
or within 90 days will not constitute Tier 1 (core) capital (or its then-
equivalent).
"Tax Event" means the receipt by the Company and the Trust of an opinion,
requested by the Company, of counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative written decision or pronouncement
or judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is made on
or after the Issue Date, there is more than an insubstantial risk that (i) the
Trust is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Subordinated Debentures, (ii) interest payable by the Company on the
Subordinated Debentures is not, or within 90 days of the date of such opinion
will not be, deductible by the Company, in whole or in part, for United States
federal income tax purposes, or (iii) the Trust is, or will be within 90 days
of the date of such opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Investment Company Event" means that the Company and the Trust shall have
received an opinion, requested by the Company, of counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), to the effect that, as a result of the occurrence of a change
in law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in Investment Company Act Law"), there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the Investment Company Act,
which Change in Investment Company Act Law becomes effective on or after the
Issue Date.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Subordinated Debentures
to be prepaid at its registered address. Unless the Company defaults in
payment of the prepayment price, on and after the prepayment date interest
ceases to accrue on such Subordinated Debentures called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Subordinated Debentures the Additional Sums.
OPTIONAL PREPAYMENT AFTER , 2003
The Company will have the right to prepay the Subordinated Debentures, in
whole at any time, or in part from time to time, at its option at any time
after , 2003, at the Prepayment Price.
CERTAIN COVENANTS OF THE COMPANY
The Company will also covenant that it will not, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any,
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on or repay or repurchase or redeem any debt securities of the Company that
rank pari passu with or junior in right of payment to the Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee
by the Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu or junior in right of payment to the Subordinated
Debentures (other than (a) dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, common
stock of the Company, (b) any declaration of a dividend in connection with the
implementation of a stockholder's rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee, (d) as a result of
a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (e) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted
or exchanged, and (f) purchases or issuances of common stock in connection
with any of the Company's stock option, stock purchase, stock loan or other
benefit plans for its directors, officers or employees or any of the Company's
dividend reinvestment plans, in each case as now existing or hereafter
established or amended) if at such time (1) there shall have occurred any
event of which the Company has actual knowledge that (a) is, or with the
giving of notice or the lapse of time, or both, would be, a Debenture Event of
Default and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (2) if such Subordinated Debentures are held by the
Trust, the Company shall be in default with respect to its payment of any
obligations under the Guarantee or (3) the Company shall have given notice of
its election of an Extension Period, or any extension thereof, as provided in
the Indenture and shall not have rescinded such notice, and such Extension
Period, or any extension thereof, shall have commenced.
For so long as such Trust Securities remain outstanding, the Company will
covenant (i) to directly or indirectly maintain 100 percent ownership of the
Common Securities of the Trust; provided, however, that any permitted
successor of the Company under the Indenture may succeed to the Company's
ownership of such Common Securities, (ii) to use its reasonable efforts to
cause the Trust (a) to remain a statutory business trust, except in connection
with the distribution of Subordinated Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement of such Trust, and (b) to continue
not to be classified as an association taxable as a corporation or a
partnership for United States federal income tax purposes and (iii) to use its
reasonable efforts to cause each holder of Trust Securities to be treated as
owning an undivided beneficial interest in the Subordinated Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures constitutes a "Debenture
Event of Default" (whatever the reason for such Debenture 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):
(i) failure for 30 days to pay any interest on the Subordinated
Debentures, when due (subject to the deferral of any due date in the case
of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Subordinated
Debentures when due whether at maturity, upon redemption, by declaration of
acceleration of maturity or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
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Debenture Trustee. The Debenture Trustee or the holders of not less than 25%
in aggregate outstanding principal amount of the Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default. The holders of a majority in aggregate outstanding principal amount
of the Subordinated Debentures may annul such declaration and waive the
default if the default (other than the nonpayment of the principal of the
Subordinated Debentures which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures affected thereby may, on behalf of the holders of all
the Subordinated Debentures, waive any past default except a default in the
payment of principal of or premium, if any, on or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and premium, if any, and principal due otherwise than by acceleration
has been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Subordinated Debentures.
The Indenture requires the annual filing by the Company with the Debenture
Trustee of a certificate as to the absence of certain defaults under the
Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of an
Indenture Event of Default from the holders of a series of Subordinated
Debentures (except an Indenture Event of Default in payment of principal of,
or of interest or premium on, the Subordinated Debentures) if the Debenture
Trustee considers it in the interest of such holders to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay principal of or
interest or premium, if any, on the Subordinated Debentures on the due date, a
holder of Preferred Securities may institute a Direct Action. The Company may
not amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Preferred
Securities. Notwithstanding any payments made to a holder of Preferred
Securities by the Company in connection with a Direct Action, the Company
shall remain obligated to pay the principal of (or premium, if any) or
interest on the Subordinated Debentures, and the Company shall be subrogated
to the rights of the holder of such Preferred Securities with respect to
payments on the Preferred Securities to the extent of any payments made by the
Company to such holder in any Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Subordinated Debentures unless there shall
have been an Event of Default under the Trust Agreement. See "Description of
the Preferred Securities--Events of Default; Notice".
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
as an entirety or substantially as an entirety to any Person, and no Person
shall consolidate with or merge into the Company or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to
the Company, unless: (i) in case the Company consolidates with or merges into
another Person or conveys or transfers its properties and assets substantially
as an entirety to any Person, the successor Person is organized under the laws
of the United States or any State or the District of Columbia, and such
successor Person expressly assumes the Company's obligations under the
Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time
or both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
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The general provisions of the Indenture do not afford holders of the
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Subordinated Debentures.
MODIFICATION OF THE INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of Subordinated Debentures, amend, waive or supplement
the Indenture for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies (provided that any such action does
not materially adversely affect the interest of the holders of Subordinated
Debentures) and qualifying, or maintaining the qualification of, the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting
the Company and the Debenture Trustee, with the consent of the holders of not
less than a majority in principal amount of the Subordinated Debentures of all
series affected by such modification at the time outstanding, to modify the
Indenture or any supplemental indenture or the rights of the holders of the
Subordinated Debentures; provided that no such modification shall (i) extend
the fixed maturity of any Subordinated Debentures, or reduce the principal
amount thereof (including in the case of a discounted Subordinated Debenture
the amount payable thereon in the event of acceleration or the amount provable
in bankruptcy) or any redemption premium thereon, or reduce the rate or extend
the time of payment of interest thereon, or make the principal of, or interest
or premium on, the Subordinated Debentures payable in any coin or currency
other than that provided in the Subordinated Debentures, or impair or affect
the right of any holder of Subordinated Debentures to institute suit for the
payment thereof or the right of prepayment, if any, at the option of the
holder, without the consent of the holder of each Subordinated Debenture so
affected, or (ii) reduce the aforesaid percentage of Subordinated Debentures
the consent of the holders of which is required for any such modification
without the consent of the holders of each Subordinated Debenture affected.
SATISFACTION AND DISCHARGE
The Indenture generally provides that when all Subordinated Debentures not
previously delivered to the Debenture Trustee for cancellation (i) have become
due and payable, (ii) will become due and payable at maturity within one year,
or (iii) are to be called for prepayment within one year under arrangements
satisfactory to the Debenture Trustee for the giving of notice of prepayment,
and the Company deposits or causes to be deposited with the Debenture Trustee
funds, in trust, for the purpose and in an amount sufficient to pay and
discharge the entire indebtedness on the Subordinated Debentures not
previously delivered to the Debenture Trustee for cancellation, for the
principal and interest to the date of the deposit or to the Stated Maturity,
as the case may be, then the Indenture will cease to be of further effect
(except as to the Company's obligations to pay all other sums due pursuant to
the Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied
and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt will first be
entitled to receive payment in full in respect of such Senior Debt before the
holders of Subordinated Debentures will be entitled to receive or retain any
payment in respect thereof.
In the event of the acceleration of the maturity of Subordinated Debentures,
the holders of all Senior Debt outstanding at the time of such acceleration
will first be entitled to receive payment in full in respect of such Senior
Debt before the holders of Subordinated Debentures will be entitled to receive
or retain any payment in respect of the Subordinated Debentures.
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No payments on account of principal or premium, if any, or interest, if any,
in respect of the Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to Senior
Debt, or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Senior Debt" means, with respect to the Company and its Subsidiaries: (a)
all liabilities, obligations and indebtedness for borrowed money, whether or
not evidenced by bonds, debentures, notes or other similar instruments, (b)
all obligations to pay the deferred purchase price of property or services
(other than trade payables due and arising in the ordinary course of
business), (c) all Capital Lease Obligations, (d) all debt of any other Person
secured by a Lien on any asset of the Company or any of its Subsidiaries, (e)
all Contingent Obligations (as defined in the Indenture), and (f) all
obligations, contingent or otherwise, relating to the face amount of letters
of credit, whether or not drawn, and banker's acceptances, but excluding any
obligation relating to an undrawn letter of credit if the undrawn letter of
credit is issued in connection with a liability for which a reserve has been
established by the Company or the applicable Subsidiary in accordance with
United States generally accepted accounting principles; provided, that the
term Senior Debt shall not include the Subordinated Debentures, the Guarantees
or other Qualified Debt Obligations.
"Qualified Debt Obligations" means, without duplication, (a) debt securities
of the Company, provided that the terms of any such debt security (i) permit
the deferral of principal and interest payments for a period of up to five
years (but not beyond the maturity date), as elected by the Company, (ii) have
a maturity for payment of principal of not less than ten (10) years after the
date of issuance, and (iii) include provisions making the debt security
expressly subordinate to all other debt of the Company; (b) preferred
securities issued by a Subsidiary, the sole purpose of which is to issue such
preferred securities and invest the proceeds thereof in debt securities of the
type described in clause (a) above, and which preferred securities are payable
solely out of the proceeds of payments on account of such debt securities; and
(c) the obligations recorded on the consolidated balance sheet of the Company
and its Subsidiaries with respect to debt securities of the type described in
clause (a) above and preferred securities of the type described in clause (b)
above.
By reason of such subordination, in the event of an insolvency, creditors of
the Company who are holders of Senior Debt, as well as certain general
creditors of the Company, may recover more, ratably, than the holders of the
Subordinated Debentures. Additionally, the Company currently conducts
substantially all of its operations through subsidiaries, and the holders of
Subordinated Debentures will be structurally subordinated to the creditors of
the Company's subsidiaries. See "Risk Factors--Risk Factors Relating to the
Preferred Securities--Ranking of Subordinate Obligations Under the Guarantee
and Subordinated Debentures."
The Indenture places no limitation on the amount of additional secured or
unsecured debt, including Senior Debt, or other obligations, that may be
incurred by the Company. The Company expects from time to time to incur
additional indebtedness and obligations, including Senior Debt.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Subordinated
Debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The Debenture
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Debenture
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
From time to time, the Debenture Trustee and/or its affiliates extend credit
and may provide other financial services to the Company. See "The Trust."
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DESCRIPTION OF THE GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Trust of the Preferred Securities for the benefit of
the holders from time to time of the Preferred Securities. Bankers Trust
Company will act as guarantee trustee ("Guarantee Trustee") under the
Guarantee. The Guarantee will be qualified under the Trust Indenture Act. All
material terms of the Guarantee are summarized below. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Guarantee, including the definitions therein of certain terms, and the Trust
Indenture Act. The Guarantee Trustee will hold the Guarantee for the benefit
of the holders of the Preferred Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated
and unpaid Distributions required to be paid on Preferred Securities, to the
extent the Trust has funds on hand at such time legally available therefor,
(ii) the Redemption Price with respect to any Preferred Securities called for
redemption, to the extent that the Trust has funds on hand at such time
legally available therefor, or (iii) upon a voluntary or involuntary
termination and liquidation of the Trust (unless the Subordinated Debentures
are distributed to holders of the Preferred Securities), the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of the Trust remaining
available for distribution to holders of Preferred Securities. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Company to the holders of the Preferred Securities
or by causing the Trust to pay such amounts to such holders.
The Guarantee will rank subordinate and junior in right of payment to all
Senior Debt to the extent provided therein and, in the event of bankruptcy or
insolvency proceedings involving the Company, will rank subordinate and junior
in right of payment to all liabilities of the Company, but senior to any
obligations in respect of any class of capital stock of the Company. See "--
Status" below. Because the Company is a holding company, the right of the
Company to participate in any distribution of assets of any subsidiary upon
such subsidiary's liquidation or reorganization or otherwise is subject to the
prior claims of creditors of that subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company's direct and indirect
subsidiaries, and claimants should look only to the assets of the Company for
payments thereunder. See "Description of the Subordinated Debentures--
General." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Debt, whether under
the Indenture, any other indenture that the Company may enter into in the
future or otherwise.
The Company will, through the Guarantee, the Trust Agreement, the
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guarantee all of the Trust's obligations under the
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Preferred Securities. See "Relationship Among
the Preferred Securities, the Subordinated Debentures and the Guarantee."
STATUS
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt in the
same manner as Subordinated Debentures, except in the event of bankruptcy or
insolvency proceedings involving the Company, in which case the Guarantee will
rank subordinate and junior in right of payment to all liabilities of the
Company.
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The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust or upon
distribution to the holders of the Preferred Securities of the Subordinated
Debentures. The Guarantee does not place a limitation on the amount of
additional Senior Debt that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will
be required), the Guarantee may not be amended without the prior approval of
the holders of a majority of the Liquidation Amount of such outstanding
Preferred Securities. The manner of obtaining any such approval will be as set
forth under "Description of the Preferred Securities--Voting Rights; Amendment
of the Trust Agreement." All guarantees and agreements contained in the
Guarantee Agreement shall bind the successors, assigns, receivers, trustees
and representatives of the Company and shall inure to the benefit of the
holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in Liquidation Amount of the Preferred Securities will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of the
Preferred Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person
or entity.
The Company, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee the Company will covenant that, so long as any Preferred
Securities remain outstanding, the Company shall not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or premium, if any, on, or repay or repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in right of
payment to the Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu or junior in
right of payment to the Subordinated Debentures (other than (a) dividends or
distributions in shares of, or options, warrants, rights to subscribe for or
purchase shares of, common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholder's rights,
plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, (c) payments
under the Guarantee, (d) as a result of a reclassification of the Company's
capital stock or the exchange or the conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock, (e) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged, and (f) purchases
or issuances of common stock in connection with any of the Company's stock
option, stock purchase, stock loan or
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other benefit plans for its directors, officers or employees or any of the
Company's dividend reinvestment plans, in each case as now existing or
hereafter established or amended), if at such time (1) there shall have
occurred any event of which the Company has actual knowledge that (a) is, or
with the giving of notice or the lapse of time, or both, would be an event of
default under the Guarantee and (b) in respect of which the Company shall not
have taken reasonable steps to cure, (2) if such Subordinated Debentures are
held by the Property Trustee, the Company shall be in default with respect to
its payment of any obligations under the Guarantee, or (3) the Company shall
have given notice of its election of the exercise of its right to extend the
interest payment period pursuant to the Indenture and any such extension shall
be continuing.
TERMINATION
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Preferred Securities, upon full payment
of the Liquidation Amount payable upon liquidation of the Trust or upon
distribution of Subordinated Debentures to the holders of the Preferred
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Preferred Securities must
restore payment of any sums paid under the Preferred Securities or the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the continuance of a default with
respect to a Guarantee, will undertake to perform only such duties as are
specifically set forth in such Guarantee and, after default, must exercise the
same degree of care as a prudent individual would exercise in the conduct of
his or her own affairs. Subject to such provisions, the Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Preferred Securities, unless offered
reasonable indemnity against the costs, expenses and liabilities which might
be incurred thereby. The Guarantee Trustee is not required to expend or risk
its own funds or otherwise incur personal financial liability in the
performance of its duties if it reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
From time to time the Guarantee Trustee and/or its affiliates extend credit
and may provide other financial services to the Company. See "The Trust."
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THESUBORDINATED DEBENTURES AND
THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Trust has funds on hand legally available for the payment
of such Distributions) will be irrevocably guaranteed by the Company as and to
the extent set forth under "Description of the Guarantee." Taken together, the
Company's obligations under the Subordinated Debentures, the Indenture, the
Trust Agreement and the Guarantee will provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of Distributions and other
amounts due on the Preferred Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust's obligations under the Preferred
Securities. If and to the extent that the Company does not make the required
payments on the Subordinated Debentures, the Trust will not have sufficient
funds to make the related payments, including Distributions, on the Preferred
Securities. The Guarantee will not cover any such payment when the Trust does
not have sufficient funds on hand legally available therefor. In such event, a
remedy of a holder of
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Preferred Securities is to institute a Direct Action. The obligations of the
Company under the Guarantee will be subordinate and junior in right of payment
to all Senior Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because: (i) the aggregate principal amount or Prepayment Price of the
Subordinated Debentures will be equal to the sum of the Liquidation Amount or
Redemption Price, as applicable, of the Preferred Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
Subordinated Debentures will match the Distribution rate and Distribution and
other payment dates for the Trust Securities; (iii) the Company shall pay for
all and any costs, expenses and liabilities of the Trust except the Trust's
obligations to holders of Trust Securities under such Trust Securities; and
(iv) the Trust Agreement will provide that the Trust is not authorized to
engage in any activity that is not consistent with the limited purposes
thereof.
ENFORCEMENT OF RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior Debt would not constitute a
default or Event of Default under the Trust Agreement. However, in the event
of payment defaults under, or acceleration of, Senior Debt, the subordination
provisions of the Indenture will provide that no payments may be made in
respect of the Subordinated Debentures until such Senior Debt has been paid in
full or any payment default thereunder has been cured or waived. Failure to
make required payments on Subordinated Debentures would constitute an Event of
Default under the Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The Preferred Securities will represent preferred undivided beneficial
interests in the assets of the Trust, and the Trust exists for the sole
purpose of issuing and selling the Trust Securities, using the proceeds from
the sale of the Trust Securities to acquire the Subordinated Debentures and
engaging in only those other activities necessary, advisable or incidental
thereto. A principal difference between the rights of a holder of a Preferred
Security and a holder of a Subordinated Debentures is that a holder of a
Subordinated Debentures will be entitled to receive from the Company the
principal amount of and premium, if any, and interest on Subordinated
Debentures held, while a holder of Preferred Securities is entitled to receive
Distributions from the Trust (or, in certain circumstances, from the Company
under the Guarantee) if and to the extent the Trust has funds on hand legally
available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Unless the Subordinated Debentures are distributed to holders of the Trust
Securities, upon any voluntary or involuntary termination and liquidation of
the Trust, the holders of the Trust Securities will be entitled to receive,
out of assets held by the Trust, after satisfaction of liabilities to
creditors as provided by applicable law, the Liquidation Distribution in cash.
See "Description of the Preferred Securities--Liquidation of Trust and
Distribution of Subordinated Debentures." Upon any voluntary or involuntary
liquidation or bankruptcy of the Company, the Property Trustee, as holder of
the Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Debt as set forth in the
Indenture, but entitled to receive payment in full of principal (and premium,
if any) and interest, before any stockholders of the Company receive payments
or distributions. Since the Company will be the guarantor under the Guarantee
and will agree to pay for all costs, expenses and liabilities of the Trust
(other than the Trust's obligations to the holders of its Trust Securities),
the positions of a holder of Preferred Securities and a holder of Subordinated
Debentures relative to other creditors and to stockholders of the Company in
the event of liquidation or bankruptcy of the
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Company are expected to be similar, although, in the event of bankruptcy or
insolvency proceedings involving the Company, the Company's obligations under
the Guarantee will rank subordinate and junior in right of payment to all
liabilities of the Company but senior to any obligations in respect of any
class of capital stock of the Company.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of Preferred
Securities held as capital assets by a holder who purchases such Preferred
Securities upon initial issuance. It does not deal with special classes of
holders such as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, or persons that will hold the Preferred
Securities as a position in a "straddle," as part of a "synthetic security" or
"hedge," as part of a "conversion transaction" or other integrated investment,
or as other than a capital asset. This summary also does not address the tax
consequences to persons that have a functional currency other than the U.S.
dollar (except with respect to the discussion under the caption "United States
Alien Holders") or the tax consequences to stockholders, partners or
beneficiaries of a holder of Preferred Securities. Further, it does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to the Preferred Securities.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Balch & Bingham LLP, counsel to the Company ("Tax
Counsel"). This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations thereunder, Internal Revenue
Service rulings and pronouncements and judicial decisions now in effect, all
of which are subject to change at any time. Such changes may be applied
retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of Preferred Securities. The authorities on which
this summary is based are subject to various interpretations, and it is
therefore possible that the federal income tax treatment of the purchase,
ownership and disposition of Preferred Securities may differ from the
treatment described below.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
In connection with the issuance of the Subordinated Debentures, Tax Counsel
has rendered its opinion generally to the effect that, under then current law
and assuming full compliance with the terms of the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Subordinated Debentures will be classified for United States
federal income tax purposes as indebtedness of the Company. An opinion of Tax
Counsel, however, is not binding on the Internal Revenue Service (the "IRS")
or the courts. Prospective investors should note that no rulings have been or
are expected to be sought from the IRS with respect to any of these issues and
no assurance can be given that the IRS will not take contrary positions.
Moreover, no assurance can be given that any of the opinions expressed herein
will not be challenged by the IRS or, if challenged, that such a challenge
would not be successful.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Tax Counsel has
rendered its opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Trust Agreement and the
Indenture (and certain other documents), the Trust is classified for United
States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of Preferred Securities generally will be
considered the owner of an undivided interest in the Subordinated Debentures,
and each holder will be required to include in its gross income any OID
accrued with respect to its allocable share of those Subordinated Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
The Company has the right, under the terms of the Subordinated Debentures,
to defer payments of interest by extending interest payment periods for up to
10 consecutive semi-annual periods with respect to each Extension Period.
Because the Company ordinarily does not pay dividends on its common stock, the
likelihood
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of exercise of that right is not considered "remote" under applicable
regulations (even though the Company has no current intention to exercise its
right to defer interest payments). As a result, interest on the Subordinated
Debentures will be reportable as OID. Holders must include their pro rata
share of the OID in income on an economic accrual basis regardless of their
method of tax accounting, even though such accrual causes amounts to be
included in income prior to the receipt of cash attributable to the interest.
Actual payments and distributions of stated interest will not be reported as
taxable income.
If (as expected) the issue price of the Subordinated Debentures equals their
stated principal amount, the total amount of OID (i.e., the excess of the
total amount of payments due on the Subordinated Debentures over their issue
price) will equal the total amount of interest payable on the Subordinated
Debentures (assuming no redemption before maturity). Accordingly, the amount
of OID which accrues in any quarter-annual period ending on a Distribution
date will approximately equal the amount of the interest that accrues on the
Subordinated Debentures during that period. For Holders who use the calendar
year as their taxable year, the amount of OID to be included in income for a
taxable year should be equal to the Distributions received in such year except
during an Extension Period or in a year in which the Holder disposes of
Preferred Securities.
The amount of OID that must be included in a Holder's income for a taxable
year is the sum of the "daily portions" of OID, allocated ratably to each day
in an accrual period, on the Holder's pro rata share of the Subordinated
Debentures for all days during the year that the Holder owns a Preferred
Security. The amount of OID allocable to each accrual period is the product of
the "adjusted issue price" of the Subordinated Debentures and their yield to
maturity. The adjusted issue price at the beginning of an accrual period
generally will equal the stated principal amount if, as expected, the issue
price is the stated principal amount and all accrued interest is paid on each
Interest Payment Date. If the Company were to exercise its right to defer any
payment of interest on the Subordinated Debentures, however, the adjusted
issue price would increase by the amount of accrued but deferred interest, and
the amount of OID accruing during subsequent accrual periods would increase
(until all deferred interest had been paid), reflecting the computing of
interest on the Subordinated Debentures.
Because income on the Preferred Securities will constitute OID, corporate
holders of the Preferred Securities will not be entitled to a dividends-
received deduction with respect to any income recognized with respect to the
Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Company will have the right at any time to liquidate the Trust and cause
the Subordinated Debentures to be distributed pro rata to the holders of the
Trust Securities. Under current law, and assuming, as anticipated by
management of the Company, that the Trust will be classified as a grantor
trust and not an association taxable as a corporation, such a distribution,
for United States federal income tax purposes, would be treated as a
nontaxable event to each holder, and each holder would receive an aggregate
tax basis in its pro rata share of the distributed Subordinated Debentures
equal to such holder's aggregate tax basis in its Preferred Securities. A
holder's holding period in the Subordinated Debentures so received in
liquidation of the Trust would include the period during which the Preferred
Securities were held by such holder. If, however, the Trust were classified
for United States federal income tax purposes as an association taxable as a
corporation at the time of its dissolution, the distribution of the
Subordinated Debentures would constitute a taxable event to the Trust and to
the holders of Preferred Securities and a holder's holding period in
Subordinated Debentures would begin on the date such Subordinated Debentures
were received.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Subordinated Debentures may be redeemed for cash
and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Under current law, such a redemption would, for
United States federal income tax purposes, constitute a taxable disposition of
the redeemed Preferred Securities, and a holder could recognize gain or loss
as if it sold such redeemed Preferred Securities for cash. See "--Sales of
Preferred Securities" below.
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities
and the amount realized on the sale of such Preferred Securities. A
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holder's adjusted tax basis in the Preferred Securities generally will be its
initial purchase price, increased by OID previously includable in such
holder's gross income to the date of disposition and decreased by
distributions or other payments received on the Preferred Securities. Such
gain or loss generally will be a capital gain or loss and generally will be a
long-term capital gain or loss if the Preferred Securities have been held for
more than one year.
A holder that disposes of such holder's Preferred Securities between record
dates for payments of distributions thereon will be required to include
accrued but unpaid OID on the Subordinated Debentures through the date of
disposition in income as ordinary income and to add such amount to such
holder's adjusted tax basis in such holder's Preferred Securities. If the
Preferred Securities trade at a price that does not accurately reflect the
value of accrued but unpaid OID with respect to the underlying Subordinated
Debentures and the selling price is less than the holder's adjusted tax basis,
a holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Preferred Securities will be reported to holders on
Form 1099, which forms should be mailed to holders of Preferred Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will
be allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
PROPOSED TAX LEGISLATION
In both 1996 and 1997, the Clinton Administration proposed to amend the Code
to deny deductions of interest payments on instruments with features similar
to those of the Subordinated Debentures when issued under arrangements similar
to the Trust. That proposal was not passed by, and is not currently pending
before, Congress. There can be no assurance, however, that future legislative
proposals or other developments will not affect the ability of the Company to
deduct interest on the Subordinated Debentures. Such a change could give rise
to a Tax Event, which may permit the Company to cause a redemption of the
Preferred Securities. See "Description of the Subordinated Debentures--Special
Event Prepayment."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S.
Holder for United States federal income tax purposes.
A "U.S. Holder" is a holder of Preferred Securities who or which is a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for federal income tax purposes, a corporation
or partnership created or organized (or treated as created or organized for
federal income tax purposes) in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is includable in
its gross income for federal income tax purposes without regard to its source,
or a trust if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust.
Under present United States federal income tax laws: (i) payments by the
Trust or any of its Paying Agents to any holder of a Preferred Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the
Preferred Security does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of the
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Company entitled to vote, (b) the beneficial owner of the Preferred Security
is not a controlled foreign corporation that is related to the Company through
stock ownership, and (c) either (A) the beneficial owner of the Preferred
Security certifies to the Trust or its agent, under penalties of perjury, that
it is not a U.S. Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution"), and holds the Preferred Security in such capacity,
certifies to the Trust or its agent, under penalties of perjury, that such
statement has been received from the beneficial owner by it or by a Financial
Institution between it and the beneficial owner and furnishes the Trust or its
agent with a copy thereof; and (ii) a United States Alien Holder of a
Preferred Security will not be subject to United States federal withholding
tax on any gain realized upon the sale or other disposition of a Preferred
Security.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA")(a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an
investment in the Preferred Securities with assets of the Plan. Accordingly,
among other factors, the fiduciary should consider whether the investment
would satisfy the prudence and diversification requirements of ERISA and would
be consistent with the documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986,
as amended (the "Code") prohibit Plans, as well as individual retirement
accounts and Keogh plans subject to Section 4975 of the Code (also "Plans"),
from engaging in certain transactions involving "plan assets" with persons who
are "parties in interest" under ERISA or "disqualified persons" under the Code
("Parties in Interest") with respect to such Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other
liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are governmental plans
(as defined in Section 3(32) of ERISA), certain church plans (as defined in
Section 3(33) of ERISA) and foreign plans (as described in Section 4(b)(5) of
ERISA) are not subject to the requirements of ERISA of Section 4975 of the
Code. Such plans may be subject to federal, state or local laws or regulations
which affect their ability to invest in the Preferred Securities. Any
fiduciary of such a governmental, church or foreign plan considering an
investment in the Capital Securities should determine the need for, and, if
necessary, the availability of, any exemptive relief under such laws or
regulations.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Trust would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire an equity interest in the Trust
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Trust would not be deemed to be "plan assets" of investing Plans if,
immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interests in the
Trust were held by Plans,
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other employee benefit plans not subject to ERISA or Section 4975 of the Code
(such as governmental, church and foreign plans) and entities holding assets
deemed to be "plan assets" of any Plan (collectively, "Benefit Plan
Investors"), or if the Preferred Securities were "publicly offered securities"
for purposes of the Plan Assets Regulation. It is expected that the Preferred
Securities would be considered to be "publicly offered securities" under the
Plan Assets Regulation, although no assurance can be given in this respect.
Likewise, if the Preferred Securities are not considered "publicly offered
securities" under the Plan Asset Regulations, no assurance can be given that
the value of the Preferred Securities held by Benefit Plan Investors will be
less than 25% of the total value of such Preferred Securities at the
completion of the initial offering or thereafter, and no monitoring or other
measures will be taken with respect to the satisfaction of the conditions to
this exception. All of the Common Securities will be purchased and initially
held by the Company.
Certain transactions involving the Trust could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Preferred Securities were acquired with
"plan assets" of such Plan and the assets of the Trust were deemed to be "plan
assets" of Plans investing in the Trust. For example, if the Company is a
Party in Interest with respect to an investing Plan (either directly or by
reason of its ownership of the Bank or other subsidiaries), extensions of
credit between the Company and the Trust (as represented by the Subordinated
Debentures and the Guarantee) would likely be prohibited by Section
406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code, unless exemptive
relief were available under an applicable administrative exemption (see
below). In addition, if the Company were considered to be a fiduciary with
respect to the Trust as a result of certain powers it holds (such as the
powers to remove and replace the Property Trustee and the Administrative
Trustees), certain operations of the Trust, including the optional redemption
or acceleration of the Subordinated Debentures, could be considered to be
prohibited transactions under Section 406(b) of ERISA and Section
4975(c)(1)(E) of the Code. IN ORDER TO AVOID SUCH PROHIBITED TRANSACTIONS,
EACH INVESTING PLAN, BY PURCHASING THE PREFERRED SECURITIES, WILL BE DEEMED TO
HAVE DIRECTED THE TRUST TO INVEST IN THE SUBORDINATED DEBENTURES AND TO HAVE
APPOINTED THE PROPERTY TRUSTEE.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect
prohibited transactions that may arise from the purchase or holding of the
Preferred Securities if assets of the Trust were deemed to be "plan assets" of
Plans investing in the Trust as described above. Those class exemptions are
PTCE 96-23 (for certain transactions determined by in-house asset managers),
PTCE 95-60 (for certain transactions involving insurance company general
accounts), PTCE 91-38 (for certain transactions involving bank collective
investment funds), PTCE 90-1 (for certain transactions involving insurance
company separate accounts), and PTCE 84-14 (for certain transactions
determined by independent qualified asset managers).
Because the Preferred Securities may be deemed to be equity interests in the
Trust for purposes of applying ERISA and Section 4975 of the Code, the
Preferred Securities may not be purchased or held by any Plan, any entity
whose underlying assets include "plan assets" by reason of any Plan's
investment in the entity (a "Plan Asset Entity") or any person investing "plan
assets" of any Plan, unless such purchaser or holder is eligible for the
exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or
another applicable exemption. Any purchaser or holder of the Preferred
Securities or any interest therein will be deemed to have represented by its
purchase and holding thereof that it either (a) is not a Plan or (b) is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38,
90-1 or 84-14 or another applicable exemption with respect to such purchase or
holding. If a purchaser or holder of the Preferred Securities that is a Plan
or a Plan Asset Entity elects to rely on an exemption other than PTCE 96-23,
95-60, 91-38, 90-1, or 84-14, the Company and the Trust may require a
satisfactory opinion of counsel or other evidence with respect to the
availability of such exemption for such purchase and holding.
Insurance companies considering an investment in the Preferred Securities
should note that the Small Business Job Protection Act of 1996 added new
Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the Department of Labor issued proposed regulations (the
"Proposed General Accounting Regulations") in
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December 1997, with respect to insurance policies that are supported by an
insurer's general account. The Proposed General Accounting Regulations are
intended to provide guidance on which assets held by the insurer constitute
"plan assets" of an ERISA Plan for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the Preferred Securities on behalf of or with "plan assets" of any
Plan consult with their counsel regarding the potential consequences if the
assets of the Trust were deemed to be "plan assets" and the availability of
exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or any other
applicable exemption.
111
<PAGE>
UNDERWRITING
Pursuant to the Underwriting Agreement, the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
and subject to the terms and conditions thereof, the underwriters named below
(the "Underwriters"), acting through J.C. Bradford & Co. and Sterne, Agee &
Leach, Inc., as representatives of the several Underwriters (the
"Representatives"), have severally agreed to purchase from New South Capital
Trust I the number of Preferred Securities set forth below opposite their
respective names.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
NAME OF UNDERWRITER SECURITIES
------------------- ----------
<S> <C>
J.C. Bradford & Co............................................... 2,250,000
Sterne, Agee & Leach, Inc........................................ 750,000
---------
Total........................................................... 3,000,000
=========
</TABLE>
The several Underwriters have agreed in the Underwriting Agreement, subject
to the terms and conditions set forth therein, to purchase all the Preferred
Securities offered hereby if any of the Preferred Securities are purchased. In
the event of default by an Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Representatives have advised New South Capital Trust I that they propose
initially to offer the Preferred Securities to the public at the public
offering price set forth on the cover page of this Prospectus. After the
initial public offering, the public offering price may be changed.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the
Company, the Underwriting Agreement provides that the Company will pay as
compensation to the Underwriters arranging the investment therein of such
proceeds, an amount in immediately available funds of $0.35 per Preferred
Security (or $1,050,000 in the aggregate or $1,207,500 if the Underwriters'
over-allotment option is exercised) for the accounts of the several
Underwriters.
The offering of the Preferred Securities is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
New South Capital Trust I has granted the Underwriters an option to purchase
up to an additional 450,000 Preferred Securities at the initial public
offering price. Such option, which expires 30 days from the date of this
Prospectus, may be exercised solely to cover over-allotments. To the extent
that the Underwriters exercise such option, each of the Underwriters will have
a firm commitment to purchase approximately the same percentage thereof which
the number of shares of Preferred Securities to be purchased by it shown in
the table above bears to the total and New South Capital Trust I and will be
obligated pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such options only to cover over-allotments made in
connection with the sale of shares of Preferred Securities offered hereby. If
purchased, the Underwriters will sell such additional shares on the same terms
as those on which the shares are being offered.
To the extent that the Underwriters exercise their option to purchase
additional Preferred Securities, New South Capital Trust I will issue and sell
to the Company additional Common Securities and the Company will issue and
sell Subordinated Debentures to New South Capital Trust I in an aggregate
principal amount equal to the total aggregate Liquidation Amount of the
additional Common Securities being purchased and the additional Preferred
Securities being purchased pursuant to the option.
During a period of 120 days from the date of this Prospectus, neither New
South Capital Trust I nor the Company will, subject to certain exceptions,
without the prior written consent of the Representatives, directly or
112
<PAGE>
indirectly, sell, offer to sell, grant any option for sale of, or otherwise
dispose of, any Preferred Securities, any security convertible into or
exchangeable into or exercisable for Preferred Securities or Subordinated
Debentures or any debt securities substantially similar to the Subordinated
Debentures or equity securities similar to the Preferred Securities (except
for the Subordinated Debentures and the Preferred Securities offered hereby).
The offering price and distribution rate have been determined by
negotiations among representatives of the Company and the Underwriters, and
the offering price of the Preferred Securities may not be indicative of the
market price following the offering. The Representative will have no
obligation to make market in the Preferred Securities, however, and may cease
marketing-making activities, if commenced, at any time.
New South Capital Trust I and the Company have agreed to indemnify the
Underwriters and controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters or any such controlling persons may be required to make
in respect thereof.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of the
Trust will be passed upon by Richards, Layton & Finger, P.A., One Rodney
Square, Wilmington, Delaware 19801, special Delaware counsel to the Company
and the Trust. The validity of the Guarantee and the Subordinated Debentures
will be passed upon for the Company by Balch & Bingham LLP, Birmingham,
Alabama. Certain legal matters will be passed upon for the Underwriters by
Alston & Bird, LLP, Washington, D.C. Certain matters relating to United States
federal income tax considerations will be passed upon for the Company by Balch
& Bingham LLP.
EXPERTS
The consolidated financial statements of New South Bancshares, Inc. at
December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The report of Ernst & Young LLP, independent auditors, and the accompanying
consolidated financial statements of the Company and subsidiary as of December
31, 1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, are included herein in the Financial pages that follow.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-3
Consolidated Income Statements for the three years ended December 31,
1997.................................................................... F-4
Consolidated Statements of Shareholders' Equity for the three years ended
December 31, 1997....................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1997................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
[LOGO]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
New South Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of New South
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audit 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of New South
Bancshares, Inc. and subsidiary at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Birmingham, Alabama
March 17, 1998
F-2
<PAGE>
NEW SOUTH BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks.................................... $ 16,943 $ 32,328
Time deposits in other banks............................... 200 299
Investment securities available for sale................... 197,135 94,451
Mortgage loans held for sale............................... 35,570 0
Loans, net of unearned income.............................. 727,854 681,730
Allowance for possible loan losses......................... (7,333) (5,904)
-------- --------
Net Loans................................................ 720,521 675,826
Premises and equipment, net................................ 2,968 3,336
Other assets............................................... 18,728 16,740
-------- --------
Total Assets........................................... $992,065 $822,980
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing....................................... 70,897 38,883
Interest bearing.......................................... 624,468 621,785
-------- --------
Total deposits......................................... 695,365 660,668
Federal funds purchased and securities sold under
agreements to repurchase.................................. 40,800 0
Federal Home Loan Bank advances............................ 179,420 95,388
Note payable............................................... 10,000 10,000
Accrued expenses, deferred revenue, and other liabilities.. 14,166 8,983
-------- --------
Total Liabilities...................................... 939,751 775,039
Shareholders' Equity:
Common stock of $1.00 par value (authorized 1.5 million
shares; issued and outstanding 1,376,956 and 1,389,030
shares, respectively) 1,377 1,389
Surplus.................................................. 38,896 39,119
Retained earnings........................................ 11,172 6,456
Unrealized gain on securities available for sale, net of
tax..................................................... 869 977
-------- --------
Total Shareholders' Equity............................. 52,314 47,941
-------- --------
Total Liabilities and Shareholders' Equity............. $992,065 $822,980
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NEW SOUTH BANCSHARES, INC.
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS,
EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Interest Income:
Interest on securities available for sale........ $ 10,077 $ 7,712 $ 7,553
Interest on loans................................ 64,831 57,395 47,072
Interest on other short-term investments......... 583 428 439
-------- -------- --------
Total Interest Income.......................... 75,491 65,535 55,064
Interest Expense:
Interest on deposits............................. 37,732 33,041 28,843
Interest on federal funds purchased and
securities sold under agreement to repurchase... 2,370 1,987 2,678
Interest on Federal Home Loan Bank advances...... 6,842 7,411 6,002
Interest on notes payable........................ 779 719 0
-------- -------- --------
Total Interest Expense......................... 47,723 43,158 37,523
-------- -------- --------
Net Interest Income................................ 27,768 22,377 17,541
Provision for possible loan losses............... 2,954 2,492 572
-------- -------- --------
Net Interest Income After Provision for Possible
Loan Losses....................................... 24,814 19,885 16,969
Noninterest Income:
Loan administration income....................... 4,915 4,870 4,547
Origination fees................................. 3,722 540 300
(Loss)/gain on sale of investment securities
available for sale.............................. (645) 1,689 464
Gain on sale of loans............................ 5,079 457 629
Other income..................................... 2,243 769 726
-------- -------- --------
Total Noninterest Income....................... 15,314 8,325 6,666
Noninterest Expense:
Salaries and benefits............................ 16,024 7,424 5,371
Net occupancy and equipment expense.............. 1,955 799 1,009
Loan servicing fees paid to affiliates........... 3,642 3,468 3,584
Loss on loans serviced........................... 1,423 1,271 1,694
Federal Deposit Insurance Corporation premium.... 418 4,368 1,114
Management fees paid to affiliates............... 0 1,704 1,704
Other expense.................................... 7,960 4,132 3,528
-------- -------- --------
Total Noninterest Expense...................... 31,422 23,166 18,004
-------- -------- --------
Income Before Income Taxes......................... 8,706 5,044 5,631
Income tax expense............................... 3,990 2,482 2,265
-------- -------- --------
Net Income..................................... $ 4,716 $ 2,562 $ 3,366
======== ======== ========
Weighted average shares outstanding................ 1,377 1,391 1,393
Earnings per share................................. $ 3.42 1.84 $ 2.42
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NEW SOUTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED UNREALIZED SHAREHOLDERS'
STOCK SURPLUS EARNINGS GAIN/(LOSS) EQUITY
------ ------- -------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994..................... $1,393 $39,179 $ 528 $(2,217) $38,883
Net income year ended
December 1995............ 0 0 3,366 0 3,366
Change in unrealized
gain/(loss) on securities
available for sale, net
of deferred taxes........ 0 0 0 3,531 3,531
------ ------- ------- ------- -------
Balance at December 31,
1995..................... 1,393 39,179 3,894 1,314 45,780
Net income year ended
December 1996............ 0 0 2,562 0 2,562
Stock retirement.......... (4) (60) 0 0 (64)
Change in unrealized
gain/(loss) on securities
available for sale, net
of deferred taxes........ 0 0 0 (337) (337)
------ ------- ------- ------- -------
Balance at December 31,
1996..................... 1,389 39,119 6,456 977 47,941
Net income year ended
December 1997............ 0 0 4,716 0 4,716
Stock retirement.......... (12) (223) 0 0 (235)
Change in unrealized
gain/(loss) on securities
available for sale, net
of deferred taxes........ 0 0 0 (108) (108)
------ ------- ------- ------- -------
Balance at December 31,
1997..................... $1,377 $38,896 $11,172 $ 869 $52,314
====== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NEW SOUTH BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Net income................................... $ 4,716 $ 2,562 $ 3,366
Adjustments to reconcile net income to cash
provided by operations:
Accretion of discounts and fees............ (449) (882) (1,292)
Provision for possible loan losses......... 2,954 2,492 572
Depreciation............................... 473 332 290
Loss/(gain) on sale of investment
securities available for sale............. 645 (1,689) (464)
Writedown of investment securities
available for sale........................ 0 62 0
Purchase of mortgage loans held for sale... (1,820) 0 0
Originations of mortgage loans held for
sale...................................... (290,631) 0 (42,731)
Proceeds from the sale of mortgage loans
held for sale............................. 103,502 42,962 12
Gain on sale of loans...................... (5,079) (457) (629)
Increase/(decrease) in other assets........ (2,198) (3,979) 2,656
Increase in accrued expenses, deferred
revenue and other liabilities............. 5,183 3,068 29
-------- --------- ---------
Net Cash Provided by Operating
Activities.............................. (182,704) 44,471 (38,191)
Investing Activities:
Net decrease in time deposits in other
banks....................................... 99 0 99
Net decrease/(increase) in securities
purchased under agreement to resell......... 0 4,000 (4,000)
Proceeds from sales of investment securities
available for sale.......................... 167,772 93,651 62,076
Proceeds from maturities and calls of
investment securities available for sale.... 55,986 19,163 8,349
Purchases of investment securities available
for sale.................................... (168,737) (109,285) (64,230)
Net increase in loan portfolio............... (47,200) (120,168) (105,550)
Purchases of premises and equipment.......... (1,054) (1,160) (670)
Proceeds from sale of premises and
equipment................................... 949 3 5
Purchases of real estate owned............... (1,807) (1,555) (1,722)
Proceeds from sales of real estate owned..... 2,017 1,724 2,119
-------- --------- ---------
Net Cash Used in Investing Activities.... 8,025 (113,627) (103,524)
Financing Activities:
Net increase/(decrease) in noninterest
bearing deposits............................ 32,014 3,708 (4,502)
Net increase in interest bearing deposits.... 2,683 117,949 78,947
Net increase/(decrease) in federal funds
purchased and securities sold under
agreements to repurchase.................... 40,800 (50,423) 64,811
Net change in Federal Home Loan Bank
Advances.................................... 84,032 0 10,000
Repurchase and retirement of common stock.... (235) (64) 0
-------- --------- ---------
Net Cash Provided by Financing
Activities.............................. 159,294 71,170 149,256
-------- --------- ---------
Net increase in cash and cash equivalents...... (15,385) 2,014 7,541
Cash and cash equivalents at beginning of
year.......................................... 32,328 30,314 22,773
-------- --------- ---------
Cash and Cash Equivalents at End of Year....... $ 16,943 $ 32,328 $ 30,314
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New South Bancshares, Inc. ("Bancshares"), formed in November 1994, is the
holding company of New South Federal Savings Bank (the "Bank") and through the
Bank provides loan and savings products primarily in the Southeast, with a
concentration in residential mortgage banking services. (See Note 16.) The
consolidated financial statements presented include the accounts of Bancshares
and the Bank, collectively ("New South"). Consequently, all significant
intercompany accounts or transactions have been eliminated upon consolidation.
Certain principles which significantly affect the determination of financial
position, results of operations and cash flows are summarized below. The
preparation of consolidated financial statements in accordance with generally
accepted accounting principles requires the use of management's estimates;
therefore, actual results may differ from the estimates used in the
consolidated financial statements. Certain amounts in the prior years
financial statements have been reclassified to conform with the 1997
presentation. These reclassifications had no effect on net income.
Cash and Due From Banks
Cash equivalents consist of short-term interest bearing and noninterest
bearing deposits due from banks with maturities of less than 90 days at the
date of purchase.
Investment Securities
All investment securities are classified as available for sale and are
carried at fair value. Any unrealized gains or losses are reflected as a
separate component of equity, net of any tax effect. Realized gains and losses
on the sales of investment securities are determined using the specific
identification method and are included in noninterest income to the extent
such gains or losses have not been previously recognized.
Mortgage Loans Held for Sale
Mortgage loans held for sale are reported at the lower of cost or market, as
determined in the aggregate. Gains or losses on the sale of these assets are
included in noninterest income, while interest collected on these assets is
included in interest income.
Loans
All loans are stated at principal balances outstanding, adjusted for any
discounts or premiums on loans purchased from others or discount points
collected at origination. Interest income on loans is computed and credited to
income based upon the principal amount of the loans outstanding using
appropriate rates of interest. Amortization of discounts and premiums on loans
is calculated using the interest method and included in interest income.
Effective January 1, 1995, New South adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS114"), as amended by Statement of Financial Accounting Standards
No. 118 ("SFAS118"), "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures". Accordingly, certain impaired loans are to be
reported at the present value of expected future cash flows using the loan's
effective interest rate, or at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. The adoption of
SFAS114 did not have a material impact on the results of operations.
It is the policy of New South to stop accruing interest income and place the
recognition of interest on a cash basis when any loan is past due more than 90
days as to principal or interest or if the ultimate collection of
F-7
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
either is in doubt. Any interest previously accrued but not collected is
reversed against current income when a loan is placed on a nonaccrual basis.
Generally, New South has a mortgage lien on all property on which mortgage,
participation or purchased loans are made, in order to protect New South's
interest in both the principal amounts outstanding and interest collections.
Additionally, portions of certain mortgage loan balances are insured by
private or government guaranty or insurance policies. Loans collateralized by
savings accounts are secured by savings account balances in excess of the
outstanding loan amount.
Allowance for Possible Loan Losses
The provision for possible loan losses charged to income is determined by
various factors including actual loss experience, the current volume and
condition of the loans in the portfolio, changes in the composition of the
portfolio, and current and expected economic conditions. Such provisions, less
net loan charge-offs, comprise the allowance for possible loan losses and is
available for future loan charge-offs. The allowance for possible loan losses
is maintained at a level considered adequate to provide for potential losses
as determined by management's continuing review and evaluation of the loans
and its judgement as to the impact of economic conditions on the portfolio.
New South follows a policy of charging off loans which management determines
to be uncollectible. Subsequent recoveries are credited to the allowance.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed primarily using the double-declining balance method
over the estimated useful lives of the properties or equipment.
Foreclosed Real Estate Owned
Real estate owned arises from loan foreclosure or deed in lieu of
foreclosure and is reported at the lower of cost, the unpaid balance at the
date of acquisition plus foreclosure and other related costs, or net
realizable value. Any resultant writedown at the time of foreclosure is
charged to the allowance for loan losses. Subsequent gains or losses on the
sale or losses from valuation of these properties are credited or charged to
income. Costs of improvements made to facilitate sale are capitalized, while
costs of holding the property are charged to expense. Allowances, if any, are
recorded for any anticipated costs to dispose.
Mortgage Servicing Rights
In June 1996, the Financial Accounting Standards Board ("Board") issued
Statement of Financial Accounting Standards No. 125 ("SFAS125"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. SFAS125
provides accounting and reporting standards for the transfers and servicing of
financial assets and the extinguishments of liabilities based on a consistent
application of a financial-components approach focusing on control.
SFAS125 requires entities that sell or securitize mortgage loans with
mortgage servicing rights (MSRs) retained to allocate the total cost of the
mortgage loans to the mortgage servicing rights and the loan based on their
relative fair values (Originated Mortgage Servicing Rights or OMSRs).
Servicing rights acquired separately are capitalized at their cost (Purchased
Mortgage Servicing Rights or PMSRs). The resulting capitalized MSRs are
assessed for impairment periodically based on fair value with any impairment
recognized through a valuation allowance. MSRs are amortized against
noninterest income in proportion to, and over the period of, estimated net
servicing income based on the historical and projected prepayments of the
underlying loans.
F-8
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair values of OMSRs are based on an analysis of various loan
characteristics, including interest rates, maturities, and product types.
These characteristics are used to stratify the servicing portfolio on which
OMSRs have been recognized to determine valuation and impairment for loans
whose characteristics are similar in nature.
New South implemented SFAS125 during calendar year 1997. The adoption did
not have a material impact on the results of operations.
Income Taxes
The consolidated financial statements have been prepared on the accrual
basis. When income and expenses are recognized in different periods for
financial reporting purposes and for purposes of computing income taxes
currently payable, deferred taxes are provided on such temporary differences.
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of events that have been recognized in the financial statements
or tax returns. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be realized or settled.
Bancshares and the Bank have entered into a tax sharing agreement by which a
consolidated return is filed each calendar year.
Earnings Per Share
Effective December 31, 1997, New South adopted Statement of Financial
Accounting Standards 128, "Earnings Per Share". This standard requires dual
presentation of basic and diluted earnings per share for companies with
potentially dilutive securities. There are no dilutive securities issued or
outstanding for the years ended December 31, 1995, 1996 and 1997.
Off-Balance Sheet Financial Instruments
New South has from time to time utilized various off-balance sheet
instruments, such as interest rate swaps and caps, which are designated to
hedge imbalances in sensitivity to fluctuating interest rates for designated
assets and liabilities. To qualify as a hedge used to manage interest rate
risk, the following criteria must be met: (1) the asset or liability to be
hedged exposes the institution, as a whole, to the interest rate risk, (2) the
instrument alters or reduces sensitivity to interest rate changes and (3) the
instrument is designated and effective as a hedge. If the designated asset or
liability being hedged is terminated, matures or is sold, any realized or
unrealized gain or loss from the related off-balance sheet investment product
would be recognized in income coincident with the extinguishment or
termination. Any changes in market value are recognized in other operating
revenues.
New South has entered into interest rate swap agreements to modify the
interest characteristics of some of its mortgage loans, mortgage-backed
securities and certificates of deposit. These agreements involve the exchange
of amounts based on a fixed interest rate for amounts based on variable
interest rates over the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an
adjustment of interest income or expense related to the assets or liabilities
being hedged. The related amounts payable to or receivable from counterparties
are included in other liabilities or assets.
New South has purchased and sold interest rate cap agreements to modify the
interest characteristics of designated liabilities. The strike price of these
agreements exceeded the current market levels at the date of inception. The
interest rate indices specified by the agreements have been and are expected
to be highly correlated with the interest rates New South incurs on its
liabilities. Payments to be paid or received as a result
F-9
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the specified interest rate index exceeding the strike price are accrued in
other liabilities or assets and are recognized as an adjustment of interest
expense. The cost of these agreements is amortized to interest expense ratably
during the life of the agreement.
Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130: "Reporting Comprehensive
Income" and SFAS No. 131: "Disclosures about Segments of an Enterprise and
Related Information". Both of these standards will be effective in financial
statements for periods beginning after December 15, 1997. Management believes
the adoption of these standards will have no material effect on the
consolidated financial statements of New South.
2. CASH AND DUE FROM BANKS AND CASH FLOWS
New South maintains cash balances with the Federal Reserve when required.
There was no reserve requirement at December 31, 1997. As of December 31,
1996, reserve requirements amounted to $550,000.
Cash was held in reserve for potential losses related to securitized
automobile loans. At December 31, 1997 and 1996, this restricted cash amounted
to $1,158,000 and $3,656,000, respectively.
Interest expense paid for 1997, 1996 and 1995 was $45,916,000, $41,250,000
and $37,160,000, respectively. Income taxes paid for 1997, 1996 and 1995 were
$4,082,000, $3,131,000 and $1,009,000, respectively.
3. INVESTMENT SECURITIES AVAILABLE FOR SALE
The fair value and amortized cost of securities available for sale and the
related unrealized gains and losses for each category are presented below:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 COST GAINS LOSSES VALUE
----------------- --------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed securities......... $138,816 $1,474 $(231) $140,059
U.S. Treasury and federal agency
securities........................ 39,391 204 (2) 39,593
Other.............................. 17,481 16 (14) 17,483
-------- ------ ----- --------
Total investment securities
available for sale.............. $195,688 $1,694 $(247) $197,135
======== ====== ===== ========
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
----------------- --------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed securities......... $ 68,926 $1,777 $(187) $ 70,516
U.S. Treasury and federal agency
securities........................ 12,497 33 (35) 12,495
Other.............................. 11,399 41 0 11,440
-------- ------ ----- --------
Total investment securities
available for sale.............. $ 92,822 $1,851 $(222) $ 94,451
======== ====== ===== ========
</TABLE>
F-10
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contractual maturities of the securities available for sale are
presented in the following table for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- -------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............... $ 5,252 $ 5,256 $ 3,990 $ 3,992
Due after one year through five
years................................ 41,823 42,038 17,457 17,644
Due after five years through ten
years................................ 52,069 51,927 134 122
Due after ten years................... 87,111 88,481 65,640 67,092
Equity securities..................... 9,433 9,433 5,601 5,601
-------- -------- ------- -------
$195,688 $197,135 $92,822 $94,451
======== ======== ======= =======
</TABLE>
Net unrealized gains on investment securities available for sale at December
31, 1997, 1996 and 1995 amounted to $1,447,000, $1,629,000 and $2,191,000,
respectively. Deferred taxes relating to the net unrealized gains at years
ending 1997, 1996 and 1995 amounted to $578,000, $652,000 and $877,000,
respectively.
Gross realized gains on securities available for sale for 1997, 1996 and
1995 were $1,464,000, $2,210,000 and $841,000, respectively. Gross realized
losses on securities for 1997, 1996 and 1995 were $2,109,000, $521,000 and
$377,000, respectively. The gross proceeds for the sales of securities
available for sale in 1997, 1996 and 1995 were $167,772,000, $93,651,000 and
$62,076,000, respectively.
At December 31, 1997 and 1996, New South had securities of $8,367,000 and
$7,646,000 pledged to secure state and municipal deposits, respectively.
There were no securities classified as trading securities during 1997, 1996
or 1995; therefore, no unrealized gains or losses on this security
classification have been included in income.
During 1995, the Financial Accounting Standards Board allowed companies to
reassess their investment classifications as determined under Statement of
Financial Accounting Standards No. 115, " Accounting for Certain Investments
in Debt and Equity Securities". This permitted a one time reclassification of
securities. As a result, management reclassified all securities to available
for sale. Securities reclassified from held for investment to held for sale on
December 13, 1995 had an amortized cost of $23,311,000 and unrealized gains of
$496,000.
4. LOANS
The composition of the loan portfolio as of December 31, 1997 and 1996 was
as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage................................................ $566,433 $587,773
Installment............................................. 96,916 70,991
Construction............................................ 65,101 24,620
Commercial.............................................. 1,467 403
-------- --------
729,917 683,787
Less:
Unearned income....................................... 2,063 2,057
Allowance for possible loan losses.................... 7,333 5,904
-------- --------
Net loans............................................. $720,521 $675,826
======== ========
</TABLE>
F-11
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The undisbursed portion of mortgage and construction loans was $58,369,000
and $35,612,000 at December 31, 1997 and 1996, respectively.
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Management establishes allowances for the purpose of absorbing potential
losses that may exist within the loan portfolio and that may be expected to
occur based on management's review of the economy, historical losses,
underwriting standards, changes in the composition of the loan portfolio and
other factors. Charges are made to the allowance for loans that are written-
off during the year while recoveries of these amounts are credited to the
account. Provisions for potential losses are also credited to the account and
are charged against current income.
A summary of the activity in the allowance for possible loan loss accounts
for the years ended December 31, 1997, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year......................... $5,904 $4,562 $5,189
Add: Provision for possible loan losses.............. 2,954 2,492 572
Deduct: Loans charged off............................ 2,200 1,610 1,436
Loan recoveries...................................... (675) (460) (237)
------ ------ ------
Net charge-offs...................................... 1,525 1,150 1,199
------ ------ ------
Balance at end of year............................... $7,333 $5,904 $4,562
====== ====== ======
</TABLE>
6. MORTGAGE SERVICING RIGHTS
During 1997, the Bank recorded OMSRs of $939,000. Amortization related to
these servicing rights amounted to $28,000 for 1997. The fair value of OMSRs
at December 31, 1997 amounted to $968,000. Based on New South's analysis,
there was no impairment of OMSRs at December 31, 1997. Prior to 1997, New
South had no OMSRs as they were recorded at a related company, Collateral
Mortgage, Ltd. (See Note 16.)
The balance of unamortized PMSRs from the acquisition of servicing
agreements with third parties was $470,000 and $546,000 at December 31, 1997
and 1996. No purchased mortgage servicing rights were capitalized during 1997,
1996 or 1995. The amount amortized during 1997, 1996 and 1995 was $76,000,
$96,000 and $89,000.
F-12
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DEPOSITS
The composition of the deposit base at December 31, 1997 and 1996 is
summarized in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE 1997 1996
RATE AT ---------------- ----------------
DECEMBER 31, 1997 AMOUNT PERCENT AMOUNT PERCENT
----------------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Noninterest bearing
demand................... $ 70,897 10.2% $ 38,883 6.0%
Interest bearing
transaction accounts..... 4.00% 3,932 0.6 2,166 0.4
Money market accounts..... 4.31 54,027 7.8 50,328 7.5
Statement savings......... 4.25 3,851 0.5 5,223 0.8
Certificates of deposit:
4% to 4.99%............. 4.88 62 0.0 9,218 1.4
5% to 5.99%............. 5.64 325,136 46.8 383,079 58.0
6% to 6.99%............. 6.25 155,683 22.4 98,053 14.8
7% to 8.99%............. 7.43 77,911 11.2 69,529 10.5
More than 9%............ 9.44 3,866 0.5 4,189 0.6
-------- ----- -------- -----
Total deposits........ $695,365 100.0% $660,668 100.0%
======== ===== ======== =====
</TABLE>
The aggregate amount of certificates of deposit in denominations greater
than $100,000 was approximately $202,685,000 and $191,517,000 at December 31,
1997 and 1996, respectively. Accrued interest payable on deposits at December
31, 1997 and 1996 amounted to $2,783,000 and $3,489,000, respectively,
primarily earned on certificates of deposit.
The scheduled maturities of certificates of deposit at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
1997
--------------
(IN THOUSANDS)
<S> <C>
1998........................................................ $377,555
1999........................................................ 59,787
2000........................................................ 35,987
2001........................................................ 9,769
2002 and thereafter......................................... 79,560
--------
$562,658
========
</TABLE>
The following table notes the breakdown of interest expense on deposits for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest bearing transaction accounts............. $ 126 $ 161 $ 107
Money market accounts............................. 2,350 2,051 2,094
Statement savings................................. 245 225 201
Certificates of deposit........................... 35,011 30,604 26,441
------- ------- -------
$37,732 $33,041 $28,843
======= ======= =======
</TABLE>
F-13
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
In 1997, Federal Funds agreements were arranged with three commercial banks
totaling $30,000,000 in available credit. At December 31, 1997, $6,000,000 was
outstanding, bearing interest at six percent. From time to time, sales of
securities under agreements to repurchase are used to facilitate the
management of interest rate risk and liquidity. At December 31, 1997,
mortgage-backed securities with a book and market value of $36,323,000 were
sold under such an agreement with SunTrust Capital Markets, Inc. This
agreement matures daily. Accrued interest receivable on this security amounted
to $196,000. At December 31, 1996, there were no such agreements outstanding.
These agreements, when utilized, are treated as financings with the
obligations to repurchase the securities sold reflected as a liability in the
financial statements. The dollar amount of the securities underlying the
agreements remain in the various asset accounts. These securities are held by
the counterparty to the repurchase agreements. The table below provides
information relating to repurchase activity for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Activity for the year:
Average balance of agreements outstanding.............. $41,177 $35,502
Maximum outstanding at any month-end................... $63,100 $52,000
Ending balance......................................... $34,800 $ 0
Average interest rate at period-end.................... 7.30% 0%
</TABLE>
9. FEDERAL HOME LOAN BANK ADVANCES, LINES OF CREDIT AND NOTE PAYABLE
As of December 31, 1997 and 1996, Federal Home Loan Bank ("FHLB") advances
amounted to $179,420,000 and $95,388,000, respectively. The advances
outstanding at December 31, 1997 bear interest at rates ranging from 5.75
percent to 7.89 percent. The advances are collateralized by stock in the
Federal Home Loan Bank and a blanket assignment of mortgage loans. Scheduled
maturities for the advances outstanding as of December 31, 1997 are as
follows, in thousands:
<TABLE>
<S> <C>
1998................................ $161,000
2001................................ 3,388
2003................................ 5,000
2005................................ 10,000
2017................................ 32
--------
$179,420
========
</TABLE>
During 1997, the bank entered into a $20,000,000 warehousing line of credit
agreement with a commercial bank. Borrowings are to be secured by pledging
specific mortgage loans and will bear a market interest rate. During 1997,
there were no amounts outstanding on the line of credit.
Bancshares has a $15,000,000 credit facilities agreement from a commercial
bank consisting of a $10,000,000 revolving credit line and $5,000,000 in term
debt secured by the stock of the Bank. The amounts outstanding bear interest
at the London Interbank Offering Rate plus two percent, payable quarterly.
Bancshares receives dividends from the Bank in amounts necessary to cover the
required interest payments and any principal payments due on the debt. As of
December 31, 1997 and 1996, $5,000,000 was outstanding on the line of credit
F-14
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and $5,000,000 was outstanding on the term debt. The available limit on the
line of credit decreases annually until March 31, 2003. Required payments on
the term debt are shown in the following table, in thousands:
<TABLE>
<S> <C>
2003.................................. 350
2004.................................. 2,325
2005.................................. 2,325
------
$5,000
======
</TABLE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires the disclosure of estimated fair
values for all financial instruments, both assets and liabilities on and off-
balance sheet, for which it is practicable to estimate their value along with
pertinent information on those financial instruments for which such values are
not available.
Fair value estimates are made at a specific point in time and are based on
relevant market information which is continuously changing. Because no quoted
market prices exist for a significant portion of New South's financial
instruments, fair values for such instruments are based on management's
assumptions with respect to future economic conditions, estimated discount
rates, estimates of the amount and timing of future cash flows, expected loss
experience, and other factors. These estimates are subjective in nature
involving uncertainties and matters of significant judgement; therefore, they
cannot be determined with precision. Changes in the assumptions could
significantly affect the estimates.
For purposes of this disclosure, the carrying value approximates or is equal
to the fair value of financial instruments for the balance sheet lines
captioned: cash and due from banks, time deposits in other banks, investment
securities available for sale, federal funds purchased and securities sold
under agreements to repurchase, and note payable.
The carrying amount and estimated fair values of other financial instruments
at December 31 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- ------------------
ESTIMATED
CARRYING ESTIMATED CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
-------- ---------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Mortgage loans held for sale...... $ 35,570 $ 35,570 $ 0 $ 0
Loans, net of unearned income..... 720,521 744,855 675,826 690,781
Financial liabilities:
Deposits.......................... 695,365 700,548 660,668 662,549
FHLB advances..................... 179,420 182,236 95,388 96,250
Off-balance sheet financial
instruments:
Unrealized gains/(losses):
Interest rate swap agreements... 0 3,148 0 (55)
Interest rate cap agreements.... 0 92 0 13
</TABLE>
F-15
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used by New South in estimating
its fair value disclosures for financial instruments:
Investment Securities Available for Sale and Mortgage Loans Held for Sale--
Fair values for securities and mortgage loans held for sale are based on
quoted market prices, where available. Where quoted market prices are not
available, fair values are based on quoted market prices of similar
instruments, adjusted for any significant differences between the quoted
instruments and the instruments being valued.
Loans--The fair values of variable rate loans that reprice frequently and
have no significant change in credit risk are assumed to approximate carrying
amounts. The fair values for other loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality and estimates of maturity
based on New South's historical experience. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits--The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings accounts, and money market and
interest-bearing checking accounts is, by definition, equal to the amount
payable on demand (carrying amount). Fair values for fixed rate certificates
of deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates of deposit to a
schedule of aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank Advances--The fair values of these advances are
determined using discounted cash flow analyses which apply interest rates
currently offered.
Off-Balance Sheet Instruments--Fair values for New South's off-balance sheet
instruments such as interest rate swaps and interest rate caps are determined
using various methods. Fair values of interest rate swaps and caps are
determined with the use of pricing models or formulas using current
assumptions if there are no relevant market comparables.
11. EMPLOYEE BENEFIT PLAN
Substantially all full-time employees with six months of service are
eligible to participate in New South's 401(k) Profit Sharing Plan. Under the
plan, employees elect to defer a portion of their wages, with New South
matching deferrals at the rate of 25 percent of the first 8 percent of the
employee's salary deferred. New South contributed $138,000, $49,000 and
$40,000 for the years ended December 31, 1997, 1996 and 1995, respectively, to
the plan.
F-16
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES
At December 31, 1997 deferred income taxes reflects the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The valuation allowances for net deferred tax assets did not change in 1997.
Significant components of New South's deferred tax assets and liabilities as
of December 31, 1997 and 1996 are listed below.
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Loan loss allowance................................... $ 2,933 $ 2,162
Other................................................. 2,119 738
------- -------
Total deferred tax assets........................... 5,052 2,900
------- -------
Deferred tax liabilities:
Tax deferred dividends................................ 494 494
Originated mortgage servicing rights.................. 364 0
Other................................................. 641 658
------- -------
Total deferred tax liabilities...................... 1,499 1,152
------- -------
Net deferred tax assets before valuation allowance...... 3,553 1,748
Valuation allowance................................... (1,988) (1,988)
------- -------
Net deferred tax asset/(liability).................. $ 1,565 $ (240)
======= =======
</TABLE>
Applicable income taxes for financial reporting purposes differs from the
amount computed by applying the statutory federal income tax rate of 34
percent for the reasons below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax computed at statutory federal income tax
rate........................................... $ 2,960 $ 1,817 $ 2,069
Increase in taxes resulting from:
State income tax, net of federal benefit...... 255 107 161
Other, net.................................... 775 558 35
------- ------- -------
Total....................................... $ 3,990 $ 2,482 $ 2,265
======= ======= =======
</TABLE>
F-17
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provisions for income taxes included in the consolidated statements of
income are summarized below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
1997
Federal.......................................... $4,225 $(621) $3,604
State............................................ 513 (127) 386
------ ----- ------
Total.......................................... $4,738 $(748) $3,990
====== ===== ======
1996
Federal.......................................... $2,217 $ 35 $2,252
State............................................ 230 0 230
------ ----- ------
Total.......................................... $2,447 $ 35 $2,482
====== ===== ======
1995
Federal.......................................... $2,050 $ (47) $2,003
State............................................ 262 0 262
------ ----- ------
Total.......................................... $2,312 $ (47) $2,265
====== ===== ======
</TABLE>
For 1995, New South was allowed a special bad debt deduction that was
limited to eight percent of taxable income in prior years before the special
bad debt deduction and subject to certain limitations based on the aggregate
qualifying loans and deposit account balances at the end of the year. For 1996
and 1997, the bad debt deduction was limited to an amount equal to the actual
net charge-off's occurring during the year. If the amounts that qualified as
deductions for federal income tax purposes for years prior to 1998 are later
used for purposes other than bad debt losses, including distributions on
liquidation, they will be subject to federal income tax at the then current
corporate rate. The amount of bad debt deductions allowed for tax purposes in
years 1988 through 1995 in excess of net actual charge-offs is required to be
added back to taxable income pro rata over a six year period, beginning with
tax year ended December 31, 1998.
13. REGULATORY CAPITAL REQUIREMENTS
Various capital measures used within the banking industry are indicators of
capital adequacy. Among these are leverage, tangible, and risk-based capital
ratios. These ratios adjust reported asset and capital amounts by various
nonqualifying regulatory assets such as certain purchased mortgage servicing
rights and certain nonqualifying intangibles. Regulatory authorities set these
minimum ratio standards for banking institutions in order to monitor the
capital strength of the institutions. Should the Bank's capital ratios decline
below these minimum standards, it would become subject to a series of
increasingly restrictive regulatory actions. The Bank has consistently
exceeded these minimum guidelines, and it is the intention of management to
continue to monitor these ratios to insure regulatory compliance and maintain
adequate capital for the Bank. The Bank's current regulatory ratios place the
Bank in the "well capitalized" category. The capital levels for the Bank under
these various measures are noted in the table for December 31, 1997 and 1996.
Management believes, as of December 31, 1997, that the Bank meets all capital
adequacy guidelines to which it is subject.
F-18
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MINIMUM ACTUAL ACTUAL
REQUIREMENT DECEMBER 31, 1997 DECEMBER 31, 1996
------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage capital, Tier 1
to total assets:
New South Federal
Savings Bank........... $29,758 3.00% $ 61,221 6.17% $ 56,825 6.90%
Total assets............ 991,939 822,980
Tangible capital, Tier 1
to total assets:
New South Federal
Savings Bank........... 14,879 1.50% 61,221 6.17% 56,825 6.90%
Total assets............ 991,939 822,980
Total risk-based capital
to risk adjusted assets:
New South Federal
Savings Bank........... 51,511 8.00% 67,458 10.48% 61,429 11.14%
Risk adjusted assets.... 643,884 551,459
Leverage capital Tier 1 to
risk adjusted assets:
New South Federal
Savings Bank........... 25,755 4.00% 61,221 9.51% 56,825 10.30%
Risk adjusted assets.... 643,884 551,459
</TABLE>
Total capital for Bancshares at December 31, 1997 and 1996 was $52,314,000
and $47,941,000, respectively. Regulatory capital requirements do not apply to
thrift holding companies.
14. OFF-BALANCE SHEET RISK AND COMMITMENTS
New South is a party to financial instruments with off-balance sheet risk in
the normal course of business in order to meet the needs of its customers and
to reduce its own exposure to fluctuations in interest rates. The financial
instruments may include commitments to extend credit, standby letters of
credit, interest rate caps and floors, interest rate swaps, forward and
futures contracts and commitments to purchase loans. These instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the financial statements. The contract or
notional amounts of these instruments reflect the extent of involvement New
South has in the particular class of financial instrument.
New South's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. New South 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 agreements and for
forward and futures contracts, the contract or notional amounts do not
represent exposure to credit loss. New South controls the credit risk of its
interest rate swap agreements and forward and futures contracts through credit
approvals, limits and monitoring procedures. Generally, New South will require
collateral, margin deposits or other security to support financial instruments
with credit or interest risk.
Commitments to extend credit ("mortgage pipeline") are agreements to lend to
customers 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. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
mortgage pipeline consists of both fixed rate commitments and floating rate
obligations. The fixed rate commitments result in market risk, while floating
rate commitments contain no market risk. New South controls this market risk
through mandatory forward commitments to sell loans and other financial
instruments designed to hedge this type of interest rate exposure. The market
risk associated with these mandatory forward commitments exists to the extent
loans are not available at appropiate rates. New South's mandatory forward
commitments are considered in the lower of cost or market calculation for the
balance sheet category of loans held for sale. The total mortgage pipeline was
$40,162,000 as of December 31, 1997. Of this pipeline,
F-19
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$30,724,000 were fixed rate commitments and $9,438,000 were adjustable
commitments with market risk for 1997. Adequate sources of funds were
available at December 31, 1997 to fund anticipated closings from the mortgage
pipeline. There were no loans in the mortgage pipeline in 1996. (See Note 16.)
Commitments to purchase loans are agreements to buy mortgage loans on a
specified date at an amount stated as a percentage of the note amount of the
loans to be purchased. On these commitments, New South uses the same policies
to control credit and interest rate risk as it does for other commitments to
extend credit.
Standby letters of credit are conditional commitments issued by New South to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, such as
a bond financing. While some of the guarantees are short-term in nature, most
extend for more than one year and expire in decreasing amounts. The credit
risk in standby letters of credit is substantially the same as that for
extending loan facilities to customers. New South holds various assets as
collateral, including real estate and mortgage-backed securities, supporting
those commitments for which collateral is deemed necessary.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. One party to the transaction will pay a fixed
rate of interest to the other party and receive from that party a floating
rate of interest, both based on the same notional value, at specified
intervals. Whether New South enters the agreement as the party to pay either
the fixed rate or the floating rate is determined by management's assessment
of New South's obligations and overall interest rate risk exposure and,
consequently, can vary greatly over time. Entering into interest rate swap
agreements involves not only the risk of dealing with counterparties and their
ability to meet the terms of the contracts but also the interest rate risk
associated with unmatched positions. Notional principal amounts are often used
to express the volume of these transactions; however, the amounts potentially
subject to credit risk are much smaller. Market values are a better indication
of credit risk exposure. Generally, New South will enter into interest rate
swap agreements with firms that are rated investment grade or better by a
nationally recognized investment rating service.
Interest rate cap and floor agreements are used to modify and/or reduce New
South's interest rate risk. As of December 31, 1997 and 1996, New South had
interest rate cap agreements with commercial banks and major investment
banking firms covering New South's interest rate exposure on short-term
liabilities.
The following table summarizes the contract or notional amounts of the
various off-balance sheet instruments and commitments as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit........................... $ 66,703 $ 37,871
Standby letters of credit.............................. 20,162 16,735
Financial instruments whose notional amounts exceed the
amount of credit risk:
Interest rate swap agreements.......................... 125,000 120,000
Interest rate cap agreements........................... 305,000 215,000
</TABLE>
15. LOAN SERVICING
Mortgage and installment loans serviced for others are not recorded on New
South's books and, accordingly, are not reflected in the accompanying
financial statements. New South is obligated to service the unpaid principal
F-20
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
balances of these loans. New South has entered into a subservicing agreement
with Collateral to service the majority of these mortgage loans for New South.
Collateral, as a subservicer for all FHA/VA loans, is required to advance,
from its own funds, escrow and foreclosure costs on the loans it services.
Portions of these advances are not recoverable for loans serviced for the
Government National Mortgage Association ("GNMA"). New South reimburses
Collateral for any of the nonrecoverable losses as part of the subservicing
agreement. The average GNMA FHA/VA loss resulting from these advances and
relating to loans that subsequently went into foreclosure amounted to
approximately $850 per loan in 1997, $400 per loan in 1996 and $1,800 per loan
in 1995. Total losses of this nature for 1997, 1996 and 1995 amounted to
$71,000, $34,000 and $83,000, respectively.
The outstanding mortgage loan amounts serviced for others as of December 31,
1997 and 1996 are summarized below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Government National Mortgage Association................ $261,581 $265,475
Federal Home Loan Mortgage Corporation.................. 188,463 114,612
Federal National Mortgage Association................... 88,038 94,196
Other investors......................................... 391,174 215,886
</TABLE>
Custodial escrow balances maintained in connection with loan servicing were
approximately $3,253,000 at December 31, 1997 and $2,717,000 at December 31,
1996.
New South sold approximately $23,000,000 of consumer auto loans during 1997,
$50,000,000 in 1996 and $70,000,000 in 1995, retaining the servicing on these
loans. The outstanding loan amounts serviced on consumer auto loans at
December 31, 1997 and 1996 was $70,357,000 and $100,604,000, respectively.
16. RELATED PARTY TRANSACTIONS
Due to the nature of their businesses, the daily operations of New South and
Collateral Mortgage, Ltd. ("Collateral"), an affiliate, are closely involved
operationally. Management, systems, and facilities are shared, and,
accordingly, there are numerous intercompany transactions. Management monitors
all activity to ensure that all transactions are made in a fair and equitable
manner to both New South and Collateral. Management fees paid to Collateral
during 1996 and 1995 amounted to $1,704,000 for each year. Senior management
and other support functions, which had previously been a part of Collateral,
transferred to New South during the year. As a result, New South collected
$222,000 in management fees from Collateral in 1997. Additionally, a
management fee was received during 1997, 1996, and 1995 in the amount of
$60,000 for each year from Triad Guaranty Insurance Corporation, an affiliate,
for services provided. These fees are due quarterly and bear no interest.
In connection with its loan servicing activities, Collateral is required to
maintain escrow accounts as trustee for investors and mortgagors. At December
31, 1997 and 1996, Collateral had on deposit with New South approximately
$39,919,000 and $28,065,000, respectively, in noninterest bearing accounts. In
1996, New South had $17,000,000 in noninterest bearing deposit accounts with
various banks at the direction of Collateral.
Collateral and its affiliates also maintain normal business checking and
money market accounts at New South. At December 31, 1997 and 1996, these
accounts totalled approximately $1,590,000 and $3,420,000, respectively.
New South, prior to June 1997, purchased a portion of its mortgage loans
from Collateral at cost. In addition, Collateral services these mortgage loans
and subservices loans which New South is obligated to service
F-21
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for third party investors. Servicing fees paid to Collateral during 1997, 1996
and 1995 amounted to $3,642,000, $3,468,000 and $3,584,000, respectively. For
an additional discussion of the subservicing agreement with Collateral, see
Note 15.
New South purchased $55,831,000, $106,269,000 and $127,211,000 in mortgage
loans from Collateral during 1997, 1996 and 1995, respectively, and sold
$20,571,000, $20,561,000 and $16,473,000 in mortgage loans to Collateral
during the same periods. All transactions were recorded at cost with no gains
or losses.
New South's Trust Department acts as document custodian for Collateral's
mortgage banking activities, holding various securities on behalf of mortgage
investors and warehousing banks. The fees received from Collateral for these
services are comparable to those charged by third parties.
In June 1997, New South sold an office rental property which had been
acquired through foreclosure to Collateral Agency, Inc., an affiliate. The
property was sold at market price, and New South realized a gain of $158,000
on the transaction.
At December 31, 1997, New South had $597,000 in loans outstanding to senior
officers.
In July 1997, the loan production operations of the residential mortgage
banking unit of Collateral were transferred into New South. As a result of
this change, New South assumed responsibility for 39 residential loan
production offices, associated employees, and related operating lease
obligations. Under the terms of an agreement with Collateral, a fee is payable
semi-annually in installments over a three year period based on a decreasing
percentage (.35% to .10%) of the aggregate original principal balances of
certain residential mortgage loans originated by New South through June 30,
2000. The fee for the period July 1, 1997 through December 31, 1997 was
$891,000. In 1997, New South paid $316,000 to Collateral for the use of
furniture and equipment in the origination and support areas.
F-22
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. PARENT ONLY FINANCIAL INFORMATION
Financial information and operating results for New South Bancshares, Inc.,
parent only, is presented as follows:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEETS:
Assets:
Cash..................................................... $ 81 $ 155
Investment in New South Federal Savings Bank............. 62,091 57,802
Investment in Collateral Agency of Texas................. 194 0
------- -------
Total Assets........................................... $62,366 $57,957
======= =======
Liabilities:
Note payable............................................. $10,000 $10,000
Accrued expenses and other liabilities................... 6 6
Accounts payable-intercompany............................ 46 10
------- -------
Total Liabilities...................................... 10,052 10,016
Shareholders' Equity:
Common stock............................................. 1,377 1,389
Surplus.................................................. 38,896 39,119
Retained earnings........................................ 11,172 6,456
Unrealized gain on securities available for sale......... 869 977
------- -------
Total Shareholders' Equity............................. 52,314 47,941
------- -------
Total Liabilities and Shareholders' Equity............. $62,366 $57,957
======= =======
</TABLE>
F-23
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENTS:
Income:
Dividends from New South Federal Savings
Bank...................................... $1,125 $2,500 $ 450
Interest on other short-term investments... 8 20 21
Other income............................... 10 0 0
------ ------ -------
Total Income............................. 1,143 2,520 471
Expenses:
Interest on note payable................... 779 719 446
Other expense.............................. 46 35 29
------ ------ -------
Total Expenses........................... 825 754 475
Income/(loss) before equity in undistributed
earnings of New South Federal Savings Bank.. 318 1,766 (4)
Equity in undistributed earnings of New South
Federal Savings Bank........................ 4,398 796 3,370
------ ------ -------
Net Income............................... $4,716 $2,562 $ 3,366
====== ====== =======
STATEMENTS OF CASH FLOW:
Operating activities:
Net income................................. $4,716 $2,562 $ 3,366
Equity in undistributed earnings of New
South Federal Savings Bank................ (4,398) (796) (3,370)
(Increase)/decrease in other assets........ 0 1 (1)
Increase in other payables................. 0 2 3
Increase in intercompany payables.......... 36 10 0
------ ------ -------
Net Cash Provided/(Used) by Operating
Activities.............................. 354 1,779 (2)
Investing activities:
Investment in Collateral Agency of Texas... (194) 0 0
Capital contribution to New South Federal
Savings Bank.............................. 0 (2,000) (10,000)
------ ------ -------
Net Cash Used in Investing Activities.... (194) (2,000) (10,000)
Financing activities:
Increase in notes payable.................. 0 0 10,000
Purchase and retirement of common stock.... (234) (64) 0
------ ------ -------
Net Cash Provided/(Used) by Financing
Activities.............................. (234) (64) 10,000
Net decrease in cash and cash equivalents.... (74) (285) (2)
Cash and cash equivalents at beginning of
year........................................ 155 440 442
------ ------ -------
Cash and Cash Equivalents at End of Year..... $ 81 $ 155 $ 440
====== ====== =======
</TABLE>
18. CONTINGENCIES
Various legal proceedings are pending against New South. Some of the
proceedings seek relief on alleged damages that are substantial. These actions
arise in the ordinary course of New South's business and include actions
relating to its lending and servicing activities. Because some of these issues
are complex and for other reasons, it may take a number of years to resolve
the actions. Based on legal counsel's opinion, management considers that any
potential liability resulting from the proceedings would not have material
impact on the financial condition of New South.
F-24
<PAGE>
NEW SOUTH BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. YEAR 2000 COMPLIANCE (UNAUDITED)
New South is heavily dependent upon complex computer systems for all phases
of its operations. The year 2000 issue concerns the inability of certain
software and data bases to properly recognize date sensitive information
beginning January 1, 2000. This problem could result in a material disruption
to the company's operations, if not corrected. New South uses third party
vendors for the software and hardware that runs each of its core systems. As a
result, much of the cost of year 2000 compliance is the responsibility of
those vendors. The company has assessed and developed a detailed strategy to
prevent or at least minimize problems related to the year 2000 issues. In
1997, resources were committed and implementation began to modify the affected
information systems. Total costs related to the project are estimated to range
between $750,000 and $2,000,000, of which $150,000 was spent in 1997.
Implementation is currently on schedule. The degree of success of this project
cannot be determined at this time. However, management believes that the final
outcome will not have a material adverse effect on the operations of the
company.
20. SUBSEQUENT EVENTS
New South Bancshares has received approval from the Office of Thrift
Supervision to form a subsidiary, New South Agency, Inc., to market insurance
products. Operations are anticipated to begin in the second quarter of 1998.
The Board of Directors of Bancshares has authorized a $30,000,000 issue of
Trust Preferred Securities. No filings have been made at the time of these
financial statements.
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for the years ended December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income................... $ 19,170 $ 19,359 $ 19,144 $ 17,818
Interest expense.................. 12,303 12,303 12,026 11,091
Net interest income............... 6,867 7,056 7,118 6,727
Provision for loan losses......... 794 641 677 842
Income before income taxes........ 508 2,204 3,141 2,853
Net income........................ 295 1,150 1,701 1,570
Per common share:
Weighted average shares
outstanding.................... 1,377 1,377 1,377 1,378
Net income........................ $ 0.21 $ 0.83 $ 1.24 $ 1.14
<CAPTION>
1996
----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income................... $ 17,982 $ 17,745 $ 14,980 $ 14,828
Interest expense.................. 11,572 11,360 10,400 9,826
Net interest income............... 6,410 6,385 4,580 5,002
Provision for loan losses......... 1,170 535 331 456
Income before income taxes........ 2,464 (891) 1,740 1,731
Net income........................ 1,451 (684) 917 878
Per common share:
Weighted average shares
outstanding.................... 1,389 1,390 1,393 1,393
Net income........................ $ 1.04 $ (0.49) $ 0.66 $ 0.63
</TABLE>
F-25
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE PREFERRED SECURI-
TIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UN-
DER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE PREFERRED SECURI-
TIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGA-
TION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 14
The Company.............................................................. 28
The Trust................................................................ 29
Accounting Treatment..................................................... 30
Use of Proceeds.......................................................... 31
Ratios of Earnings to Fixed Charges...................................... 32
Capitalization........................................................... 33
Selected Consolidated Financial Data..................................... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 36
Business................................................................. 55
Supervision and Regulation............................................... 67
Security Ownership of Certain Beneficial Owners.......................... 76
Directors and Executive Officers......................................... 77
Security Ownership of Management......................................... 79
Executive Compensation................................................... 80
Certain Relationships and Related Transactions........................... 81
Description of the Preferred Securities.................................. 83
Description of the Subordinated Debentures............................... 93
Description of the Guarantee............................................. 101
Relationship Among the Preferred Securities, the Subordinated Debentures
and the Guarantee....................................................... 103
Certain Federal Income Tax Consequences.................................. 106
ERISA Considerations..................................................... 109
Underwriting............................................................. 112
Validity of Securities................................................... 113
Experts.................................................................. 113
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 PREFERRED SECURITIES
NEW SOUTH
CAPITAL TRUST I
% CUMULATIVE TRUST
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10.00
PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
[LOGO OF NEW SOUTH BANCSHARES, INC. APPEARS HERE]
NEW SOUTH
BANCSHARES, INC.
----------------
PROSPECTUS
----------------
J.C.Bradford&Co.
Sterne, Agee & Leach, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee under the Securities Act of 1933, as amended..... $10,177
Trustees' fee and expenses........................................ 7,500
Printing and engraving............................................ 65,000
Accounting services............................................... 110,000
Legal fees of Registrant's counsel................................ 100,000
Miscellaneous..................................................... 57,323
--------
Total......................................................... $350,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"),
directors, advisory directors and officers of a Delaware corporation are
entitled to indemnification permitted by the statute as provided in such
corporation's certificate of incorporation, by-laws, resolutions and other
proper action.
Article Seventh of the Company's Certificate of Incorporation provides that
no director shall be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty of such director, except (i)
for breach of the director's duty of loyalty to the Company or its
stockholders, (ii) pursuant to Section 174 of the Delaware General Corporation
Law, or (iii) for any transaction from which the director derived an improper
personal benefit.
In addition, Article VIII of the Company's By-Laws provide that each person
who was or is a party, or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that
he or she is or was a director or an officer of the Company or is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan (an
"indemnitee"), whether the basis for such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified to the fullest extent authorized by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the Company
to provide broader indemnification rights than such law permitted the Company
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith. Article VIII goes on to provide that this
right to indemnification shall include the right to be paid in advance by the
Company the expenses incurred in defending such a proceeding in advance of its
final disposition, subject to the limitations on such advancements of
expenses, if any, which may be imposed by the Delaware General Corporation
Law. Article VIII goes on to provide that the Company's Board of Directors may
grant rights to indemnification to any employee or agent of the Company to the
fullest extent of the provisions of this Article with respect to
indemnification and advancement of expenses of directors and officers of the
Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has not sold any securities with the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
An index to Exhibits appears at pages II-5 through II-6 hereof.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") 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 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 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Birmingham, State of Alabama, on May
12, 1998.
New South Bancshares, Inc.
/s/ Robert M. Couch
By: _________________________________
Robert M. Couch, Executive Vice
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated on May
12, 1998.
SIGNATURE TITLE
* Chairman and
- ------------------------------------- President
William T. Ratliff, III
/s/ Robert M. Couch Executive Vice
- ------------------------------------- President
Robert M. Couch
/s/ Suzanne H. Moore Vice President
- ------------------------------------- (Controller)
(Suzanne H. Moore)
* Director and Vice
- ------------------------------------- President
(William T. Ratliff, Jr.)
* Director and Vice
- ------------------------------------- President
(J.K.V. Ratliff)
* Lizabeth R. Nichols hereby signs this Amendment on May 12, 1998 on behalf of
each of the indicated persons for whom she is attorney-in-fact pursuant to a
power of attorney previously filed.
/s/ Lizabeth R. Nichols
_____________________________________
Lizabeth R. Nichols, Attorney-In-
Fact
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on April 6, 1998.
New South Capital Trust I
/s/ Lizabeth R. Nichols
By: ---------------------------------
Lizabeth R. Nichols,
Administrative Trustee
II-4
<PAGE>
<TABLE> INDEX TO EXHIBITS
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*1.1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation of New South Bancshares, Inc.
*3.2 Bylaws of New South Bancshares, Inc.
*4.1 Certificate of Trust of New South Capital Trust I
*4.2 Initial Trust Agreement of New South Capital Trust I
4.3 Form of Junior Subordinated Indenture between the Company and Bankers
Trust Company, as Debenture Trustee
4.4 Form of Amended and Restated Trust Agreement of New South Capital
Trust I
4.5 Form of Preferred Security Certificate for New South Capital Trust I
(included as Exhibit A-1 of Exhibit 4.4)
*4.6 Form of Guarantee Agreement for New South Capital Trust I
5.1 Opinion of Balch & Bingham LLP as to legality of the Junior
Subordinated Debentures and the Guarantees to be issued by the Company
5.2 Opinion of Richards, Layton & Finger, P.A. as to legality of the
Preferred Securities to be issued by New South Capital Trust I
8.1 Opinion and consent of Balch & Bingham LLP regarding certain federal
income tax matters
10.1 Asset Purchase Agreement dated July 1, 1997
10.2 Lease Agreement dated July 1, 1997
10.3 Sub servicing Agreement dated December 31, 1986
10.4 Loan/Mortgage -- Securities Master Participation Agreement dated March
30, 1988
10.5 Commercial Lease Agreement dated April 20, 1993
10.6 Commercial Lease Agreement dated January 1, 1998
10.7 Administrative Services Agreement dated January 1, 1991
10.8 Real Estate Purchase Agreement dated June 6, 1997
10.9 Loan Participation Agreement dated November 25, 1997
12.1 Computation of ratio of earnings to fixed charges
*21.1 List of Subsidiaries of New South Bancshares, Inc.
23.1 Consent of Ernst & Young LLP, Independent Certified Public Accountants
23.2 Consent of Balch & Bingham (included in the opinion in Exhibit 8.1)
23.3 Consent of Richards, Layton & Finger, P.A. (included in the opinion in
Exhibit 5.2)
*24.1 Power of Attorney
25.1 Form T-1 Statement of Eligibility of Bankers Trust Company to act as
trustee under (i) the Junior Subordinated Indenture (ii) the Amended
and Restated Trust Agreement of New South Capital Trust I and (iii)
the Guarantee for the benefit of the holders of Preferred Securities
of New South Capital Trust I
27.1 Financial Data Schedule
</TABLE>
- --------
*Filed with registration statement on Form S-1, filed April 6, 1998,
registration No 333-49459
II-5
<PAGE>
<TABLE> INDEX TO EXHIBITS
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
*1.1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation of New South Bancshares, Inc.
*3.2 Bylaws of New South Bancshares, Inc.
*4.1 Certificate of Trust of New South Capital Trust I
*4.2 Initial Trust Agreement of New South Capital Trust I
4.3 Form of Junior Subordinated Indenture between the Company and
Bankers Trust Company, as Debenture Trustee
4.4 Form of Amended and Restated Trust Agreement of New South
Capital Trust I
4.5 Form of Preferred Security Certificate for New South Capital
Trust I (included as Exhibit A-1 of Exhibit 4.4)
*4.6 Form of Guarantee Agreement for New South Capital Trust I
5.1 Opinion of Balch & Bingham LLP as to legality of the Junior
Subordinated Debentures and the Guarantees to be issued by the
Company
5.2 Opinion of Richards, Layton & Finger, P.A. as to legality of
the Preferred Securities to be issued by New South Capital
Trust I
8.1 Opinion and consent of Balch & Bingham LLP regarding certain
federal income tax matters
10.1 Asset Purchase Agreement dated July 1, 1997
10.2 Lease Agreement dated July 1, 1997
10.3 Sub servicing Agreement dated December 31, 1986
10.4 Loan/Mortgage -- Securities Master Participation Agreement
dated March 30, 1988
10.5 Commercial Lease Agreement dated April 20, 1993
10.6 Commercial Lease Agreement dated January 1, 1998
10.7 Administrative Services Agreement dated January 1, 1991
10.8 Real Estate Purchase Agreement dated June 6, 1997
10.9 Loan Participation Agreement dated November 25, 1997
12.1 Computation of ratio of earnings to fixed charges
*21.1 List of Subsidiaries of New South Bancshares, Inc.
23.1 Consent of Ernst & Young LLP, Independent Certified Public
Accountants
23.2 Consent of Balch & Bingham (included in the opinion in Exhibit
8.1)
23.3 Consent of Richards, Layton & Finger, P.A. (included in the
opinion in Exhibit 5.2)
*24.1 Power of Attorney
25.1 Form T-1 Statement of Eligibility of Bankers Trust Company to
act as trustee under (i) the Junior Subordinated Indenture (ii)
the Amended and Restated Trust Agreement of New South Capital
Trust I and (iii) the Guarantee for the benefit of the holders
of Preferred Securities of New South Capital Trust I
27.1 Financial Data Schedule
</TABLE>
- --------
*Filed with registration statement on Form S-1, filed April 6, 1998,
registration No 333-49459
<PAGE>
Exhibit 4.3
- -----------
Form of Junior Subordinated Indenture between the Company and Bankers Trust
Company, as Debenture Trustee
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NEW SOUTH BANCSHARES, INC.
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INDENTURE
Dated as of __________, 1998
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BANKERS TRUST COMPANY
as Trustee
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_____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
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1
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EXHIBIT 4.3
Table of Contents (cont'd)
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Page
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ARTICLE I.
DEFINITIONS..........................................
SECTION 1.01. Definitions..........................................
Additional Sums................................................
Affiliate......................................................
Authenticating Agent...........................................
Bankruptcy Law.................................................
Board of Directors.............................................
Board Resolution...............................................
Business Day...................................................
Capital Event..................................................
Capital Leases.................................................
Commission.....................................................
Common Securities..............................................
Common Securities Guarantee....................................
Common Stock...................................................
Company........................................................
Company Request................................................
Compounded Interest............................................
Contingent Obligation..........................................
Custodian......................................................
Default........................................................
Deferred Interest..............................................
Definitive Securities..........................................
Depositary.....................................................
Dissolution Event..............................................
Event of Default...............................................
Exchange Act...................................................
Extension Period...............................................
GAAP...........................................................
Global Security................................................
Guarantees.....................................................
Indebtedness for Money Borrowed................................
Indenture......................................................
Interest Payment Date..........................................
Investment Company Event.......................................
Issue Date.....................................................
Lien...........................................................
Mortgage.......................................................
New South Capital Trust........................................
Non Book-Entry Preferred Securities............................
Officers.......................................................
Officers' Certificate..........................................
Opinion of Counsel.............................................
Other Debentures...............................................
Other Guarantees...............................................
Outstanding....................................................
Person.........................................................
Predecessor Security...........................................
Preferred Securities...........................................
Preferred Securities Guarantee.................................
Prepayment Price...............................................
Principal office of the Trustee................................
Property Trustee...............................................
Qualified Debt Obligations.....................................
Responsible Officer............................................
Securities.....................................................
Securities Act.................................................
Securityholder.................................................
Security Register..............................................
Senior Debt....................................................
Special Event..................................................
Stated Maturity................................................
Subsidiary.....................................................
Tax Event......................................................
Trustee........................................................
Trust Agreement................................................
Trust Indenture Act of 1939....................................
Trust Securities...............................................
Underwriting Agreement.........................................
U.S. Government Obligations....................................
ARTICLE II.
SECURITIES...........................................
SECTION 2.01. Forms Generally......................................
SECTION 2.02. Execution and Authentication.........................
SECTION 2.03. Form and Payment.....................................
SECTION 2.04. Legends..............................................
SECTION 2.05. Global Security......................................
SECTION 2.06. Interest.............................................
SECTION 2.07. Transfer and Exchange................................
SECTION 2.08. Replacement Securities...............................
SECTION 2.09. Treasury Securities..................................
SECTION 2.10. Temporary Securities.................................
SECTION 2.11. Cancellation.........................................
SECTION 2.12. Defaulted Interest...................................
SECTION 2.13. CUSIP Numbers........................................
ARTICLE III.
PARTICULAR COVENANTS OF THE COMPANY..................
SECTION 3.01. Payment of Principal, Premium and Interest...........
SECTION 3.02. Offices for Notices and Payments, etc................
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office...
SECTION 3.04. Provision as to Paying Agent.........................
SECTION 3.05. Certificate to Trustee...............................
SECTION 3.06. Compliance with Consolidation Provisions.............
SECTION 3.07. Limitation on Dividends..............................
SECTION 3.08. Covenants as to New South Capital Trust..............
SECTION 3.09. Payment of Expenses..................................
SECTION 3.10. Payment Upon Resignation or Removal..................
ARTICLE IV.
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE......................
SECTION 4.01. Securityholders' Lists...............................
SECTION 4.02. Preservation and Disclosure of Lists.................
SECTION 4.03. Reports of the Company...............................
SECTION 4.04. Reports by the Trustee...............................
ARTICLE V.
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT......................
SECTION 5.01. Events of Default....................................
SECTION 5.02. Payment of Securities on Default; Suit Therefor......
SECTION 5.03. Application of Moneys Collected by Trustee...........
SECTION 5.04. Proceedings by Securityholders.......................
SECTION 5.05. Proceedings by Trustee...............................
SECTION 5.06. Remedies Cumulative and Continuing...................
SECTION 5.07. Direction of Proceedings and Waiver of Defaults
by Majority of Securityholders.......................
SECTION 5.08. Notice of Defaults...................................
SECTION 5.09. Undertaking to Pay Costs.............................
ARTICLE VI.
CONCERNING THE TRUSTEE...............................
SECTION 6.01. Duties and Responsibilities of Trustee...............
SECTION 6.02. Reliance on Documents, Opinions, etc.................
SECTION 6.03. No Responsibility for Recitals, etc..................
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Securities......
SECTION 6.05. Moneys to be Held in Trust...........................
SECTION 6.06. Compensation and Expenses of Trustee.................
SECTION 6.07. Officers' Certificate as Evidence....................
SECTION 6.08. Conflicting Interest of Trustee......................
SECTION 6.09. Eligibility of Trustee...............................
SECTION 6.10. Resignation or Removal of Trustee....................
SECTION 6.11. Acceptance by Successor Trustee......................
SECTION 6.12. Successor by Merger, etc.............................
SECTION 6.13. Limitation on Rights of Trustee as a Creditor........
SECTION 6.14. Authenticating Agents................................
ARTICLE VII.
CONCERNING THE SECURITYHOLDERS.......................
SECTION 7.01. Action by Securityholders............................
SECTION 7.02. Proof of Execution by Securityholders................
SECTION 7.03. Who Are Deemed Absolute Owners.......................
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding...
SECTION 7.05. Revocation of Consents; Future Holders Bound.........
ARTICLE VIII.
SECURITYHOLDERS' MEETINGS............................
SECTION 8.01. Purpose of Meetings..................................
SECTION 8.02. Call of Meetings by Trustee..........................
SECTION 8.03. Call of Meetings by Company or Securityholders.......
SECTION 8.04. Qualifications for Voting............................
SECTION 8.05. Regulations..........................................
SECTION 8.06. Voting...............................................
ARTICLE IX.
AMENDMENTS...........................................
SECTION 9.01. Without Consent of Securityholders...................
SECTION 9.02. With Consent of Securityholders......................
SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures..............................
SECTION 9.04. Notation on Securities...............................
SECTION 9.05. Evidence of Compliance of Supplemental
Indenture to be Furnished Trustee....................
ARTICLE X.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE....
SECTION 10.01. Company May Consolidate, etc., on Certain Terms......
SECTION 10.02. Successor Corporation to be Substituted for Company..
SECTION 10.03. Opinion of Counsel to be Given Trustee...............
ARTICLE XI.
SATISFACTION AND DISCHARGE OF INDENTURE..............
SECTION 11.01. Discharge of Indenture...............................
SECTION 11.02. Deposited Moneys and U.S. Government Obligations
to be Held in Trust by Trustee.......................
SECTION 11.03. Paying Agent to Repay Moneys Held....................
SECTION 11.04. Return of Unclaimed Moneys...........................
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S. Government
Obligations..........................................
SECTION 11.06. Reinstatement........................................
ARTICLE XII.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS...............................
SECTION 12.01. Indenture and Securities Solely Corporate
Obligations..........................................
ARTICLE XIII.
MISCELLANEOUS PROVISIONS.............................
SECTION 13.01. Successors...........................................
SECTION 13.02. Official Acts by Successor Corporation...............
SECTION 13.03. Surrender of Company Powers..........................
SECTION 13.04. Address for Notices, etc.............................
SECTION 13.05. Governing Law........................................
SECTION 13.06. Evidence of Compliance with Conditions Precedent.....
SECTION 13.07. Business Days........................................
SECTION 13.08. Trust Indenture Act to Control.......................
SECTION 13.09. Table of Contents, Headings, etc.....................
SECTION 13.10. Execution in Counterparts............................
SECTION 13.11. Separability.........................................
SECTION 13.12. Assignment...........................................
SECTION 13.13. Acknowledgement of Rights............................
ARTICLE XIV.
PREPAYMENT OF SECURITIES.............................
SECTION 14.01. Prepayment...........................................
SECTION 14.02. Optional Prepayment by Company After Five (5) Years..
SECTION 14.03. No Sinking Fund......................................
SECTION 14.04. Notice of Prepayment.................................
SECTION 14.05. Payment of Securities Called for Prepayment..........
ARTICLE XV.
SUBORDINATION OF SECURITIES..........................
SECTION 15.01. Agreement to Subordinate.............................
SECTION 15.02. Default on Senior Debt...............................
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.................
SECTION 15.04. Subrogation..........................................
SECTION 15.05. Trustee to Effectuate Subordination..................
SECTION 15.06. Notice by the Company................................
SECTION 15.07. Rights of the Trustee; Holders of Senior Debt........
SECTION 15.08. Subordination May Not Be Impaired....................
ARTICLE XVI.
EXTENSION OF INTEREST PAYMENT PERIOD.................
SECTION 16.01. Extension of Interest Payment Period.................
SECTION 16.02. Notice of Extension..................................
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NEW SOUTH BANCSHARES, INC.
Reconciliation and tie between the Trust Indenture Act of 1939 (including
cross-references to provisions of Section 310 to and including 317 which,
pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the
Trust Reform Act of 1990, are a part of and govern the Indenture whether or not
physicially contained therein) and the Junior Subordinated Indenture, dated as
of __________, 1998.
Trust Indenture Indenture
Act Section Section
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(S) 310 (a)(1), (2) and (5)........................6.09
(a)(3)...............................Not Applicable
(a)(4)...............................Not Applicable
(b)..................................6.08
(c)..................................Not Applicable
(S) 311 (a) .....................................6.13
(b)..................................6.13
(c)..................................Not Applicable
(S) 312 (a) .....................................4.01, 4.02(a)
(b)..................................4.02(c)
(c)..................................4.02(c)
(S) 313 (a) .....................................4.04(a)
(b)..................................4.04(b)
(c)..................................4.04(a), 4.04(b)
(d)..................................4.04(b)
(S) 314 (a) .....................................4.03(a)
(b)..................................Not Applicable
(c)(1)...............................13.06
(c)(2)...............................13.06
(c)(3)...............................Not Applicable
(d)..................................Not Applicable
(e)..................................13.06
(f)..................................Not Applicable
(S) 315 (a) .....................................6.01
(b)..................................5.08
(c)..................................6.01
(d)..................................6.01
(e)..................................5.09
(S) 316 (a) .....................................1.01, 5.07
(b)..................................5.04
(c)..................................7.01
(S) 317 (a) .....................................5.02
(b)..................................3.04
(S) 318 (a) .....................................13.08
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Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Junior Subordinated Indenture.
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THIS INDENTURE, dated as of __________, 1998, between New South
Bancshares, Inc., a Delaware corporation (hereinafter sometimes called the
"Company"), and Bankers Trust Company, a national banking association, as
trustee (hereinafter sometimes called the "Trustee").
W I T N E S S E T H:
In consideration of the premises, and the purchase of the Securities
by the holders thereof, the Company covenants and agrees with the Trustee for
the equal and proportionate benefit of the respective holders from time to time
of the Securities, as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture shall have the respective meanings specified in this Section
1.01. All other terms used in this Indenture which are defined in the Trust
Indenture Act of 1939, or which are by reference therein defined in the
Securities Act, shall (except as herein otherwise expressly provided or unless
the context otherwise requires) have the meanings assigned to such terms in said
Trust Indenture Act and in said Securities Act as in force at the date of this
Indenture as originally executed. The following terms have the meanings given to
them in the Trust Agreement: (i) Clearing Agency; (ii) Delaware Trustee; (iii)
Depository; (iv) Capital Security Certificate; (v) Property Trustee; (vi)
Administrative Trustees; (vii) Direct Action; (viii) Preferred Securities; and
(ix) Preferred Securities Guarantee. All accounting terms used herein and not
expressly defined shall have the meanings assigned to such terms in accordance
with generally accepted accounting principles and the term "generally accepted
accounting principles" means such accounting principles as are generally
accepted at the time of any computation. The words "herein", "hereof" 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. Headings are
used for convenience of reference only and do not affect interpretation. The
singular includes the plural and vice versa.
"Additional Sums" shall have the meaning set forth in Section 2.06(c).
"Affiliate" shall mean, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding the power to vote
10% or more of the outstanding voting securities or other ownership interests of
the specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, (d) a partnership in which the specified Person is a
general partner, (e) any officer or director of the specified Person, and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
"Authenticating Agent" shall mean any agent or agents of the Trustee
which at the time shall be appointed and acting pursuant to Section 6.14.
"Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.
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"Board of Directors" shall mean either the Board of Directors of the
Company or any duly authorized committee of that board.
"Board Resolution" shall mean 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" shall mean, with respect to any series of Securities,
any day other than a Saturday or a Sunday or a day on which banking institutions
in The City of New York are authorized or required by law or executive order to
close.
"Capital Event" shall mean the receipt by the Company and the Trust of
an opinion of Balch & Bingham LLP, or any other independent bank regulatory
counsel experienced in such matters, to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any rules,
guidelines or policies of the United States Department of Treasury's Office of
Thrift Supervision ("OTS"), the Board of Governors of the Federal Reserve
Systems ("Federal Reserve"), or any other federal bank regulatory agency or (b)
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the Issue Date, (i) the
Company is or within 90 days will be subject to capital adequacy requirements
and such requirements do not or will not permit the Preferred Securities to
constitute, subject to limitations on inclusion of the Preferred Securities as
Tier 1 capital imposed by Federal Reserve capital guidelines in effect as of the
date of this Prospectus, Tier 1 capital (or its then-equivalent) or (ii) the
amount of net proceeds received from the sale of the Preferred Securities and
contributed by the Company to New South does not or within 90 days will not
constitute Tier 1 (core) capital (or its then-equivalent).
"Capital Leases" means, with respect to the Company and its
Subsidiaries, any lease of any property that should, in accordance with GAAP, be
classified and accounted for as a capital lease on a consolidated balance sheet
of the Company and its Subsidiaries.
"Commission" shall mean 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 Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act of 1939,
then the body performing such duties at such time.
"Common Securities" shall mean undivided beneficial interests in the
assets of New South Capital Trust which rank pari passu with Preferred
Securities issued by New South Capital Trust; provided, however, that if an
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Event of Default has occurred and is continuing, no payments in respect of
Distributions on, or payments upon liquidation, redemption or otherwise with
respect to, the Common Securities shall be made until the holders of the
Preferred Securities shall be paid in full the Distributions and the
liquidation, redemption and other payments to which they are entitled.
"Common Securities Guarantee" shall mean any guarantee that the
Company may enter into with any Person or Persons that operate directly or
indirectly for the benefit of holders of Common Securities of New South Capital
Trust.
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company or any other class of stock resulting from changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
5
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"Company" shall mean New South Bancshares, Inc., a Delaware
corporation, and, subject to the provisions of Article X, shall include its
successors and assigns.
"Company Request" or "Company Order" shall mean a written request or
order signed in the name of the Company by the Chief Executive Officer, the
President, a Vice President, the Controller, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
"Compounded Interest" shall have the meaning set forth in Section
16.01.
"Contingent Obligation" means, with respect to the Company and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of any such Person (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take or pay, or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, that the term Contingent
Obligation shall not include (i) obligations under insurance or reinsurance
policies, or (ii) endorsements for collection or deposit in the ordinary course
of business.
"Custodian" shall mean any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Default" shall mean any event, act or condition that with notice or
lapse of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 16.01.
"Definitive Securities" shall mean those securities issued in fully
registered certificated form not otherwise in global form.
"Depositary" shall mean, with respect to Securities of any series, for
which the Company shall determine that such Securities will be issued as a
Global Security, The Depository Trust Company, New York, New York, another
clearing agency, or any successor registered as a clearing agency under the
Exchange Act or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to Section 2.05(d).
"Dissolution Event" shall mean the liquidation of the Trust pursuant
to the Trust Agreement, and the distribution of the Securities held by the
Property Trustee to the holders of the Trust Securities issued by the New South
Capital Trust pro rata in accordance with the Trust Agreement.
"Event of Default" shall mean any event specified in Section 5.01,
continued for the period of time, if any, and after the giving of the notice, if
any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 16.01.
6
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"GAAP" means generally accepted accounting principles, as recognized
by the American Institute of Certificated Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Company and its Subsidiaries throughout the period indicated and
consistent with the prior financial practice of the Company and its
Subsidiaries.
"Global Security" shall mean, with respect to the Securities, a
Security executed by the Company and delivered by the Trustee to the Depositary
or pursuant to the Depositary's instruction, all in accordance with the
Indenture, which shall be registered in the name of the Depositary or its
nominee.
"Guarantees" shall mean the Preferred Securities Guarantee and the
Common Securities Guarantee.
"Indebtedness for Money Borrowed" shall mean any obligation of, or any
obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments.
"Indenture" shall mean this instrument as originally executed or, if
amended as herein provided, as so amended.
"Interest Payment Date" shall have the meaning set forth in Section
2.06.
"Investment Company Event" shall mean that New South Capital Trust and
the Company shall have received an opinion, requested by the Company, of counsel
experienced in practice under the Investment Company Act of 1940, as amended
(the "1940 Act"), to the effect that, as a result of the occurrence of a change
in law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk
that New South Capital Trust is or will be considered an "investment company"
which is required to be registered under the 1940 Act, which Change in 1940 Act
Law becomes effective on or after the Issue Date.
"Issue Date" shall mean __________, 1998.
"Lien" means, with respect to any asset, any Mortgage, lien, pledge,
charge, security interest or encumbrance of any kind with respect to such asset.
For the purposes of this Indenture, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Maturity Date" shall mean __________, 2028.
"Mortgage" shall mean and include any mortgage, pledge, lien, security
interest, conditional sale or other title retention agreement or other similar
encumbrance.
"New South Capital Trust" shall mean New South Capital Trust I, a
Delaware business trust created for the purpose of issuing its undivided
beneficial interests in connection with the issuance of Securities under this
Indenture.
"Non Book-Entry Preferred Securities" shall have the meaning set forth
in Section 2.05.
"Officers" shall mean any of the Chief Executive Officer, the
President, a Vice President, the Controller, the Secretary or an Assistant
Secretary, the Treasurer or an Assistant Treasurer of the Company.
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"Officers' Certificate" shall mean a certificate signed by two
Officers and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who may
be an employee of the Company, and who shall be acceptable to the Trustee.
"Other Debentures" shall mean all junior subordinated debentures
issued by the Company from time to time and sold to trusts to be established by
the Company (if any), in each case similar to New South Capital Trust.
"Other Guarantees" shall mean all guarantees to be issued by the
Company with respect to capital securities (if any) and issued to other trusts
to be established by the Company (if any), in each case similar to the New South
Capital Trust.
The term "outstanding" when used with reference to Securities, shall,
subject to the provisions of Section 7.04, mean, as of any particular time, all
Securities authenticated and delivered by the Trustee or an Authenticating Agent
under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or an
Authenticating Agent or delivered to the Trustee for
cancellation;
(b) Securities, or portions thereof, for the payment or prepayment of
which moneys in the necessary amount shall have been deposited in
trust with the Trustee or with any paying agent (other than the
Company) or shall have been set aside and segregated in trust by
the Company (if the Company shall act as its own paying agent);
provided that, if such Securities, or portions thereof, are to be
prepaid prior to maturity thereof, notice of such prepayment
shall have been given as in Article XIV provided or provision
satisfactory to the Trustee shall have been made for giving such
notice; and
(c) Securities in lieu of or in substitution for which other
Securities shall have been authenticated and delivered pursuant
to the terms of Section 2.08 unless proof satisfactory to the
Company and the Trustee is presented that any such Securities are
held by bona fide holders in due course.
"Person" shall mean a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Predecessor Security" of any particular Security shall mean every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 2.08 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Preferred Securities" shall mean undivided beneficial interests in
the assets of New South Capital Trust which rank pari passu with the Common
Securities issued by New South Capital Trust; provided, however, that if an
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Event of Default has occurred and is continuing, no payments in respect of
Distributions on, or payments upon liquidation, redemption or otherwise with
respect to, the Common Securities shall be made until the holders of the
Preferred Securities shall be paid in full the Distributions and the
liquidation, redemption and other payments to which they are entitled.
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"Preferred Securities Guarantee" shall mean any guarantee that the
Company may enter into with any Person or Persons that operate directly or
indirectly for the benefit of holders of Preferred Securities of New South
Capital Trust.
"Prepayment Price" shall mean, with respect to any prepayment of the
Securities pursuant to Section 14.01 or 14.02 hereof, an amount in cash equal to
100% of the principal amount of the Securities to be prepaid, plus accrued and
unpaid interest thereon, including Compounded Interest and Additional Sums, if
any, to the date of such prepayment.
"Principal office of the Trustee", or other similar term, shall mean
the principal office of the Trustee, at which at any particular time its
corporate trust business shall be administered.
"Property Trustee" shall have the same meaning as set forth in the
Trust Agreement.
"Qualified Debt Obligations" means, without duplication, (a) debt
securities of the Company, provided that the terms of any such debt security (i)
permit the deferral of principal and interest payments for a period of up to
five years (but not beyond the maturity date), as elected by the Company, (ii)
have a maturity for payment of principal of not less than ten (10) years after
the date of issuance, and (iii) include provisions making the debt security
expressly subordinate to all other debt of the Company, (b) preferred securities
issued by a Subsidiary, the sole purpose of which is to issue such preferred
securities and invest the proceeds thereof in debt securities of the type
described in clause (a) above, and which preferred securities are payable solely
out of the proceeds of payments on account of such debt securities; and (c) the
obligations recorded on the consolidated balance sheet of the Company and its
Subsidiaries with respect to debt securities of the type described in clause (a)
above and preferred securities of the type described in clause (b) above.
"Responsible Officer", when used with respect to the Trustee, shall
mean any officer of the Trustee with responsibility for 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
knowledge of and familiarity with the particular subject.
"Securities" means the Company's _____% Junior Subordinated Deferrable
Interest Debenture due __________, as authenticated and issued under this
Indenture.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securityholder", "holder of Securities", or other similar terms,
shall mean any Person in whose name at the time a particular Security is
registered on the register kept by the Company or the Trustee for that purpose
in accordance with the terms hereof.
"Security Register" shall mean (i) prior to a Dissolution Event, the
list of holders provided to the Trustee pursuant to Section 4.01, and (ii)
following a Dissolution Event, any security register maintained by a security
registrar for the securities appointed by the Company following the execution of
a supplemental indenture providing for transfer procedures as provided for in
Section 2.07(a).
"Senior Debt" shall mean with respect to the Company and its
Subsidiaries: (a) all liabilities, obligations and indebtedness for borrowed
money, whether or not evidenced by bonds, debentures, notes or other similar
instruments, (b) all obligations to pay the deferred purchase price of property
or services (other than trade payables due and arising in the ordinary course of
business), (c) all Capital Lease Obligations, (d) all debt of any
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other Person secured by a Lien on any asset of the Company or any of its
Subsidiaries, (e) all Contingent Obligations, and (f) all obligations,
contingent or otherwise, relating to the face amount of letters of credit,
whether or not drawn, and banker's acceptance, but excluding any obligation
relating to an undrawn letter of credit if the undrawn letter of credit is
issued in connection with a liability for which a reserve has been established
by the Company or the applicable Subsidiary in accordance with GAAP; provided,
that Senior Debt shall not include the Securities, the Guarantees or other
Qualified Debt Obligations.
"Special Event" means a Capital Event, a Tax Event or an Investment
Company Event.
"Subsidiary" shall mean with respect to any Person, (i) any
corporation at least a majority of whose outstanding voting stock of which is
owned, directly or indirectly, by such Person or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any
general partnership, joint venture or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries and (iii) any limited partnership of which such Person
or any of its Subsidiaries is a general partner. For the purposes of this
definition, "voting stock" means shares, interests, participations or other
equivalents in the equity interest (however designated) in such Person having
ordinary voting power for the election of a majority of the directors (or the
equivalent) of such Person, other than shares, interests, participations or
other equivalents having such power only by reason of the occurrence of a
contingency.
"Tax Event" shall mean the receipt by New South Capital Trust and the
Company of an opinion, requested by the Company, of counsel experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein or as a result of any official administrative written
decision or pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is made on or after the Issue Date, there is more than
an insubstantial risk that (i) New South Capital Trust is, or will be within 90
days of the date of such opinion, subject to United States Federal income tax
with respect to income received or accrued on the Securities, (ii) interest
payable by the Company on the Securities is not, or within 90 days of the date
of such opinion, will not be, deductible by the Company, in whole or in part,
for United States Federal income tax purposes, or (iii) New South Capital Trust
is, or will be within 90 days of the date of such opinion, subject to more than
a de minimis amount of other taxes, duties or other governmental charges.
"Trustee" shall mean the Person identified as "Trustee" in the first
paragraph hereof, and, subject to the provisions of Article VI hereof, shall
also include its successors and assigns as Trustee hereunder.
"Trust Agreement" shall mean the Amended and Restated Trust Agreement
of New South Capital Trust, dated as of __________, 1998.
"Trust Indenture Act of 1939" shall mean the Trust Indenture Act of
1939 as in force at the date of execution of this Indenture except as provided
in Section 9.03; provided, however, that, in the event the Trust Indenture Act
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of 1939 is amended after such date, "Trust Indenture Act of 1939" shall mean, to
the extent required by any such amendment, the Trust Indenture Act of 1939 as so
amended.
"Trust Securities" shall mean the Preferred Securities and the Common
Securities, collectively.
"Underwriting Agreement" shall mean the Underwriting Agreement, dated
__________, 1998, among the Company, New South Capital Trust and the
underwriters named therein.
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"U.S. Government Obligations" shall mean securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) 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 under
clauses (i) or (ii) are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a 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 interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
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ARTICLE II.
SECURITIES
SECTION 2.01. Forms Generally.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A, the terms of which are incorporated
in and made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject or usage. Each Security shall be dated the date of
its authentication. The Securities shall be issued in denominations of $10 and
integral multiples thereof.
SECTION 2.02. Execution and Authentication.
The Securities shall be signed on behalf of the Company by the Chief
Executive Officer, the President, a Vice President or the Controller and
attested by its Secretary or an Assistant Secretary. Any signature may be in
the form of a manual or facsimile signature. If an Officer whose signature is
on a Security no longer holds that office at the time the Security is
authenticated, the Security shall nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The
form of Trustee's certificate of authentication to be borne by the Securities
shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a Company Order, authenticate for original
issue up to, and the aggregate principal amount of Securities outstanding at any
time may not exceed, $30,900,000 aggregate principal amount of the Securities;
except as provided in Sections 2.07, 2.08, 2.10 and 14.05.
SECTION 2.03. Form and Payment.
Except as provided in Section 2.05, the Securities shall be issued in
fully registered certificated form without interest coupons. Principal of and
premium, if any, and interest on the Securities issued in certificated form will
be payable, the transfer of such Securities will be registrable and such
Securities will be exchangeable for Securities bearing identical terms and
provisions at the office or agency of the Trustee; provided, however, that
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payment of interest with respect to the Securities (other than Securities issued
in global form, the payment of interest on which shall be made in immediately
available funds) may be made at the option of the Company (i) by check mailed to
the holder at such address as shall appear in the Security Register or (ii) by
transfer to an account maintained by the Person entitled thereto, provided that
proper transfer instructions have been received in writing by the relevant
record date. Notwithstanding the foregoing, so long as the holder of any
Securities is the Property Trustee, the payment of the principal of and premium,
if any, and interest (including Compounded Interest and Additional Sums, if any)
on such Securities held by the Property Trustee will be made in immediately
available funds at such place and to such account as may be designated by the
Property Trustee.
SECTION 2.04. Legends.
Except as otherwise determined by the Company in accordance with
applicable law, each Security shall bear the applicable legends relating to
restrictions on transfer pursuant to the securities laws in substantially the
form set forth on Exhibit A hereto, if any.
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SECTION 2.05. Global Security.
(a) In connection with a Dissolution Event,
(i) if any Preferred Securities are held in book-entry form, the
related Definitive Securities shall be presented to the Trustee (if an
arrangement with the Depositary has been maintained) by the Property
Trustee in exchange for one or more Global Securities (as may be required
pursuant to Section 2.07) in an aggregate principal amount equal to the
aggregate principal amount of all outstanding Securities, to be registered
in the name of the Depositary, or a custodian therefor, or its nominee, and
delivered by the Trustee to the Depositary for crediting to the accounts of
its participants pursuant to the instructions of the Administrative
Trustees; the Company upon any such presentation shall execute one or more
Global Securities in such aggregate principal amount and deliver the same
to the Trustee for authentication and delivery in accordance with this
Indenture; and payments on the Securities issued as a Global Security will
be made to the Depositary; and
(ii) if any Preferred Securities are held in certificated form,
the related Definitive Securities may be presented to the Trustee by the
Property Trustee and any Capital Security certificate which represents
Preferred Securities other than Preferred Securities in book-entry form
("Non Book-Entry Preferred Securities") will be deemed to represent
beneficial interests in Securities presented to the Trustee by the Property
Trustee having an aggregate principal amount equal to the aggregate
liquidation amount of the Non Book-Entry Preferred Securities until such
Capital Security certificates are presented to the Security Registrar for
transfer or reissuance, at which time such Capital Security certificates
will be cancelled and a Security, registered in the name of the holder of
the Capital Security certificate, with an aggregate principal amount equal
to the aggregate liquidation amount of the Capital Security certificate
cancelled, will be executed by the Company and delivered to the Trustee for
authentication and delivery in accordance with this Indenture. Upon the
issuance of such Securities, Securities with an equivalent aggregate
principal amount that were presented by the Property Trustee to the Trustee
will be deemed to have been cancelled.
(b) The Global Securities shall represent the aggregate amount of
outstanding Securities from time to time endorsed thereon; provided, that the
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aggregate amount of outstanding Securities represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges and
prepayments. Any endorsement of a Global Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the Trustee, in accordance with instructions given by the
Company as required by this Section 2.05.
(c) The Global Securities may be transferred, in whole but not in
part, only to another nominee of the Depositary, or to a successor Depositary
selected or approved by the Company or to a nominee of such successor
Depositary.
(d) If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or the Depositary has ceased to be
a clearing agency registered under the Exchange Act, and a successor Depositary
is not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such condition, as the case may be, the Company will
execute, and the Trustee, upon receipt of a Company Order, will authenticate and
make available for delivery the Definitive Securities, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security in exchange for such Global Security. If there is
an Event of Default, the Depositary shall have the right to exchange the Global
Securities for Definitive Securities. In addition, the Company may at any time
determine that the Securities shall no longer be represented by a Global
Security. In the event of such an Event of Default or
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such a determination, the Company shall execute, and subject to Section 2.07,
the Trustee, upon receipt of an Officers' Certificate evidencing such
determination by the Company, will authenticate and make available for delivery
the Definitive Securities, in authorized denominations, and in an aggregate
principal amount equal to the principal amount of the Global Security in
exchange for such Global Security. Upon the exchange of the Global Security for
such Definitive Securities, in authorized denominations, the Global Security
shall be cancelled by the Trustee. Such Definitive Securities issued in exchange
for the Global Security shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Definitive Securities to the Depositary for delivery to the
Persons in whose names such Definitive Securities are so registered.
SECTION 2.06. Interest.
(a) Each Security will bear interest at the rate of _____% per annum
(the "Coupon Rate") from the most recent date to which interest has been paid
or, if no interest has been paid, from __________, 1998, until the principal
thereof becomes due and payable, and on any overdue principal and (to the extent
that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the Coupon Rate, compounded semi-annually,
payable (subject to the provisions of Article XVI) semi-annually in arrears on
January 15 and July 15 of each year (each, an "Interest Payment Date")
commencing on [July 15], 1998 to the Person in whose name such Security or any
predecessor Security is registered, at the close of business on the regular
record date for such interest installment, which shall be the first day of the
month in which the relevant Interest Payment Date falls.
(b) Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months and, for any period of less than a full
calendar month, the number of days elapsed in such month. In the event that any
Interest Payment Date falls on a day that is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), with the same force and effect as if made on such date.
(c) During such time as the Property Trustee is the holder of any
Securities, the Company shall pay any additional amounts on the Securities as
may be necessary in order that the amount of Distributions then due and payable
by New South Capital Trust on the outstanding Trust Securities shall not be
reduced as a result of any additional taxes, duties and other governmental
charges to which New South Capital Trust has become subject as a result of a Tax
Event ("Additional Sums").
SECTION 2.07. Transfer and Exchange.
(a) Transfer Restrictions. The Securities may not be transferred
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except in compliance with any legend contained in Exhibit A, if any, unless
otherwise determined by the Company in accordance with applicable law. Upon any
distribution of the Securities following a Dissolution Event, the Company and
the Trustee shall enter into a supplemental indenture pursuant to Section 9.01
to provide for the transfer restrictions and procedures with respect to the
Securities substantially similar to those contained in the Trust Agreement, if
any, to the extent applicable in the circumstances existing at such time.
(b) General Provisions Relating to Transfers and Exchanges. To permit
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registrations of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Definitive Securities and Global Securities. All
Definitive Securities and Global Securities issued upon any registration of
transfer or exchange of Definitive Securities or Global Securities shall be the
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Definitive Securities or Global
Securities surrendered upon such registration of transfer or exchange.
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No service charge shall be made to a holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith.
The Company shall not be required to (i) issue, register the transfer
of or exchange Securities during a period beginning at the opening of business
15 days before the day of mailing of a notice of prepayment or any notice of
selection of Securities for prepayment under Article XIV hereof and ending at
the close of business on the day of such mailing; or (ii) register the transfer
of or exchange any Security so selected for prepayment in whole or in part,
except the unprepaid portion of any Security being prepaid in part.
Prior to due presentment for the registration of a transfer of any
Security, the Trustee, any agent and the Company may deem and treat the Person
in whose name any Security is registered as the absolute owner of such Security
for the purpose of receiving payment of principal of and premium, if any, and
interest on such Securities, and neither the Trustee, any agent nor the Company
shall be affected by notice to the contrary.
SECTION 2.08. Replacement Securities.
If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. An indemnity bond must be supplied by
the holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee and any authenticating agent from any loss that
any of them may suffer if a Security is replaced. The Company or the Trustee
may charge for its expenses in replacing a Security.
Every replacement Security is an obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Securities duly issued hereunder.
SECTION 2.09. Treasury Securities.
In determining whether the holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only
Securities that a Responsible Officer of the Trustee actually knows to be so
owned shall be so considered.
SECTION 2.10. Temporary Securities.
Pending the preparation of Definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities that are printed, typewritten,
lithographed, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company shall cause Definitive
Securities to be prepared without unreasonable delay. The Definitive Securities
shall be printed, typewritten, lithographed or engraved, or provided by any
combination thereof, or in any other manner permitted by the rules and
regulations of any applicable securities exchange, all as determined by the
officers executing such Definitive Securities. After the
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preparation of Definitive Securities, the temporary Securities shall be
exchangeable for Definitive Securities upon surrender of the temporary
Securities at the office or agency maintained by the Company for such purpose
pursuant to Section 3.02 hereof, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Securities, the Company shall
execute, and the Trustee shall authenticate and make available for delivery, in
exchange therefor the same aggregate principal amount of Definitive Securities
of authorized denominations. Until so exchanged, the temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
Definitive Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall retain or destroy cancelled Securities in accordance with
its normal practices (subject to the record retention requirement of the
Exchange Act) unless the Company directs them to be returned to it. The Company
may not issue new Securities to replace Securities that have been redeemed or
paid or that have been delivered to the Trustee for cancellation. All cancelled
Securities not destroyed by the Trustee shall be delivered to the Company.
SECTION 2.12. Defaulted Interest.
Any interest on any Security that 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 holder on the
relevant regular record date by virtue of having been such holder; and such
Defaulted Interest shall be paid by the Company, at its election, as provided in
clause (a) or clause (b) below:
(a) The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their
respective Predecessor Securities) 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 Defaulted Interest proposed to be paid
on each such Security 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 nor less than 10 days prior to the date of
the proposed payment and not less than 10 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 Securityholder at his or her address as it
appears in the Security Register, not less than 10 days prior to such
special record date. Notice of the 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 such Securities (or their respective Predecessor Securities) are
registered on such special record date and shall be no longer payable
pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest on any
Securities in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to
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the Trustee of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
SECTION 2.13. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of prepayment as a convenience to Securityholders; provided that any such notice
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may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
prepayment and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such prepayment shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE III.
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest
The Company covenants and agrees for the benefit of the holders of the
Securities that it will duly and punctually pay or cause to be paid the
principal of and premium, if any, and interest on the Securities at the place,
at the respective times and in the manner provided herein.
SECTION 3.02. Offices for Notices and Payments, etc.
So long as any of the Securities remains outstanding, the Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Securities may be presented for payment, an office or agency where
the Securities may be presented for registration of transfer and for exchange as
in this Indenture provided and an office or agency where notices and demands to
or upon the Company in respect of the Securities or of this Indenture may be
served. The Company will give to the Trustee written notice of the location of
any such office or agency and of any change of location thereof. Until
otherwise designated from time to time by the Company in a notice to the
Trustee, any such office or agency for all of the above purposes shall be the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York. In case the Company shall fail to maintain any such office or agency in
the Borough of Manhattan, The City of New York, or shall fail to give such
notice of the location or of any change in the location thereof, presentations
and demands may be made and notices may be served at the principal corporate
trust office of the Trustee.
In addition to any such office or agency, the Company may from time to
time designate one or more offices or agencies outside the Borough of Manhattan,
The City of New York, where the Securities may be presented for registration of
transfer and for exchange in the manner provided in this Indenture, and the
Company may from time to time rescind such designation, as the Company may deem
desirable or expedient; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
any such office or agency in the Borough of Manhattan, The City of New York, for
the purposes above mentioned. The Company will give to the Trustee prompt
written notice of any such designation or rescission thereof; provided, further,
that the Company shall at all times maintain a paying agent in each such office
or agency.
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office.
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The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee with respect to the Securities, it will cause such paying
agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the
provision of this Section 3.04,
(1) that it will hold all sums held by it as such agent for the
payment of the principal of and premium, if any, or interest
on the Securities (whether such sums have been paid to it by
the Company or by any other obligor on the Securities) in
trust for the benefit of the holders of the Securities; and
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Securities) to make
any payment of the principal of and premium or interest on
the Securities when the same shall be due and payable.
(b) If the Company shall 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 the Securities, set aside, segregate and hold in
trust for the benefit of the holders of the Securities a sum
sufficient to pay such principal, premium or interest so becoming
due and will notify the Trustee of any failure to take such
action and of any failure by the Company (or by any other obligor
under the Securities) to make any payment of the principal of and
premium, if any, or interest on the Securities when the same
shall become due and payable.
(c) Anything in this Section 3.04 to the contrary notwithstanding,
the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge with respect to the Securities
hereunder, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust for any such Securities by the
Trustee or any paying agent hereunder, as required by this
Section 3.04, such sums to be held by the Trustee upon the trusts
herein contained.
(d) Anything in this Section 3.04 to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section
3.04 is subject to Sections 11.03 and 11.04.
SECTION 3.05. Certificate to Trustee.
The Company will deliver to the Trustee on or before 120 days after
the end of each fiscal year in each year, commencing with the first fiscal year
ending after the date hereof, so long as Securities are outstanding hereunder,
an Officers' Certificate, one of the signers of which shall be the principal
executive, principal financial or principal accounting officer of the Company,
stating that in the course of the performance by the signers of their duties as
officers of the Company they would normally have knowledge of any default by the
Company in the performance of any covenants contained herein, stating whether or
not they have knowledge of any such default and, if so, specifying each such
default of which the signers have knowledge and the nature thereof.
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SECTION 3.06. Compliance with Consolidation Provisions.
The Company will not, while any of the Securities remain outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all or
substantially all of its property to, any other Person unless the provisions of
Article X hereof are complied with.
SECTION 3.07. Limitation on Dividends.
The Company will not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock (which includes common and preferred stock)
or (ii) make any payment of principal, interest or premium, if any, on or repay
or repurchase or redeem any debt securities of the Company (including any Other
Debentures) that rank pari passu with or junior in right of payment to the
Securities or (iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any Subsidiary of the Company (including
Other Guarantees) if such guarantee ranks pari passu or junior in right of
payment to the Securities (other than (a) dividends or distributions in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Common Stock of the Company, (b) any declaration of a dividend in connection
with the implementation of a stockholder's rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Preferred Securities Guarantee,
(d) as a result of a reclassification of the Company's capital stock or the
exchange or the conversion of one class or series of the Company's capital stock
for another class or series of the Company's capital stock, (e) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, and (f) purchases or issuances of Common Stock in
connection with any of the Company's stock option, stock purchase, stock loan or
other benefit plans for its directors, officers or employees or any of the
Company's dividend reinvestment plans, in each case as now existing or hereafter
established or amended) if at such time (i) there shall have occurred any event
of which the Company has actual knowledge that (a) with the giving of notice or
the lapse of time, or both, would constitute an Event of Default and (b) in
respect of which the Company shall not have taken reasonable steps to cure, (ii)
if such Securities are held by the Property Trustee, the Company shall be in
default with respect to its payment of any obligations under the Preferred
Securities Guarantee or (iii) the Company shall have given notice of its
election of the exercise of its right to extend the interest payment period
pursuant to Section 16.01 and any such extension shall be continuing.
SECTION 3.08. Covenants as to New South Capital Trust
In the event Securities are issued to New South Capital Trust or a
trustee of such trust in connection with the issuance of Trust Securities by New
South Capital Trust, for so long as such Trust Securities remain outstanding,
the Company will (i) directly or indirectly maintain 100% ownership of the
Common Securities of New South Capital Trust; provided, however, that any
-------- -------
successor of the Company, permitted pursuant to Article X, may succeed to the
Company's ownership of such Common Securities, (ii) use its reasonable efforts
to cause New South Capital Trust (a) to remain a business trust, except in
connection with a distribution of Securities to the holders of the Trust
Securities in a liquidation of New South Capital Trust, the redemption of all of
the Trust Securities of New South Capital Trust or certain mergers,
consolidations or amalgamations, each as permitted by the Trust Agreement of New
South Capital Trust, and (b) to continue to be treated as a grantor trust and
not as an association taxable as a corporation or a partnership for United
States federal income tax purposes and (iii) to use its reasonable efforts to
cause each holder of Trust Securities to be treated as owning an undivided
beneficial interest in the Securities.
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SECTION 3.09. Payment of Expenses.
In connection with the offering, sale and issuance of the Securities
to New South Capital Trust and in connection with the sale of the Trust
Securities by New South Capital Trust, the Company, in its capacity as borrower
with respect to the Securities, shall:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Securities, including commissions to the initial purchasers
payable pursuant to the Underwriting Agreement and compensation of the Trustee
in accordance with the provisions of Section 6.06;
(b) pay all costs and expenses of New South Capital Trust (including,
but not limited to, costs and expenses relating to the organization of New South
Capital Trust, the offering, sale and issuance of the Trust Securities
(including commissions to the initial purchasers payable pursuant to the
Underwriting Agreement in connection therewith), the fees and expenses of the
Property Trustee and the Delaware Trustee, the costs and expenses relating to
the operation of the Trust, including without limitation, costs and expenses of
accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing and disposition of the assets of New South Capital
Trust;
(c) be primarily and fully liable for any indemnification obligations
arising with respect to the Trust Agreement;
(d) pay any and all taxes (other than United States withholding taxes
attributable to New South Capital Trust or its assets) and all liabilities,
costs and expenses with respect to such taxes of New South Capital Trust; and
(e) pay all other fees, expenses, debts and obligations (other than
the Trust Securities) related to New South Capital Trust.
SECTION 3.10. Payment Upon Resignation or Removal.
Upon termination of this Indenture or the removal or resignation of
the Trustee, unless otherwise stated, the Company shall pay to the Trustee all
amounts accrued and owing to the date of such termination, removal or
resignation. Upon termination of the Trust Agreement or the removal or
resignation of the Delaware Trustee or the Property Trustee, as the case may be,
pursuant to Section 5.7 of the Trust Agreement, the Company shall pay to the
Delaware Trustee or the Property Trustee, as the case may be, all amounts
accrued and owing to the date of such termination, removal or resignation.
ARTICLE IV.
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders' Lists.
The Company covenants and agrees that it will furnish or cause to be
furnished to the Trustee:
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(a) on a semi-annual basis on each regular record date for the
Securities, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Securityholders as of
such record date; and
(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;
except that, no such lists need be furnished so long as the Trustee is in
possession thereof by reason of its acting as Security registrar.
SECTION 4.02. Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the
holders of the Securities (1) contained in the most recent list
furnished to it as provided in Section 4.01 or (2) received by it
in the capacity of Securities registrar (if so acting) hereunder.
The Trustee may destroy any list furnished to it as provided in
Section 4.01 upon receipt of a new list so furnished.
(b) In case three or more holders of Securities (hereinafter referred
to as "applicants") apply in writing to the Trustee and furnish
to the Trustee reasonable proof that each such applicant has
owned a Security for a period of at least six months preceding
the date of such application, and such application states that
the applicants desire to communicate with other holders of
Securities or with holders of all Securities with respect to
their rights under this Indenture and is accompanied by a copy of
the form of proxy or other communication which such applicants
propose to transmit, then the Trustee shall within 5 Business
Days after the receipt of such application, at its election,
either:
(1) afford such applicants access to the information preserved at the
time by the Trustee in accordance with the provisions of
subsection (a) of this Section 4.02; or
(2) inform such applicants as to the approximate number of holders of
all Securities, whose names and addresses appear in the
information preserved at the time by the Trustee in accordance
with the provisions of subsection (a) of this Section 4.02, and
as to the approximate cost of mailing to such Securityholders the
form of proxy or other communication, if any, specified in such
application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written
request of such applicants, mail to each Securityholder whose
name and address appear in the information preserved at the time
by the Trustee in accordance with the provisions of subsection
(a) of this Section 4.02 a copy of the form of proxy or other
communication which is specified in such request with reasonable
promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after
such tender, the Trustee shall mail to such applicants and file
with the Commission, together with a copy of the material to be
mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests
of the holders of all Securities or would be in violation of
applicable law.
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Such written statement shall specify the basis of such opinion.
If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if,
after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and
opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee
shall mail copies of such material to all such Securityholders
with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall be relieved
of any obligation or duty to such applicants respecting their
application.
(c) Each and every holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any paying agent shall be held
accountable by reason of the disclosure of any such information
as to the names and addresses of the holders of Securities in
accordance with the provisions of subsection (b) of this Section
4.02, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under
said subsection (b).
SECTION 4.03. Reports of the Company
(a) The Company covenants and agrees to file with the Trustee,
within 15 days after the date on which the Company is required to
file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the
Company may be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Exchange Act; or, if the
Company is not required to file information, documents or reports
pursuant to either of such sections, then to file with the
Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such
of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the
Exchange Act in respect of a security listed and registered on a
national securities exchange as may be prescribed from time to
time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations
prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by
the Company with the conditions and covenants provided for in
this Indenture as may be required from time to time by such rules
and regulations.
(c) The Company covenants and agrees to transmit by mail to all
holders of Securities, as the names and addresses of such holders
appear upon the Security Register, within 30 days after the
filing thereof with the Trustee, such summaries of any
information, documents and reports required to be filed by the
Company pursuant to subsections (a) and (b) of this Section 4.03
as may be required by rules and regulations prescribed from time
to time by the Commission.
(d) 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
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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 4.04. Reports by the Trustee
(a) The Trustee shall transmit to Securityholders such reports
concerning the Trustee and its actions under this Indenture as
may be required pursuant to the Trust Indenture Act of 1939 at
the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act of 1939,
the Trustee shall, within sixty days after each __________
following the date of this Indenture, commencing __________,
1998, deliver to Securityholders a brief report, dated as of such
__________, which complies with the provisions of such Section
313(a).
(b) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with
each stock exchange, if any, upon which the Securities are
listed, with the Commission and with the Company. The Company
will promptly notify the Trustee when the Securities are listed
on any stock exchange.
ARTICLE V.
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01. Events of Default.
One or more of the following events of default shall constitute an
Event of Default hereunder (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):
(a) default in the payment of any interest upon any Security or any
Other Debentures when it becomes due and payable, and continuance
of such default for a period of 30 days; provided, however, that
--------
a valid extension of an interest payment period by the Company in
accordance with the terms hereof or, in the case of any Other
Debentures, the indenture related thereto, shall not constitute a
default in the payment of interest for this purpose; or
(b) default in the payment of all or any part of the principal of (or
premium, if any, on) any Security or any Other Debentures as and
when the same shall become due and payable either at maturity,
upon prepayment, by declaration of acceleration of maturity or
otherwise; or
(c) default in any material respect 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 specifically dealt
with), and continuance of such default or breach for a period of
90 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 aggregate principal
amount
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of the outstanding Securities 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
(d) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Company in an involuntary
case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Company or for any substantial part of
its property, or ordering the winding-up or liquidation of its
affairs and such decree or order shall remain unstayed and in
effect for a period of 90 consecutive days; or
(e) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar
official) of the Company or of any substantial part of its
property, or shall make any general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they
become due.
If an Event of Default with respect to Securities at the time
outstanding occurs and is continuing, then in every such case the Trustee or the
holders of not less than 25% in aggregate principal amount of the Securities
then outstanding may declare the principal amount of all Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by the holders of the outstanding Securities), and upon any
such declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the condition that
if, at any time after the principal of the Securities shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, (i)
the Company shall pay or shall deposit with the Trustee a sum sufficient to pay
(A) all matured installments of interest upon all the Securities and the
principal of and premium, if any, on any and all Securities which shall have
become due otherwise than by acceleration (with interest upon such principal and
premium, if any, and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest, at the same rate as
the rate of interest specified in the Securities to the date of such payment or
deposit) and (B) such amount as shall be sufficient to pay to the Trustee and
each predecessor Trustee all amounts payable pursuant to Section 6.06, and (ii)
any and all Events of Default under the Indenture shall have been cured, waived
or otherwise remedied as provided herein, then, in every such case, the holders
of a majority in aggregate principal amount of the Securities then outstanding,
by written notice to the Company and to the Trustee, may rescind and annul such
declaration and its consequences, but no such waiver or rescission and annulment
shall extend to or shall affect any subsequent default or shall impair any right
consequent thereon.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Securities shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the holders of the
Securities shall continue as though no such proceeding had been taken.
SECTION 5.02. Payment of Securities on Default; Suit Therefor.
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The Company covenants that (a) in case default shall be made in the
payment of any installment of interest upon any of the Securities as and when
the same shall become due and payable, and such default shall have continued for
a period of 30 days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Securities as and when the same
shall have become due and payable, whether at maturity of the Securities or upon
prepayment or by declaration of acceleration of maturity or otherwise, then,
upon demand of the Trustee, the Company will pay to the Trustee, for the benefit
of the holders of the Securities, the whole amount that then shall have become
due and payable on all such Securities for principal and premium, if any, or
interest, or both, as the case may be, with interest upon the overdue principal
and premium, if any, and (to the extent that payment of such interest is
enforceable under applicable law and, if the Securities are held by New South
Capital Trust or a trustee of such trust, without duplication of any other
amounts paid by New South Capital Trust or a trustee in respect thereof) upon
the overdue installments of interest at the rate borne by the Securities; and,
in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including a reasonable compensation to the
Trustee, its agents, attorneys and counsel, and any expenses or liabilities
incurred by the Trustee hereunder other than through its negligence or bad
faith.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the
Securities and collect in the manner provided by law out of the property of the
Company or any other obligor on the Securities wherever situated the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Securities under
Title 11, United States Code, or any other applicable law, or in case a receiver
or trustee shall have been appointed for the property of the Company or such
other obligor, or in the case of any other similar judicial proceedings relative
to the Company or other obligor upon the Securities, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Securities 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 pursuant to the provisions of this Section 5.02,
shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of principal
and interest owing and unpaid in respect of the Securities and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for all amounts payable pursuant to Section 6.06 to the
Trustee and each predecessor Trustee) and of the Securityholders allowed in such
judicial proceedings relative to the Company or any other obligor on the
Securities, or to the creditors or property of the Company or such other
obligor, unless prohibited by applicable law and regulations, to vote on behalf
of the holders of the Securities in any election of a trustee or a standby
trustee in arrangement, reorganization, liquidation or other bankruptcy or
insolvency proceedings or Person performing similar functions in comparable
proceedings, and to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute the same after the deduction
of its charges and expenses; and any receiver, assignee or trustee in bankruptcy
or reorganization is hereby authorized by each of the Securityholders 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 Securityholders, to pay to the
Trustee such amounts as shall be sufficient to pay to the Trustee and each
predecessor Trustee all amounts payable pursuant to Section 6.06.
Nothing herein contained shall be construed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or
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composition affecting the Securities or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
All rights of action and of asserting claims under this Indenture, or
under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities, or the production thereof in any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall be for the ratable benefit of the holders of the
Securities.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Securities, and it shall not be necessary to make any holders of the
Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected by Trustee.
Any moneys collected by the Trustee shall be applied in the order
following, at the date or dates fixed by the Trustee for the distribution of
such moneys, upon presentation of the Securities in respect of which moneys have
been collected, and stamping thereon 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
6.06, including the costs and expenses of collection applicable to the
Securities and reasonable compensation to the Trustee, its agents, attorneys and
counsel, and of all other expenses and liabilities incurred, and all advances
made, by the Trustee except as a result of its negligence or bad faith;
Second: To the payment of all Senior Debt of the Company if and to the
extent required by Article XV;
Third: To the payment of the amounts then due and unpaid upon
Securities for principal of (and premium, if any) and interest on the
Securities, in respect of which or for the benefit of which money has been
collected, ratably, without preference of priority of any kind, according to the
amounts due on such Securities for principal (and premium, if any) and interest,
respectively; and
Fourth: To the Company.
SECTION 5.04. Proceedings by Securityholders.
Except as contemplated by this Section 5.04, no holder of any Security
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless such holder previously
shall have given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Securities specifying such Event of
Default, as hereinbefore provided, and unless also the holders of not less than
25% in aggregate principal amount of the Securities then outstanding shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action, suit or proceeding, it being understood and
intended, and being expressly covenanted by the taker and holder of
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every Security with every other taker and holder and the Trustee, that no one or
more holders of Securities shall have any right in any manner whatsoever by
virtue of or by availing of any provision of this Indenture to affect, disturb
or prejudice the rights of any other holder of Securities, or to obtain or seek
to obtain priority over or preference to any other such holder, or to enforce
any right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Securities.
Notwithstanding any other provisions in this Indenture, however, the
right of any holder of any Security to receive payment of the principal of
(premium, if any) and interest on such Security, on or after the same shall have
become due and payable, or to institute suit for the enforcement of any such
payment, shall not be impaired or affected without the consent of such holder
and by accepting a Security hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Security with every other such taker
and holder and the Trustee, that no one or more holders of Securities shall have
any right in any manner whatsoever by virtue or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of the holders of any
other Securities, or to obtain or seek to obtain priority over or preference to
any other such holder, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common benefit of all
holders of Securities. For the protection and enforcement of the provisions of
this Section, each and every Securityholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
The Company and the Trustee acknowledge that pursuant to the Trust
Agreement, the holders of Preferred Securities are entitled, in the
circumstances and subject to the limitations set forth therein, to commence a
Direct Action with respect to any Event of Default under this Indenture and the
Securities.
SECTION 5.05. Proceedings by Trustee.
In case an Event of Default occurs with respect to Securities and is
continuing, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing.
All powers and remedies given by this Article V to the Trustee or to
the Securityholders shall, to the extent permitted by law, be deemed cumulative
and not exclusive of any other powers and remedies available to the Trustee or
the holders of the Securities, by judicial proceedings or otherwise, to enforce
the performance or observance of the covenants and agreements contained in this
Indenture or otherwise established with respect to the Securities, and no delay
or omission of the Trustee or of any holder of any of the Securities to exercise
any right or power accruing upon any Event of Default occurring and continuing
as aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or an acquiescence therein; and, subject to the
provisions of Section 5.04, every power and remedy given by this Article V or by
law to the Trustee or to the Securityholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the
Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by
Majority of Securityholders.
The holders of a majority in aggregate principal amount of the
Securities at the time outstanding shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to
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the Trustee, or exercising any trust or power conferred on the Trustee;
provided, however, that (subject to the provisions of Section 6.01) the Trustee
- -------- -------
shall have the right to decline to follow any such direction if the Trustee
shall determine that the action so directed would be unjustly prejudicial to the
holders not taking part in such direction or if the Trustee being advised by
counsel determines that the action or proceeding so directed may not lawfully be
taken or if the Trustee in good faith by its board of directors or trustees,
executive committee, or a trust committee of directors or trustees and/or
Responsible Officers shall determine that the action or proceedings so directed
would involve the Trustee in personal liability. Prior to any declaration
accelerating the maturity of the Securities, the holders of a majority in
aggregate principal amount of the Securities at the time outstanding may on
behalf of the holders of all of the Securities waive any past default or Event
of Default and its consequences except a default (a) in the payment of principal
of or premium, if any, or interest on any of the Securities or (b) in respect of
covenants or provisions hereof which cannot be modified or amended without the
consent of the holder of each Security affected; provided, however, that if the
-------- -------
Securities are held by the Property Trustee, such waiver or modification to such
waiver shall not be effective until the holders of a majority in aggregate
liquidation amount of Trust Securities shall have consented to such waiver or
modification to such waiver; provided further, that if the consent of the holder
-------- -------
of each outstanding Security is required, such waiver shall not be effective
until each holder of the Trust Securities shall have consented to such waiver.
Upon any such waiver, the default covered thereby shall be deemed to be cured
for all purposes of this Indenture and the Company, the Trustee and the holders
of the Securities shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon. Whenever any default or
Event of Default hereunder shall have been waived as permitted by this Section
5.07, said default or Event of Default shall for all purposes of the Securities
and this Indenture be deemed to have been cured and to be not continuing.
SECTION 5.08. Notice of Defaults.
The Trustee shall, within 90 days after the occurrence of a default
with respect to the Securities known to the Trustee, mail to all
Securityholders, as the names and addresses of such holders appear upon the
Security register, notice of all defaults known to the Trustee, unless such
defaults shall have been cured before the giving of such notice (the term
"defaults" for the purpose of this Section 5.08 being hereby defined to be the
events specified in clauses (a), (b), (c), (d) and (e) of Section 5.01, not
including periods of grace, if any, provided for therein, and irrespective of
the giving of written notice specified in clause (c) of Section 5.01); and
provided that, except in the case of default in the payment of the principal of
or premium, if any, or interest on any of the Securities, 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 determines that the withholding of such
notice is in the interests of the Securityholders; and provided further, that in
the case of any default of the character specified in Section 5.01(c) no such
notice to Securityholders shall be given until at least 60 days after the
occurrence thereof but shall be given within 90 days after such occurrence.
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SECTION 5.09. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of any Security
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 and
expenses, 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 5.09 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Securityholder, or group of
Securityholders, holding in the aggregate more than 10% in aggregate principal
amount of the Securities outstanding, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Security against the Company on or after the
same shall have become due and payable.
ARTICLE VI.
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee.
With respect to the holders of the Securities issued hereunder, the
Trustee, prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. In case an Event of Default has occurred (which has not been cured
or waived) 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 man would exercise or use under the circumstances in the conduct of
his own affairs.
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
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have
occurred
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for
the performance of such duties and obligations 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 the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this
Indenture; but, in the case of any such certificates or
opinions that 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) the Trustee shall not be liable for any error of judgment made in
good faith by a
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Responsible Officer or Officers of the Trustee, unless it shall
be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) 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 Securityholders pursuant to Section 5.07,
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, under this
Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there is reasonable ground for believing that the
repayment of such funds or liability is not reasonably assured to it under the
terms of this Indenture and that adequate indemnity against such risk is not
reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc.
Except as otherwise provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, bond, note, debenture 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, direction, order or demand of the Company mentioned
herein may be sufficiently evidenced by an Officers' Certificate
(unless other evidence in respect thereof be herein specifically
prescribed); and any Board Resolution may be evidenced to the
Trustee by a copy thereof certified by the Secretary or an
Assistant Secretary of the Company;
(c) the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or
suffered omitted by it hereunder in good faith and in accordance
with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders, pursuant to the
provisions of this Indenture, unless such Securityholders shall
have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred
therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this
Indenture; nothing contained herein shall, however, relieve the
Trustee of the obligation, upon the occurrence of an Event of
Default (that has not been cured or waived), to exercise such of
the rights and powers vested in it by this Indenture, and to use
the same degree of care and skill in their exercise, as a prudent
man would exercise or use under the circumstances in the conduct
of his own affairs;
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(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, consent,
order, approval, bond, debenture, coupon or other paper or
document, unless requested in writing to do so by the holders of
a majority in aggregate principal amount of the outstanding
Securities; provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable
indemnity against such expense or liability as a condition to so
proceeding; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through
agents (including any Authenticating Agent) or attorneys, and the
Trustee shall not be responsible for any misconduct or negligence
on the part of any such agent or attorney appointed by it with
due care.
SECTION 6.03. No Responsibility for Recitals, etc.
The recitals contained herein and in the Securities (except in the
certificate of authentication of the Trustee or the Authenticating Agent) shall
be taken as the statements of the Company and the Trustee and the Authenticating
Agent assume no responsibility for the correctness of the same. The Trustee and
the Authenticating Agent make no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee and the
Authenticating Agent shall not be accountable for the use or application by the
Company of any Securities or the proceeds of any Securities authenticated and
delivered by the Trustee or the Authenticating Agent in conformity with the
provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer
Agents or Registrar May Own Securities.
The Trustee or any Authenticating Agent or any paying agent or any
transfer agent or any Security registrar, in its individual or any other
capacity, may become the owner or pledgee of Securities with the same rights it
would have if it were not Trustee, Authenticating Agent, paying agent, transfer
agent or Security registrar.
SECTION 6.05. Moneys to be Held in Trust.
Subject to the provisions of Section 11.04, all moneys received by the
Trustee or any paying agent shall, until used or applied as herein provided, be
held in trust for the purpose for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
and any paying agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
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SECTION 6.06. Compensation and Expenses of Trustee.
The Company, as borrower, covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, such compensation as
shall be agreed to in writing between the Company and the Trustee (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Company will pay or reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all Persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Company also covenants to indemnify each of the
Trustee or any predecessor Trustee (and its officers, agents, directors and
employees) for, and to hold each of them harmless against, any and all loss,
damage, claim, liability or expense including taxes (other than taxes based on
the income of the Trustee) incurred without negligence or bad faith on the part
of the Trustee and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The obligations of the
Company under this Section 6.06 shall constitute additional indebtedness
hereunder. Such additional indebtedness shall be secured by a lien prior to
that of the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.01(d) or Section 5.01(e), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the resignation or
removal of the Trustee and the defeasance or other termination of this
Indenture.
SECTION 6.07. Officers' Certificate as Evidence.
Except as otherwise provided in Sections 6.01 and 6.02, whenever in
the administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
omitting any action hereunder, such matter (unless other evidence in respect
thereof is herein specifically prescribed) may, in the absence of negligence or
bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee, and such
certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or omitted by
it under the provisions of this Indenture upon the faith thereof.
SECTION 6.08. Conflicting Interest of Trustee.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 6.09. Eligibility of Trustee.
The Trustee hereunder shall at all times be a corporation or a
national banking association organized and doing business under the laws of the
United States of America or any state or territory thereof or of the District of
Columbia or a corporation or other Person permitted to act as trustee by the
Commission authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least 50 million
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U.S. dollars ($50,000,000) and subject to supervision or examination by federal,
state, territorial, or District of Columbia authority. If such corporation or a
national banking association publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 6.09 the combined capital and
surplus of such corporation or national banking association shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published.
The Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the Company, serve as
Trustee.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.09, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation or Removal of Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice of such resignation
to the Company and by mailing notice thereof to the holders of
the Securities at their addresses as they shall appear on the
Security register. Upon receiving such notice of resignation,
the Company shall promptly appoint a successor trustee or
trustees by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment within 60
days after the mailing of such notice of resignation to the
affected Securityholders, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a
successor trustee, or any Securityholder who has been a bona fide
holder of a Security for at least six months may, subject to the
provisions of Section 5.09, on behalf of himself and all others
similarly situated, petition any such court for the appointment
of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with the provisions of
Section 6.08 after written request therefor by the Company
or by any Securityholder who has been a bona fide holder of
a Security or Securities for at least six months, or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 6.09 and shall fail to resign
after written request therefor by the Company or by any such
Securityholder, or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver 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, the Company may remove the Trustee and
appoint a successor trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or, subject to
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the provisions of Section 5.09, any Securityholder who has been a
bona fide holder of a Security 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. Such court may
thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the
Trustee and nominate a successor trustee, which shall be deemed
appointed as successor trustee unless within 10 days after such
nomination the Company objects thereto or if no successor trustee
shall have been so appointed and shall have accepted appointment
within 30 days after such removal, in which case the Trustee so
removed or any Securityholder, upon the terms and conditions and
otherwise as in subsection (a) of this Section 6.10 provided, may
petition any court of competent jurisdiction for an appointment
of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this
Section 6.10 shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee.
Any successor trustee appointed as provided in Section 6.10 shall
execute, acknowledge and deliver to the Company and to its predecessor trustee
an instrument accepting such appointment hereunder, 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, duties and obligations of its predecessor
hereunder, with like effect as if originally named as trustee herein; but,
nevertheless, on the written request of the Company or of the successor trustee,
the trustee ceasing to act shall, upon payment of any amounts then due it
pursuant to the provisions of Section 6.06, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act and shall duly assign, transfer and deliver to such successor
trustee all property and money held by such retiring trustee thereunder. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.06.
No successor trustee shall accept appointment as provided in this
Section 6.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as provided in
this Section 6.11, the Company shall mail notice of the succession of such
trustee hereunder to the holders of Securities at their addresses as they shall
appear on the Security register. If the Company fails to mail such notice
within 10 days after the acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.
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SECTION 6.12. Successor by Merger, etc.
Any corporation into which the Trustee may be merged or converted 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 without
the execution or filing of any paper or any further act on the part of any of
the parties hereto.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any Securities shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor trustee; and in all such cases such certificates shall have the full
force which the Securities or this Indenture elsewhere provides that the
certificate of the Trustee shall have; provided, however, that the right to
adopt the certificate of authentication of any predecessor Trustee or
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a Creditor.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act of 1939, excluding any creditor relationship described in Section 311(b) of
the Trust Indenture Act of 1939. A Trustee who has resigned or been removed
shall be subject to Section 311(a) of the Trust Indenture Act of 1939 to the
extent included therein.
SECTION 6.14. Authenticating Agents.
There may be one or more Authenticating Agents appointed by the
Trustee upon the request of the Company with power to act on its behalf and
subject to its direction in the authentication and delivery of Securities issued
upon exchange or registration of transfer thereof as fully to all intents and
purposes as though any such Authenticating Agent had been expressly authorized
to authenticate and deliver Securities; provided, that the Trustee shall have no
liability to the Company for any acts or omissions of the Authenticating Agent
with respect to the authentication and delivery of Securities. Any such
Authenticating Agent shall at all times be a corporation organized and doing
business under the laws of the United States or of any state or territory
thereof or of the District of Columbia authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of at least
$5,000,000 and being subject to supervision or examination by federal, state,
territorial or District of Columbia authority. If such corporation publishes
reports of condition at least annually pursuant to law or the requirements of
such authority, then for the purposes of this Section 6.14 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 an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect herein specified in this Section.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent, shall be the successor of such Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section 6.14 without the execution or filing of any paper or any further act on
the part of the parties hereto or such Authenticating Agent.
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Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible under this Section 6.14, the
Trustee may, and upon the request of the Company shall, promptly appoint a
successor Authenticating Agent eligible under this Section 6.14, shall give
written notice of such appointment to the Company and shall mail notice of such
appointment to all Securityholders as the names and addresses of such holders
appear on the Security Register. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all rights,
powers, duties and responsibilities of its predecessor hereunder, with like
effect as if originally named as Authenticating Agent herein.
The Company, as borrower, agrees to pay to any Authenticating Agent
from time to time reasonable compensation for its services. Any Authenticating
Agent shall have no responsibility or liability for any action taken by it as
such in accordance with the directions of the Trustee.
ARTICLE 7.
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
Whenever in this Indenture it is provided that the holders of a
specified percentage in aggregate principal amount of the Securities may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action) the fact that at
the time of taking any such action the holders of such specified percentage have
joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by such Securityholders in person or by
agent or proxy appointed in writing, or (b) by the record of such holders of
Securities voting in favor thereof at any meeting of such Securityholders duly
called and held in accordance with the provisions of Article VIII, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of such Securityholders.
If the Company shall solicit from the Securityholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Securityholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, 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 action may be given before or after the record date, but only
the Securityholders of record at the close of business on the record date shall
be deemed to be Securityholders for the purposes of determining whether
Securityholders of the requisite proportion of Outstanding Securities have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
Outstanding Securities shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Securityholders on the 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.
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SECTION 7.02. Proof of Execution by Securityholders.
Subject to the provisions of Sections 6.01, 6.02 and 8.05, proof of
the execution of any instrument by a Securityholder or his agent or proxy shall
be sufficient if made in accordance with such reasonable rules and regulations
as may be prescribed by the Trustee or in such manner as shall be satisfactory
to the Trustee. The ownership of Securities shall be proved by the Security
Register or by a certificate of the Security registrar. The Trustee may require
such additional proof of any matter referred to in this Section as it shall deem
necessary.
The record of any Securityholders' meeting shall be proved in the
manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
Prior to due presentment for registration of transfer of any Security,
the Company, the Trustee, any Authenticating Agent, any paying agent, any
transfer agent and any Security registrar may deem the Person in whose name such
Security shall be registered upon the Security Register to be, and may treat him
as, the absolute owner of such Security (whether or not such Security shall be
overdue) for the purpose of receiving payment of or on account of the principal
of and premium, if any, and interest on such Security and for all other
purposes; and neither the Company nor the Trustee nor any Authenticating Agent
nor any paying agent nor any transfer agent nor any Security registrar shall be
affected by any notice to the contrary. All such payments so made to any holder
for the time being or upon his order shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for moneys
payable upon any such Security.
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding.
In determining whether the holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Company or any
other obligor on the Securities or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company, except for the Securities owned by or on behalf of New South Capital
Trust, or any other obligor on the Securities shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; provided that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, consent or waiver, only Securities which a
Responsible Officer of the Trustee actually knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 7.04 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Securities and that the pledgee is not the Company or any such other
obligor or Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor.
In the case of a dispute as to such right, any decision by the Trustee taken
upon the advice of counsel shall be full protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 7.01, of the taking of any action by the holders of the
percentage in aggregate principal amount of the Security specified in this
Indenture in connection with such action, any holder of a Security (or any
Security issued in whole or in part in exchange or substitution therefor) the
serial number of which is shown by the evidence to be included in the Securities
the holders of which have consented to such action may, by filing written notice
with the Trustee at its principal office and upon proof of holding as provided
in Section 7.02, revoke such action so far as concerns such Security (or so far
as concerns the principal amount represented by any exchanged or substituted
Security). Except as aforesaid, any such action taken by the holder of any
Security shall be conclusive and binding upon such holder
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and upon all future holders and owners of such Security, and of any Security
issued in exchange or substitution therefor, irrespective of whether or not any
notation in regard thereto is made upon such Security or any Security issued in
exchange or substitution therefor.
ARTICLE VIII.
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purpose of Meetings
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article VIII for any of the following
purposes:
(a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to consent to the waiving of
any Default hereunder and its consequences, or to take any other
action authorized to be taken by Securityholders pursuant to any
of the provisions of Article V;
(b) to remove the Trustee and nominate a successor trustee pursuant
to the provisions of Article VI;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.02;
or
(d) to take any other action authorized to be taken by or on behalf
of the holders of any specified aggregate principal amount of
such Securities under any other provision of this Indenture or
under applicable law.
SECTION 8.02. Call of Meetings by Trustee.
The Trustee may at any time call a meeting of Securityholders to take
any action specified in Section 8.01, to be held at such time and at such place
in the Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of the Securityholders, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed to holders of Securities at their
addresses as they shall appear on the Securities Register. Such notice shall be
mailed not less than 20 nor more than 180 days prior to the date fixed for the
meeting.
SECTION 8.03. Call of Meetings by Company or Securityholders.
In case at any time the Company pursuant to a resolution of the Board
of Directors, or the holders of at least 10% in aggregate principal amount of
the Securities then outstanding, shall have requested the Trustee to call a
meeting of Securityholders, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have mailed the notice of such meeting within 20 days after receipt of such
request, then the Company or such Securityholders may determine the time and the
place in the Borough of Manhattan, The City of New York, for such meeting and
may call such meeting to take any action authorized in Section 8.01, by mailing
notice thereof as provided in Section 8.02.
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SECTION 8.04. Qualifications for Voting.
To be entitled to vote at any meeting of Securityholders a Person
shall be (a) a holder of one or more Securities or (b) a Person appointed by an
instrument in writing as proxy by a holder of one or more Securities. The only
Persons who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the Persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
SECTION 8.05. Regulations.
Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Securityholders, in regard to proof of the holding of Securities and of the
appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 8.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote of the meeting.
Subject to the provisions of Section 8.04, at any meeting each holder
of Securities or proxy therefor shall be entitled to one vote for each $10
principal amount of Securities held or represented by him; provided, however,
that no vote shall be cast or counted at any meeting in respect of any Security
challenged as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Securities held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Securityholders. Any
meeting of Securityholders duly called pursuant to the provisions of Section
8.02 or 8.03 may be adjourned from time to time by a majority of those present,
whether or not constituting a quorum, and the meeting may be held as so
adjourned without further notice.
SECTION 8.06. Voting.
The vote upon any resolution submitted to any meeting of holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of such holders or of their representatives by proxy and the serial
number or numbers of the Securities held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
triplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 8.02. The record shall show the serial numbers of the
Securities voting in favor of or against any resolution. The record shall be
signed and verified by the affidavits of the permanent chairman and secretary of
the meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
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ARTICLE IX.
AMENDMENTS
SECTION 9.01. Without Consent of Securityholders.
The Company, when authorized by a Board Resolution, and the Trustee
may from time to time and at any time amend this Indenture, without the consent
of the Securityholders, for one or more of the following purposes:
(a) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the
Company pursuant to Article X hereof;
(b) to add to the covenants of the Company such further covenants,
restrictions or conditions for the protection of the
Securityholders as the Board of Directors and the Trustee shall
consider to be for the protection of the Securityholders, and to
make the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions or
conditions a Default or an Event of Default permitting the
enforcement of all or any of the remedies provided in this
Indenture as herein set forth; provided, however, that in respect
of any such additional covenant, restriction or condition such
amendment may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed
in the case of other Defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available
to the Trustee upon such default;
(c) to provide for the issuance under this Indenture of Securities in
coupon form (including Securities registrable as to principal
only) and to provide for exchangeability of such Securities with
the Securities issued hereunder in fully registered form and to
make all appropriate changes for such purpose;
(d) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained
herein or in any supplemental indenture, or to make such other
provisions in regard to matters or questions arising under this
Indenture; provided that any such action shall not materially
adversely affect the interests of the holders of the Securities;
(e) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities;
(f) to make provision for transfer procedures, certification, book-
entry provisions, the form of restricted securities legends, if
any, to be placed on Securities, and all other matters required
pursuant to Section 2.07 or otherwise necessary, desirable or
appropriate in connection with the issuance of Securities to
holders of Preferred Securities in the event of a distribution of
Securities by New South Capital Trust following a Dissolution
Event;
(g) to qualify or maintain qualification of this Indenture under the
Trust Indenture Act of 1939; or
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(h) to make any change that does not adversely affect the rights of
any Securityholder in any material respect.
The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture to effect such amendment, to make any
further appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer and assignment of any property
thereunder, but the Trustee shall not be obligated to, but may in its
discretion, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any amendment to this Indenture authorized by the provisions of this
Section 9.01 may be executed by the Company and the Trustee without the consent
of the holders of any of the Securities at the time outstanding, notwithstanding
any of the provisions of Section 9.02.
SECTION 9.02. With Consent of Securityholders.
With the consent (evidenced as provided in Section 7.01) of the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding, the Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time amend this Indenture 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 of the Securities; provided, however, that no such amendment shall
--------
without the consent of the holders of each Security then outstanding and
affected hereby (i) extend the Maturity Date of any Security, or reduce the rate
or extend the time of payment of interest thereon (except as contemplated by
Article XVI), or reduce the principal amount thereof (including in the case of a
discounted Security the amount payable thereon in the event of acceleration or
the amount provable in bankruptcy), or reduce any amount payable on redemption
thereof, or make the principal thereof or any interest or premium thereon
payable in any coin or currency other than that provided in the Securities, or
impair or affect the right of any Securityholder to institute suit for payment
thereof, or (ii) reduce the aforesaid percentage of Securities the holders of
which are required to consent to any such amendment to this Indenture, provided,
--------
however, that if the Securities are held by New South Capital Trust, such
- -------
amendment shall not be effective until the holders of a majority in liquidation
amount of Trust Securities shall have consented to such amendment; provided,
--------
further, that if the consent of the holder of each outstanding Security is
- -------
required, such amendment shall not be effective until each holder of the Trust
Securities shall have consented to such amendment.
Upon the request of the Company accompanied by a copy of a resolution
of the Board of Directors certified by its Secretary or Assistant Secretary
authorizing the execution of any supplemental indenture affecting such
amendment, and upon the filing with the Trustee of evidence of the consent of
Securityholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, prepared by the
Company, setting forth in general terms the substance of such supplemental
indenture, to the Securityholders as their names and addresses appear upon the
Security Register. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under
this Section 9.02 to approve
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the particular form of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance thereof.
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SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures.
Any supplemental indenture executed pursuant to the provisions of this
Article IX shall comply with the Trust Indenture Act. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article IX, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.04. Notation on Securities.
Securities authenticated and delivered after the execution of any
supplemental indenture affecting such series pursuant to the provisions of this
Article IX may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustee
shall so determine, new Securities so modified as to conform, in the opinion of
the Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed by the
Company, authenticated by the Trustee or the Authenticating Agent and delivered
in exchange for the Securities then outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be
Furnished Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, may
receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to this Article is
authorized or permitted by, and conforms to, the terms of this Article and that
it is proper for the Trustee under the provisions of this Article to join in the
execution thereof.
ARTICLE X.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of the Company with or into any other Person
(whether or not affiliated with the Company, as the case may be), or successive
consolidations or mergers in which the Company, as the case may be, or its
successor or successors shall be a party or parties, or shall prevent any sale,
conveyance, transfer or lease of the property of the Company, as the case may
be, or its successor or successors as an entirety, or substantially as an
entirety, to any other Person (whether or not affiliated with the Company, as
the case may be, or its successor or successors) authorized to acquire and
operate the same; provided, that (a) the Company is the surviving Person or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, conveyance, transfer or lease of property is
made is a Person organized and existing under the laws of the United States or
any State thereof or the District of Columbia, and (b) upon any such
consolidation, merger, sale, conveyance, transfer or lease, the due and punctual
payment of the principal of (and premium, if any) and interest on the Securities
according to their tenor and the due and punctual performance and observance of
all the covenants and conditions of this Indenture to be kept or performed by
the Company shall be expressly assumed, by supplemental indenture (which shall
conform to the provisions of the Trust Indenture Act of 1939, as then in effect)
satisfactory in form to the Trustee, and executed and delivered to the Trustee
by the Person formed by such consolidation, or into which the Company, as the
case may be, shall have been merged, or by the Person which
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shall have acquired such property, and (c) after giving effect to such
consolidation, merger, sale, conveyance, transfer or lease, no Default or Event
of Default shall have occurred and be continuing.
SECTION 10.02. Successor Corporation to be Substituted for Company.
In case of any such consolidation, merger, conveyance or transfer and
upon the assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the due and punctual payment of the principal of and premium, if any, and
interest on all of the Securities and the due and punctual performance and
observance of all of the covenants and conditions of this Indenture to be
performed or observed by the Company, such successor Person shall succeed to and
be substituted for the Company, with the same effect as if it had been named
herein as the party of the first part, and the Company thereupon shall be
relieved of any further liability or obligation hereunder or upon the
Securities. Such successor Person thereupon may cause to be signed, and may
issue either in its own name or in the name of New South Bancshares, Inc., any
or all of the Securities issuable hereunder which theretofore shall not have
been signed by the Company and delivered to the Trustee or the Authenticating
Agent; and, upon the order of such successor Person instead of the Company and
subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee or the Authenticating Agent shall authenticate and
deliver any Securities which previously shall have been signed and delivered by
the officers of the Company to the Trustee or the Authenticating Agent for
authentication, and any Securities which such successor Person thereafter shall
cause to be signed and delivered to the Trustee or the Authenticating Agent for
that purpose. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
SECTION 10.03. Opinion of Counsel to be Given Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, may
receive an Opinion of Counsel as conclusive evidence that any consolidation,
merger, sale, conveyance, transfer or lease, and any assumption, permitted or
required by the terms of this Article X complies with the provisions of this
Article X.
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ARTICLE XI.
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture.
When (a) the Company shall deliver to the Trustee for cancellation all
Securities theretofore authenticated (other than any Securities which shall have
been destroyed, lost or stolen and which shall have been replaced or paid as
provided in Section 2.08) and not theretofore cancelled, or (b) all the
Securities not theretofore cancelled or delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year or are to be called for prepayment within one
year under arrangements satisfactory to the Trustee for the giving of notice of
prepayment, and the Company shall deposit or cause to be deposited with the
Trustee, in trust, funds sufficient to pay on the Maturity Date or upon
prepayment all of the Securities (other than any Securities which shall have
been destroyed, lost or stolen and which shall have been replaced or paid as
provided in Section 2.08) not theretofore cancelled or delivered to the Trustee
for cancellation, including principal (and premium, if any) and interest due or
to become due to the Maturity Date or prepayment date, as the case may be, but
excluding, however, the amount of any moneys for the payment of principal (or
premium, if any) or interest on the Securities (1) theretofore repaid to the
Company in accordance with the provisions of Section 11.04, or (2) paid to any
State or to the District of Columbia pursuant to its unclaimed property or
similar laws, and if in either case the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect except for the provisions of Sections 2.02, 2.07,
2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof shall survive until such
Securities shall mature and be paid. Thereafter, Sections 6.06, 6.10 and 11.04
shall survive, and the Trustee, on demand of the Company accompanied by any
Officers' Certificate and an Opinion of Counsel to the effect that all
conditions to the satisfaction and discharge of this Indenture have been
satisfied and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture, the
Company, however, hereby agreeing to reimburse the Trustee for any costs or
expenses thereafter reasonably and properly incurred by the Trustee in
connection with this Indenture or the Securities.
SECTION 11.02. Deposited Moneys and U.S. Government Obligations to be
Held in Trust by Trustee.
Subject to the provisions of Section 11.04, all moneys and U.S.
Government Obligations deposited with the Trustee pursuant to Sections 11.01 or
11.05 shall be held in trust and applied by it to the payment, either directly
or through any paying agent (including the Company if acting as its own paying
agent), to the holders of the particular Securities for the payment of which
such moneys or U.S. Government Obligations have been deposited with the
Trustee, of all sums due and to become due thereon for principal, premium, if
any, and interest.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 11.05 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the holders of outstanding Securities.
SECTION 11.03. Paying Agent to Repay Moneys Held.
Upon the satisfaction and discharge of this Indenture all moneys then
held by any paying agent of the Securities (other than the Trustee) shall, upon
written demand of the Company, be repaid to it or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability with
respect to such moneys.
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SECTION 11.04. Return of Unclaimed Moneys.
Any moneys deposited with or paid to the Trustee or any paying agent
for payment of the principal of or premium, if any, or interest on Securities
and not applied but remaining unclaimed by the holders of Securities for two
years after the date upon which the principal of or premium, if any, or interest
on such Securities, as the case may be, shall have become due and payable, shall
be repaid to the Company by the Trustee or such paying agent on written demand;
and the holder of any of the Securities shall thereafter look only to the
Company for any payment which such holder may be entitled to collect and all
liability of the Trustee or such paying agent with respect to such moneys shall
thereupon cease.
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S. Government
Obligations
The Company shall be deemed to have been Discharged (as defined below)
from its respective obligations with respect to the Securities on the 91st day
after the applicable conditions set forth below have been satisfied with respect
to the Securities at any time after the applicable conditions set forth below
have been satisfied:
(1) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee or the Defeasance Agent (as defined
below) as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the holders of the
Securities (i) money in an amount, or (ii) U.S. Government
Obligations which through the payment of interest and principal
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 (iii) a combination of (i) and (ii), sufficient,
in the opinion (with respect to (ii) and (iii)) of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee and the
Defeasance Agent, if any, to pay and discharge each installment
of principal of and interest and premium, if any, on the
outstanding Securities on the dates such installments of
principal, premium or interest are due;
(2) if the Securities are then listed on any national securities
exchange, the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Opinion of Counsel to the effect
that the exercise of the option under this Section 11.05 would
not cause such Securities to be delisted from such exchange;
(3) no Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such
deposit;
(4) the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Opinion of Counsel to the effect
that holders of the Securities will not recognize income, gain or
loss for United States federal income tax purposes as a result of
the exercise of the option under this Section 11.05 and will be
subject to United States federal income tax on the same amount
and in the same manner and at the same times as would have been
the case if such option had not been exercised, and such opinion
shall be accompanied by a private letter ruling to that effect
received from the United States Internal Revenue Service or a
revenue ruling pertaining to a comparable form of transaction to
that effect published by the United States Internal Revenue
Service; and
(5) the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an
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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.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Securities and to have satisfied all the obligations under this Indenture
relating to the Securities (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), except (A) the rights
of holders of Securities to receive, from the trust fund described in clause (1)
above, payment of the principal of and the interest and premium, if any, on the
Securities when such payments are due; (B) the Company's obligations with
respect to the Securities under Sections 2.07, 2.08, 5.02 and 11.04; and (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder.
"Defeasance Agent" means another financial institution which is
eligible to act as Trustee hereunder and which assumes all of the obligations of
the Trustee necessary to enable the Trustee to act hereunder. In the event such
a Defeasance Agent is appointed pursuant to this Section, the following
conditions shall apply:
(1) The Trustee shall have approval rights over the document
appointing such Defeasance Agent and the document setting forth
such Defeasance Agent's rights and responsibilities; and
(2) The Defeasance Agent shall provide verification to the Trustee
acknowledging receipt of sufficient money and/or U.S. Government
Obligations to meet the applicable conditions set forth in this
Section 11.05.
SECTION 11.06. Reinstatement.
If the Trustee or any Defeasance Agent is unable to apply any money in
accordance with Section 11.05 by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 11.05 until such time as the
Trustee or any Defeasance Agent is permitted to apply all such money in
accordance with Section 11.05.
ARTICLE XII.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or
interest on any Security, or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in this Indenture, or in any Security, or because of the creation of
any indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor Person to the Company, either directly or through
the Company any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that all
such liability is hereby expressly waived and released as a condition of, and as
a consideration for, the execution of this Indenture and the issue of the
Securities.
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ARTICLE XIII.
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors.
All the covenants, stipulations, promises and agreements in this
Indenture contained by the Company shall bind its successors and assigns whether
so expressed or not.
SECTION 13.02. Official Acts by Successor Corporation.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
like board, committee or officer of any corporation that shall at the time be
the lawful sole successor of the Company.
SECTION 13.03. Surrender of Company Powers.
The Company by instrument in writing executed by authority of 2/3
(two-thirds) of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company, and thereupon such power so
surrendered shall terminate both as to the Company, as the case may be, and as
to any successor Person.
SECTION 13.04. Address for Notices, etc.
Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders of
Securities on the Company may be given or served by being deposited postage
prepaid by registered or certified mail in a post office letter box addressed
(until another address is filed by the Company with the Trustee for the purpose)
to the Company, 1900 Crestwood Boulevard, Birmingham, Alabama 35210 Attention:
__________. Any notice, direction, request or demand by any Securityholder to
or upon the Trustee shall be deemed to have been sufficiently given or made, for
all purposes, if given or made in writing at the office of the Trustee,
____________________, Attention: [Bond Administration] (unless another address
is provided by the Trustee to the Company for the purpose). All such notices
shall be deemed to have been given when received in person, telecopied with
receipt confirmed, and mailed by first class mail, postage prepaid, except that
if a notice or other document is refused delivery or cannot be delivered because
of a changed address of which no notice was given, such notice or other document
shall be deemed to have been delivered on the date of such refusal or inability
to deliver.
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SECTION 13.05. Governing Law.
This Indenture and each Security shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be governed
by and construed in accordance with the laws of said State, without regard to
conflicts of laws principles thereof.
SECTION 13.06. Evidence of Compliance with Conditions Precedent.
Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that in the opinion of
the signers 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 have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (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; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him 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 or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 13.07. Business Days.
In any case where the date of payment of principal of or premium, if
any, or interest on the Securities will not be a Business Day, the payment of
such principal of or premium, if any, or interest on the Securities need not be
made on such date but may be made on the next succeeding Business Day (and
without any interest or other payment in respect of any such delay), with the
same force and effect as if made on the date of payment and no interest shall
accrue for the period from and after such date.
SECTION 13.08. Trust Indenture Act to Control.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture which
is required to be included in this Indenture by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939, such required provision shall
control.
SECTION 13.09. Table of Contents, Headings, etc.
The table of contents and the titles and headings of the articles and
sections of this Indenture have been inserted for convenience of reference only,
are not to be considered a part hereof, and shall in no way modify or restrict
any of the terms or provisions hereof.
SECTION 13.10. Execution in Counterparts
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
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SECTION 13.11. Separability.
In case any one or more of the provisions contained in this Indenture
or in the Securities shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Securities,
but this Indenture and the Securities shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 13.12. Assignment.
The Company will have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company, as the case may be, will remain liable for all such
obligations. Subject to the foregoing, the Indenture is binding upon and inures
to the benefit of the parties thereto and their respective successors and
assigns. This Indenture may not otherwise be assigned by the parties hereto.
SECTION 13.13. Acknowledgement of Rights.
The Company acknowledges that, with respect to any Securities held by
New South Capital Trust or a trustee of such trust, if the Property Trustee of
such Trust fails to enforce its rights under this Indenture as the holder of the
Securities held as the assets of New South Capital Trust any holder of Preferred
Securities may institute legal proceedings directly against the Company to
enforce such Property Trustee's rights under this Indenture without first
instituting any legal proceedings against such Property Trustee or any other
Person. Notwithstanding the foregoing, if an Event of Default has occurred and
is continuing and such event is attributable to the failure of the Company to
pay principal of or premium, if any, or interest on the Securities when due, the
Company acknowledges that a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or premium, if any, or interest on the Securities having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Securities.
ARTICLE XIV.
PREPAYMENT OF SECURITIES
SECTION 14.01. Prepayment.
If a Special Event has occurred and is continuing, then the Company
shall have the right upon (i) not less than 45 days written notice to the
Trustee and (ii) not less than 30 days nor more than 60 days written notice to
the Securityholders, to prepay the Securities, in whole (but not in part), at
any time within 90 days following the occurrence of such Special Event, at the
Prepayment Price. The Prepayment Price shall be paid prior to 12:00 noon, New
York City time, on the date of such prepayment or such earlier time as the
Company determines, provided that the Company shall deposit with the Trustee an
amount sufficient to pay the Prepayment Price by 10:00 a.m., New York City time,
on the date such Prepayment Price is to be paid.
SECTION 14.02. Optional Prepayment by Company After Five (5) Years.
The Company may at any time, at its option, on or after __________,
2003, redeem the Securities in whole at any time or in part from time to time,
at the Prepayment Price.
SECTION 14.03. No Sinking Fund.
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The Securities are not entitled to the benefit of any sinking fund.
SECTION 14.04. Notice of Prepayment.
In case the Company shall desire to exercise the right to prepay all
of the Securities in accordance with their terms, it shall fix a date for
prepayment and shall mail a notice of such prepayment at least 30 and not more
than 60 days prior to the date fixed for prepayment to the holders of Securities
so to be prepaid as a whole or in part at their last addresses as the same
appear on the Security Register. Such mailing shall be by first class mail.
The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice. In any case, failure to give such notice by mail or any defect in the
notice to the holder of any Security designated for prepayment as a whole or in
part shall not affect the validity of the proceedings for the prepayment of any
other Security.
Each such notice of prepayment shall specify the CUSIP number of the
Securities to be prepaid, the date fixed for prepayment, the prepayment price at
which the Securities are to be prepaid (or the method by which such prepayment
price is to be calculated), the place or places of payment that payment will be
made upon presentation and surrender of the Securities, that interest accrued to
the date fixed for prepayment will be paid as specified in said notice, and that
on and after said date interest thereon or on the portions thereof to be prepaid
will cease to accrue. If less than all the Securities are to be prepaid the
notice of prepayment shall specify the numbers of the Securities to be prepaid.
Prior to 10:00 a.m., New York City time, on the prepayment date
specified in the notice of prepayment given as provided in this Section, the
Company will deposit with the Trustee or with one or more paying agents an
amount of money sufficient to prepay on the prepayment date all the Securities
so called for prepayment at the appropriate Prepayment Price, together with
accrued interest to the date fixed for prepayment.
The Company will give the Trustee notice not less than 45 days prior
to the prepayment date as to the aggregate principal amount of Securities to be
prepaid.
SECTION 14.05. Payment of Securities Called for Prepayment.
If notice of prepayment has been given as provided in Section 14.04,
the Securities with respect to which such notice has been given shall become due
and payable on the date and at the place or places stated in such notice at the
applicable Prepayment Price, together with interest accrued to the date fixed
for prepayment (subject to the rights of holders of Securities on the close of
business on a regular record date in respect of an Interest Payment Date
occurring on or prior to the prepayment date), and on and after said date
(unless the Company shall default in the payment of such Securities at the
Prepayment Price, together with interest accrued to said date) interest on the
Securities so called for prepayment shall cease to accrue. On presentation and
surrender of such Securities at a place of payment specified in said notice, the
said Securities shall be paid and prepaid by the Company at the applicable
Prepayment Price, together with interest accrued thereon to the date fixed for
prepayment (subject to the rights of holders of Securities on the close of
business on a regular record date in respect of an Interest Payment Date
occurring on or prior to the prepayment date).
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ARTICLE XV.
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate.
The Company covenants and agrees, and each holder of Securities issued
hereunder likewise covenants and agrees, that the Securities shall be issued
subject to the provisions of this Article XV; and each holder of a Security,
whether upon original issue or upon transfer or assignment thereof, accepts and
agrees to be bound by such provisions.
The payment by the Company of the principal of and premium, if any,
and interest on all Securities issued hereunder shall, to the extent and in the
manner hereinafter set forth, be subordinated and junior in right of payment to
the prior payment in full of all amounts with respect to Senior Debt, whether
outstanding at the date of this Indenture or thereafter incurred.
No provision of this Article XV shall prevent the occurrence of any
Default or Event of Default hereunder.
SECTION 15.02. Default on Senior Debt.
In the event and during the continuation of any default by the Company
in the payment of principal, premium, interest or any other payment due on any
Senior Debt, or in the event that the maturity of any Senior Debt has been
accelerated because of a default, then, in either case, no payment shall be made
by the Company with respect to the principal (including prepayments) of or
premium, if any, or interest on the Securities.
In the event of the acceleration of the maturity of the Securities,
then no payment shall be made by the Company with respect to the principal
(including prepayments) of or premium, if any, or interest on the Securities
until the holders of all Senior Debt outstanding at the time of such
acceleration shall receive payment in full of all amounts due in respect of such
Senior Debt (including any amounts due upon acceleration).
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 15.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior Debt
or their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, but only to the extent of the amounts due
in respect of such Senior Debt and only to the extent that the holders of the
Senior Debt (or their representative or representatives or a trustee) notify the
Trustee in writing, within 90 days of such payment, of the amounts then due and
owing on such Senior Debt and only the amounts specified in such notice to the
Trustee shall be paid to the holders of such Senior Debt.
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior Debt of the
Company shall first be paid in full, or payment thereof provided for in money in
accordance with its terms, before any payment is made by the Company on account
of the principal (and premium, if any) or interest on the Securities; and upon
any such dissolution or winding-up or liquidation or reorganization, any payment
by the Company, or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Securityholders
or the
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Trustee would be entitled to receive from the Company, except for the provisions
of this Article XV, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the Securityholders or by the Trustee under this Indenture
if received by them or it, directly to the holders of Senior Debt of the Company
(pro rata to such holders on the basis of the respective amounts of Senior Debt
held by such holders, as calculated by the Company) or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Debt may have been issued, as their
respective interests may appear, to the extent necessary to pay such Senior Debt
in full, in money or money's worth, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Debt, before any
payment or distribution is made to the Securityholders or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Debt is paid in full, or provision is made for such
payment in money in accordance with its terms, such payment or distribution
shall be held in trust for the benefit of and shall be paid over or delivered to
the holders of such Senior Debt or their representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior Debt may have been issued, and their respective interests
may appear, as calculated by the Company, for application to the payment of all
Senior Debt remaining unpaid to the extent necessary to pay all amounts due in
respect of such Senior Debt in full in money in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of such Senior Debt.
For purposes of this Article XV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XV with respect
to the Securities to the payment of Senior Debt that may at the time be
outstanding, provided that (i) such Senior Debt is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment, and
(ii) the rights of the holders of such Senior Debt are not, without the consent
of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the sale,
conveyance, transfer or lease of its property as an entirety, or substantially
as an entirety, to another Person upon the terms and conditions provided for in
Article X of this Indenture shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 15.03 if such
other Person shall, as a part of such consolidation, merger, sale, conveyance,
transfer or lease, comply with the conditions stated in Article X of this
Indenture. Nothing in Section 15.02 or in this Section 15.03 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 6.06 of this
Indenture.
SECTION 15.04. Subrogation.
Subject to the payment in full of all amounts due in respect of Senior
Debt, the rights of the Securityholders shall be subrogated to the rights of the
holders of such Senior Debt to receive payments or distributions of cash,
property or securities of the Company, as the case may be, applicable to such
Senior Debt until the principal of (and premium, if any) and interest on the
Securities shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of such Senior Debt of any cash,
property or securities to which the Securityholders or the Trustee would be
entitled except for the provisions of this Article XV, and no payment over
pursuant to the provisions of this Article XV to or for the benefit of the
holders of such Senior Debt by Securityholders or the Trustee, shall, as between
the Company, its creditors other than holders of Senior Debt of the Company, and
the holders of the Securities, be deemed to be a payment by the Company to or on
account of such Senior Debt. It is understood that the provisions of this
Article XV are and are intended solely for the purposes of defining the relative
rights of the holders of the Securities, on the one hand, and the holders of
such Senior Debt, on the other hand.
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Nothing contained in this Article XV or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Debt of the Company, and the holders
of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Securities the principal of (and
premium, if any) and interest on the Securities as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Securities and creditors
of the Company, as the case may be, other than the holders of Senior Debt of the
Company, as the case may be, nor shall anything herein or therein prevent the
Trustee or the holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article XV of the holders of such Senior Debt in
respect of cash, property or securities of the Company, as the case may be,
received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article XV, the Trustee, subject to the provisions of Article VI of this
Indenture, and the Securityholders shall be entitled to conclusively rely upon
any order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Securityholders, for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of Senior Debt and
other indebtedness of the Company, as the case may be, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XV.
SECTION 15.05. Trustee to Effectuate Subordination.
Each Securityholder by such Securityholder's acceptance thereof
authorizes and directs the Trustee on such Securityholder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article XV and appoints the Trustee such Securityholder's
attorney-in-fact for any and all such purposes.
SECTION 15.06. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article XV. Notwithstanding the provisions
of this Article XV or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article XV, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
from the Company or a holder or holders of Senior Debt or from any trustee
therefor; and before the receipt of any such written notice, the Trustee,
subject to the provisions of Article VI of this Indenture, shall be entitled in
all respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 15.06 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (or premium, if any) or interest on any Security),
then, anything herein contained to the contrary notwithstanding, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purposes for which they were received, and shall not be affected by any
notice to the contrary that may be received by it within two Business Days prior
to such date.
The Trustee, subject to the provisions of Article VI of this
Indenture, shall be entitled to conclusively rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior Debt of
the Company, as the case may be (or a trustee on behalf of such holder), to
establish that such notice has
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been given by a holder of such Senior Debt or a trustee on behalf of any such
holder or holders. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of such Senior Debt to participate in any payment or distribution pursuant to
this Article XV, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of such Senior Debt held
by such Person, the extent to which such Person is entitled to participate in
such payment or distribution and any other facts pertinent to the rights of such
Person under this Article XV, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
Upon any payment or distribution of assets of the Company referred to
in this Article XV, the Trustee and the Securityholders shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, liquidating trustee, custodian,
receiver, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the
Securityholders, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of Senior Debt and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XV.
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SECTION 15.07. Rights of the Trustee; Holders of Senior Debt.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XV in respect of any Senior Debt at any time
held by it, to the same extent as any other holder of Senior Debt, and nothing
in this Indenture shall deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Debt of the Company, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article XV, and no implied covenants or
obligations with respect to the holders of such Senior Debt shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of such Senior Debt and, subject to the provisions
of Article VI of this Indenture, the Trustee shall not be liable to any holder
of such Senior Debt if it shall pay over or deliver to Securityholders, the
Company or any other Person money or assets to which any holder of such Senior
Debt shall be entitled by virtue of this Article XV or otherwise.
Nothing in this Article XV shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior Debt of the
Company to enforce subordination as herein provided shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt of the Company may, at any time and from time to
time, without the consent of or notice to the Trustee or the Securityholders,
without incurring responsibility to the Securityholders and without impairing or
releasing the subordination provided in this Article XV or the obligations
hereunder of the holders of the Securities to the holders of such Senior Debt,
do any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, such Senior Debt,
or otherwise amend or supplement in any manner such Senior Debt or any
instrument evidencing the same or any agreement under which such Senior Debt is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Senior Debt; (iii) release any
Person liable in any manner for the collection of such Senior Debt; and (iv)
exercise or refrain from exercising any rights against the Company and any other
Person.
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ARTICLE XVI.
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. Extension of Interest Payment Period.
(a) So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time and from time to time during the term
of the Securities, to defer payments of interest by extending the interest
payment period of such Securities for a period not exceeding 20 consecutive
quarterly periods, including the first such quarterly period during such
extension period (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided that no
-------- ----
Extended Interest Payment Period may extend beyond the Maturity Date. To the
extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
this Section 16.01, will bear interest thereon at the Coupon Rate compounded
semi-annually for each semi-annual period of the Extended Interest Payment
Period ("Compounded Interest"). At the end of the Extended Interest Payment
Period, the Company shall pay all interest accrued and unpaid on the Securities,
including any Additional Sums and Compounded Interest (together, "Deferred
Interest") that shall be payable to the holders of the Securities in whose names
the Securities are registered in the Security Register on the first record date
after the end of the Extended Interest Payment Period.
(b) Before the termination of any Extended Interest Payment Period,
the Company may further defer payments of interest by further extending such
period, provided that such period, together with all such previous and further
--------
extensions within such Extended Interest Payment Period, shall not exceed 20
consecutive quarterly periods, including the first such quarterly period during
such Extended Interest Payment Period, or extend beyond the Maturity Date of the
Securities. Upon the termination of any Extended Interest Payment Period and
the payment of all Deferred Interest then due, the Company may elect to commence
a new Extended Interest Payment Period, subject to the foregoing requirements.
No interest shall be due and payable during an Extended Interest Payment Period,
except at the end thereof, but the Company may prepay at any time all or any
portion of the interest accrued during an Extended Interest Payment Period.
SECTION 16.02. Notice of Extension.
(a) If the Property Trustee is the only registered holder of the
Securities at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Administrative Trustees, the
Property Trustee and the Trustee of its selection of such Extended Interest
Payment Period at least five Business Days before the earlier of (i) the next
succeeding date on which distributions on the Trust Securities issued by New
South Capital Trust would have been payable except for such election, or (ii)
the date the Administrative Trustees are required to give notice of the record
date, or the date such Distributions are payable, to any national securities
exchange or to holders of the Preferred Securities issued by New South Capital
Trust, but in any event at least five Business Days before such record date.
(b) If the Property Trustee is not the only holder of the Securities
at the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Securities and the Trustee written notice of its
selection of such Extended Interest Payment Period at least 10 Business Days
before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the
date the Company is required to give notice of the record or payment date of
such interest payment to any national securities exchange.
(c) The semi-annual period in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 16.02 shall be counted as one of the 20
quarterly periods permitted in the maximum Extended Interest Payment Period
permitted under Section 16.01. There is no limitation on the number of times
that the Company may elect to begin an Extended Interest Payment Period.
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Bankers Trust Company hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers thereunto duly authorized, as of
the day and year first above written.
NEW SOUTH BANCSHARES, INC.
By
------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as Trustee
By
------------------------
Name:
Title:
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EXHIBIT A
---------
(FORM OF FACE OF SECURITY)
[IF THE SECURITY IS ISSUED AS A GLOBAL SECURITY UPON DISSOLUTION OF NEW
SOUTH CAPITAL TRUST I PURSUANT TO SECTION 2.05 OF THE INDENTURE, INSERT: - THIS
SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME
OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY 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) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS SECURITY 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 SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC (AND ANY PAYMENT HEREON 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 SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.]
No. CUSIP No.___________
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NEW SOUTH BANCSHARES, INC.
_____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE __________
New South Bancshares, Inc., a Delaware corporation (the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to __________, or
registered assigns, the principal sum of $__________ Dollars on __________, 2028
(the "Maturity Date"), unless previously prepaid, and to pay interest on the
outstanding principal amount hereof from __________, 1998, or from the most
recent interest payment date (each such date, an "Interest Payment Date") to
which interest has been paid or duly provided for, semi-annually (subject to
deferral as set forth herein) in arrears on January 15 and July 15 of each year,
commencing [July 15], 1998, at the rate of _____% per annum until the principal
hereof shall have become due and payable, and on any overdue principal and
premium, if any, and (without duplication and to the extent that payment of such
interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum compounded semi-annually. The amount of
interest payable on any Interest Payment Date shall be computed on the basis of
a 360-day year of twelve 30-day months and, for any period less than a full
calendar month, the number of days elapsed in such month. In the event that any
date on which the principal of (or premium, if any) or interest on this Security
is payable is not a Business Day, then payment payable on such date will be made
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), with the same force and effect as
if made on such date.
The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities, as defined in said Indenture) is registered at the close of business
on the regular record date for such interest installment, which shall be the
first day of the month in which the relevant Interest Payment Date falls. Any
such interest installment not punctually paid or duly provided for shall
forthwith cease to be payable to the holders on such regular record date and may
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a special record date to
be fixed by the Trustee for the payment of such defaulted interest, notice
whereof shall be given to the holders of Securities not less than 10 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 Securities may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in the Indenture.
The principal of (and premium, if any) and interest on this Security
shall be payable at the office or agency of the Trustee in ____________________
maintained for that purpose in any coin or currency of the United States of
America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that, payment of interest may be made at the
option of the Company by (i) check mailed to the holder at such address as shall
appear in the Security Register or (ii) by transfer to an account maintained by
the Person entitled thereto, provided that proper written transfer instructions
have been received by the relevant record date; provided that if this Security
is in global form, the interest hereon shall be made in immediately available
funds. Notwithstanding the foregoing, so long as the Holder of this Security is
the Property Trustee, the payment of the principal of (and premium, if any) and
interest on this Security will be made at such place and to such account as may
be designated by the Property Trustee.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of Senior Debt, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his or her behalf to take such action as
may be necessary or appropriate to acknowledge or effectuate the subordination
so provided and (c) appoints the Trustee his or her attorney-in-fact for any and
all such purposes. Each holder hereof, by his or her acceptance hereof, hereby
waives all notice of the acceptance of the subordination provisions contained
herein and
61
<PAGE>
in the Indenture by each holder of Senior Debt, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said
provisions.
This Security shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Security are continued on the reverse side
hereof and such provisions shall for all purposes have the same effect as though
fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated
-------------
NEW SOUTH BANCSHARES, INC.
By:
-----------------------
Name:
Title:
Attest:
By:
--------------------
Name:
Title:
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
--------------------
Authorized Officer
62
<PAGE>
(FORM OF REVERSE OF SECURITY)
This Security is one of the Securities of the Company (herein
sometimes referred to as the "Securities"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture, dated as of
__________, 1998 (the "Indenture"), duly executed and delivered between the
Company and Bankers Trust Company, as Trustee (the "Trustee"), to which
Indenture reference is hereby made for a description of the rights, limitations
of rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Securities.
Upon the occurrence and continuation of a Special Event, the Company
shall have the right to prepay this Security in whole (but not in part) at the
Prepayment Price. "Prepayment Price" shall mean an amount in cash equal to 100%
of the principal amount of the Securities to be prepaid, plus any accrued and
unpaid interest thereon, including Compounded Interest and Additional Sums, if
any, to the date of such prepayment.
The Prepayment Price shall be paid prior to 12:00 noon, New York City
time, on the date of such prepayment, provided, that the Company shall deposit
with the Trustee an amount sufficient to pay the Prepayment Price by 10:00 a.m.,
New York City time, on the date the Prepayment Price is to be paid. Any
prepayment pursuant to this paragraph will be made upon not less than 30 days
nor more than 60 days notice.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Securities may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the Securities at the time outstanding, as defined in the Indenture,
to execute supplemental indentures for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of modifying in any manner the rights of the holders of the Securities;
provided, however, that no such supplemental indenture shall, without the
consent of each holder of Securities then outstanding and affected thereby, (i)
extend the Maturity Date of any Securities, or reduce the principal amount
thereof, or reduce any amount payable on prepayment thereof, or reduce the rate
or extend the time of payment of interest thereon (subject to Article XVI of the
Indenture), or make the principal of, or interest or premium on, the Securities
payable in any coin or currency other than U.S. dollars, or impair or affect the
right of any holder of Securities to institute suit for the payment thereof, or
(ii) reduce the aforesaid percentage of Securities, the holders of which are
required to consent to any such supplemental indenture. The Indenture also
contains provisions permitting the holders of a majority in aggregate principal
amount of the Securities at the time outstanding affected thereby, on behalf of
all of the holders of the Securities, to waive any past default in the
performance of any of the covenants contained in the Indenture, or established
pursuant to the Indenture, and its consequences, except a default in the payment
of the principal of or premium, if any, or interest on any of the Securities or
a default in respect of any covenant or provision under which the Indenture
cannot be modified or amended without the consent of each holder of Securities
then outstanding. Any such consent or waiver by the holder of this Security
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such holder and upon all future holders and owners of this Security and of
any Security issued in exchange heretofore or in place hereof (whether by
registration of transfer or otherwise), irrespective of whether or not any
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the time and place and at the rate and in the money
herein prescribed.
The Company shall have the right, at any time and from time to time
during the term of the
63
<PAGE>
Securities, to defer payments of interest by extending the interest payment
period of such Securities for a period not exceeding 20 consecutive quarterly
periods, including the first such quarterly period during such extension period,
and not to extend beyond the Maturity Date of the Securities (an "Extended
Interest Payment Period"), at the end of which period the Company shall pay all
interest then accrued and unpaid together with interest thereon at the rate
specified for the Securities (to the extent that payment of such interest is
enforceable under applicable law). Before the termination of any such Extended
Interest Payment Period, the Company may further defer payments of interest by
further extending such Extended Interest Payment Period, provided that such
Extended Interest Payment Period, together with all such previous and further
extensions within such Extended Interest Payment Period, shall not exceed 20
consecutive quarterly periods, including the first quarterly period during such
Extended Interest Payment Period, or extend beyond the Maturity Date of the
Securities. Upon the termination of any such Extended Interest Payment Period
and the payment of all accrued and unpaid interest and any additional amounts
then due, the Company may commence a new Extended Interest Payment Period,
subject to the foregoing requirements.
The Company has agreed that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock) or (ii) make any payment of principal,
interest or-premium, if any, on or repay or repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in right of
payment to the Securities or make any guarantee payments with respect to any
guarantee by the Company of the debt securities or any Subsidiary of the Company
if such guarantee ranks pari passu or junior in right of payment to the
Securities (other than (a) dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Common Stock of the
Company, (b) any declaration of a dividend in connection with the implementation
of a stockholder's rights plan, or the issuance of stock under any such plan in
the future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Preferred Securities Guarantee, (d) as a result of a
reclassification of the Company's capital stock or the exchange or the
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (e) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the exchange or
conversion of such capital stock or the security being exchanged or converted,
and (f) purchases or issuances of Common Stock in connection with any of the
Company's stock option, stock purchase, stock loan or other benefit plans for
its directors, officers or employees or any of the Company's dividend
reinvestment plans, in each case as now existing or hereinafter established or
amended) if at such time (i) there shall have occurred any event of which the
Company has actual knowledge that (a) is, or with the giving of notice or the
lapse of time, or both, would be, an Event of Default and (b) in respect of
which the Company shall not have taken reasonable steps to cure, (ii) if such
Securities are held by New South Capital Trust, the Company shall be in default
with respect to its payment of any obligations under the Preferred Securities
Guarantee or (iii) the Company shall have given notice of its election of the
exercise of its right to extend the interest payment period and any such
extension shall be continuing.
The Company will have the right at any time to liquidate New South
Capital Trust and cause the Securities to be distributed to the holders of the
Trust Securities in liquidation of New South Capital Trust.
The Securities are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof. As provided in the
Indenture and subject to the transfer restrictions limitations as may be
contained herein and therein from time to time, the transfer of this Security is
registrable by the holder hereof on the Security Register of the Company, upon
surrender of this Security for registration of transfer at the office or agency
of the Trustee in the City of __________ and State of __________ accompanied by
a written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of authorized
denominations and for the same aggregate principal amount and series will be
issued to the designated transferee or transferees. No service charge will be
made for any such registration of transfer, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
relation thereto.
64
<PAGE>
Prior to due presentment for registration of transfer of this
Security, the Company, the Trustee, any paying agent and the registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Security shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Security Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any paying agent nor any registrar shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Security, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture, against
any incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor Person, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
All terms used in this Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PROVISIONS THEREOF.
65
<PAGE>
Exhibit 4.4
- -----------
Form of Amended and Restated Trust Agreement of New South Capital Trust I
=====================
AMENDED AND RESTATED TRUST AGREEMENT
OF
NEW SOUTH CAPITAL TRUST I
__________, 1998
=====================
1
<PAGE>
EXHIBIT 4.4
TABLE OF CONTENTS
Page
----
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.........................................
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application....................
SECTION 2.2 Lists of Holders of Securities......................
SECTION 2.3 Reports by the Property Trustee.....................
SECTION 2.4 Periodic Reports to Property Trustee................
SECTION 2.5 Evidence of Compliance with Conditions Precent......
SECTION 2.6 Events of Default; Waiver...........................
SECTION 2.7 Event of Default; Notice............................
ARTICLE III
ORGANIZATION
SECTION 3.1 Name................................................
SECTION 3.2 Office..............................................
SECTION 3.3 Purpose.............................................
SECTION 3.4 Authority...........................................
SECTION 3.5 Title to Property of the Trust......................
SECTION 3.6 Powers and Duties of the Administrative Trustees....
SECTION 3.7 Prohibition of Actions by the Trust and
the Trustees........................................
SECTION 3.8 Powers and Duties of the Property Trustee...........
SECTION 3.9 Certain Duties and Responsibilities of the
Property Trustee....................................
SECTION 3.10 Certain Rights of Property Trustee..................
SECTION 3.11 Delaware Trustee....................................
SECTION 3.12 Execution of Documents..............................
SECTION 3.13 Not Responsible for Recitals or Issuance of
Securities..........................................
SECTION 3.14 Duration of Trust...................................
SECTION 3.15 Mergers.............................................
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.............
SECTION 4.2 Responsibilities of the Sponsor.....................
SECTION 4.3 Right to Proceed....................................
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee.......
SECTION 5.2 Delaware Trustee....................................
SECTION 5.3 Property Trustee; Eligibility.......................
SECTION 5.4 Certain Qualifications of Administrative Trustees
and Delaware Trustee Generally......................
SECTION 5.5 Administrative Trustees.............................
SECTION 5.6 Delaware Trustee....................................
SECTION 5.7 Appointment, Removal and Resignation of Trustees....
SECTION 5.8 Vacancies Among Trustees............................
SECTION 5.9 Effect of Vacancies.................................
SECTION 5.10 Meetings............................................
SECTION 5.11 Delegation of Power.................................
SECTION 5.12 Merger, Conversion, Consolidation or Succession to
Business............................................
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.......................................
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.............
SECTION 7.2 Execution and Authentication........................
SECTION 7.3 Form and Dating.....................................
SECTION 7.4 Registrar and Paying Agent..........................
SECTION 7.5 Paying Agent to Hold Money in Trust.................
SECTION 7.6 Replacement Securities..............................
SECTION 7.7 Outstanding Preferred Securities....................
SECTION 7.8 Preferred Securities in Treasury....................
SECTION 7.9 Temporary Securities................................
SECTION 7.10 Cancellation........................................
SECTION 7.11 CUSIP Numbers.......................................
ARTICLE VIII
TERMINATION OF TRUST.....................
SECTION 8.1 Termination of Trust
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities..............................
SECTION 9.2 Transfer Procedures and Restrictions................
SECTION 9.3 Deemed Security Holders.............................
SECTION 9.4 Book Entry Interests................................
SECTION 9.5 Notices to Clearing Agency..........................
SECTION 9.6 Appointment of Successor Clearing Agency............
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability...........................................
SECTION 10.2 Exculpation.........................................
SECTION 10.3 Fiduciary Duty......................................
SECTION 10.4 Indemnification.....................................
SECTION 10.5 Outside Businesses..................................
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.........................................
SECTION 11.2 Certain Accounting Matters..........................
SECTION 11.3 Banking.............................................
SECTION 11.4 Withholding.........................................
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments..........................................
SECTION 12.2 Meetings of the Holders of Securities; Action.......
by Written Consent..................................
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee..
SECTION 13.2 Representations and Warranties of Delaware Trustee..
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.............................................
SECTION 14.2 Governing Law.......................................
SECTION 14.3 Intention of the Parties............................
SECTION 14.4 Headings............................................
SECTION 14.5 Successors and Assigns..............................
SECTION 14.6 Partial Enforceability..............................
SECTION 14.7 Counterparts........................................
ANNEX I Terms of ___% Preferred Securities ___% Common Securities.... I-1
EXHIBIT A-1 Form of Preferred Security Certificate.................. A1-1
EXHIBIT A-2 Form of Common Security Certificate..................... A2-1
2
<PAGE>
Page
----
NEW SOUTH CAPITAL TRUST I
Certain Sections of this Trust Agreement relating to Sections 310 through
318 of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Act Section Section
------- -------
<S> <C>
(S) 310 (a)(1) ........ ........ ........ ........ ........ 5.3
(a)(2) ........ ........ ........ ........ ........ 5.3
(a)(3) ........ ........ ........ ........ ........ 5.7
(a)(4) ........ ........ ........ ........ ........ 3.8(g)
(b) ........ ........ ........ ........ ........ 5.3(c), 5.3(d)
(S) 311 (a) ........ ........ ........ ........ ........
(b) ........ ........ ........ ........ ........
(S) 312 (a) ........ ........ ........ ........ ........ 2.2
(b) ........ ........ ........ ........ ........ 2.2
(c) ........ ........ ........ ........ ........ 2.2
(S) 313 (a) ........ ........ ........ ........ ........ 2.3
(b) ........ ........ ........ ........ ........ 2.3
(c) ........ ........ ........ ........ ........ 14.1
(d) ........ ........ ........ ........ ........ 2.3
(S) 314 (a) ........ ........ ........ ........ ........ 2.4
(b) ........ ........ ........ ........ ........ Not Applicable
(c)(1) ........ ........ ........ ........ ........ 2.5
(c)(2) ........ ........ ........ ........ ........ 2.5
(c)(3) ........ ........ ........ ........ ........ Not Applicable
(d) ........ ........ ........ ........ ........ Not Applicable
(e) ........ ........ ........ ........ ........ 1.1, 2.5
(S) 315 (a) ........ ........ ........ ........ ........ 3.8, 3.9
(b) ........ ........ ........ ........ ........ 2.7, 14.1
(c) ........ ........ ........ ........ ........ 3.9(a)
(d) ........ ........ ........ ........ ........ 3.9(b)
(e) ........ ........ ........ ........ ........ Not Applicable
(S) 316 (a) ........ ........ ........ ........ ........ Not Applicable
(a)(1)(A)...... ........ ........ ........ ........ Not Applicable
(a)(1)(B)...... ........ ........ ........ ........ Not Applicable
(a)(2) ........ ........ ........ ........ ........ Not Applicable
(b) ........ ........ ........ ........ ........ Not Applicable
(c) ........ ........ ........ ........ ........ 12.2
(S) 317 (a)(1) ........ ........ ........ ........ ........ Not Applicable
(a)(2) ........ ........ ........ ........ ........ Not Applicable
(b) ........ ........ ........ ........ ........ 7.5
(S) 318 (a) ........ ........ ........ ........ ........ 2.1
</TABLE>
- ---------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Trust Agreement.
3
<PAGE>
AMENDED AND RESTATED
TRUST AGREEMENT
OF
NEW SOUTH CAPITAL TRUST I
__________, 1998
AMENDED AND RESTATED TRUST AGREEMENT ("Trust Agreement") dated and
effective as of __________, 1998, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the Holders (as defined herein), from time to
time, of undivided beneficial interests in the Trust to be issued pursuant to
this Trust Agreement;
WHEREAS, the Delaware Trustee and the Sponsor established New South
Capital Trust I (the "Trust"), a trust created under the Delaware Business Trust
Act pursuant to a Trust Agreement dated as of __________, 1998 (the "Original
Agreement"), and a Certificate of Trust filed with the Secretary of State of the
State of Delaware on __________, 1998, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures of
the Debenture Issuer (each as hereinafter defined);
WHEREAS, prior to the date hereof, no Trust Securities have been
issued;
WHEREAS, all of the Trustees and the Sponsor, by this Trust Agreement,
amend and restate each and every term and provision of the Original Agreement;
and
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act (as defined
herein) and that this Trust Agreement constitute the governing instrument of
such business trust, the Trustees declare that all assets contributed to the
Trust will be held in trust for the benefit of the Holders (as defined herein),
from time to time, of the securities representing undivided beneficial interests
in the assets of the Trust issued hereunder, subject to the provisions of this
Trust Agreement.
4
<PAGE>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION I.1 Definitions.
-----------
Unless the context otherwise requires:
(a) Capitalized terms used in this Trust Agreement but not
defined in the preamble above or elsewhere herein have the respective
meanings assigned to them in this Section 1.1;
(b) a term defined anywhere in this Trust Agreement has the same
meaning throughout;
(c) all references to "the Trust Agreement" or "this Trust
Agreement" are to this Trust Agreement (including Appendix I hereto and
Exhibit A hereto) as modified, supplemented or amended from time to time;
(d) all references in this Trust Agreement to Articles and
Sections and Annexes and Exhibits are to Articles and Sections of and
Annexes and Exhibits to this Trust Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Trust Agreement unless otherwise defined in this
Trust Agreement or unless the context otherwise requires;
(f) a term defined in the Indenture (as defined herein) has the
same meaning when used in this Trust Agreement unless otherwise defined in
this Trust Agreement or the context otherwise requires; and
(g) a reference to the singular includes the plural and vice
versa.
"Administrative Trustee" has the meaning set forth in Section 5.1.
----------------------
"Affiliate" has the same meaning as given to that term in Rule 405
---------
under the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent or Registrar.
-----
"Authorized Officer" of a Person means any other Person that is
------------------
authorized to legally bind such former Person.
"Book Entry Interest" means a beneficial interest in a Global
-------------------
Certificate registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a Saturday or a Sunday or a
------------
day on which banking institutions in The City of New York are authorized or
required by law or executive order to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
------------------
Code, 12 Del. Code (S)3801 et seq., as it may be amended from time to time or
any successor legislation.
"Clearing Agency" means an organization registered as a "Clearing
---------------
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Preferred Securities and in whose name or in the name
5
<PAGE>
of a nominee of that organization shall be registered a Global Certificate and
which shall undertake to effect book entry transfers and pledges of the
Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
---------------------------
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Time" means the "Closing Time" under the Underwriting
------------
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
----
time to time, or any successor legislation.
"Commission" means the United States Securities and Exchange
----------
Commission as from time to time constituted, or if any time after the execution
of this Trust Agreement such Commission is not existing and performing the
duties now assigned to it under applicable Federal securities laws, then the
body performing such duties at such time.
"Common Securities" has the meaning specified in Section 7.1(a).
-----------------
"Common Securities Guarantee" means the guarantee agreement dated
---------------------------
as of __________, 1998 of the Guarantor in respect of the Common Securities.
"Company Indemnified Person" means (a) any Administrative Trustee;
--------------------------
(b) any Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any officer, employee or agent of the Trust or
its Affiliates.
"Corporate Trust Office" means the office of the Property Trustee
----------------------
at which the corporate trust business of the Property Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at _________________________.
"Covered Person" means: (a) any officer, director, shareholder,
--------------
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holders of Securities.
"Debenture Issuer" means New South Bancshares, Inc., a Delaware
----------------
corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.
"Debenture Trustee" means Bankers Trust Company, a [national
-----------------
banking association], as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
"Debentures" means the _____% Junior Subordinated Deferrable
----------
Interest Debentures due __________ of the Debenture Issuer issued pursuant to
the Indenture.
"Default" means an event, act or condition that with notice or
-------
lapse of time, or both, would constitute an Event of Default.
"Definitive Preferred Securities" shall have the meaning set forth
-------------------------------
in Section 7.3(c).
"Delaware Trustee" has the meaning set forth in Section 5.2.
----------------
"Direct Action" shall have the meaning set forth in Section 3.8(e).
-------------
6
<PAGE>
"Distribution" means a distribution payable to Holders of Securities
------------
in accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
---
"Event of Default" in respect of the Securities means an Event of
----------------
Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
----------------------------
10.4(b).
"Global Preferred Securities" has the meaning set forth in Section
---------------------------
7.3(a).
"Guarantor" means New South Bancshares, Inc., a Delaware corporation,
---------
or any successor entity resulting from any consolidation, amalgamation, merger
or other business combination in its capacity as guarantor under each of the
Securities Guarantees, as the case may be.
"Holder" means a Person in whose name a Security is registered, such
------
Person being a beneficial owner within the meaning of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
------------------
Indemnified Person.
"Indenture" means the Indenture dated as of __________, 1998, among
---------
the Debenture Issuer and the Debenture Trustee, as amended from time to time.
"Initial Optional Redemption Date" has the meaning set forth in
--------------------------------
Section 4(b) of Annex I hereto.
"Investment Company" means an investment company as defined in the
------------------
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
----------------------
amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
------------
"Liquidation Amount" with respect to any Security means the amount
------------------
designated as such with respect thereto in Annex I hereto.
"Majority in Liquidation Amount" means, with respect to the Trust
------------------------------
Securities, except as provided in the terms of the Preferred Securities or by
the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting
together as a single class or, as the context may require, Holders of
outstanding Preferred Securities or Holders of outstanding Common Securities
voting separately as a class, who are the record owners of more than 50% of the
aggregate Liquidation Amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
"Ministerial Action" has the meaning set forth in Annex I hereto.
------------------
7
<PAGE>
"Officers' Certificate" means, with respect to any Person, a
---------------------
certificate signed by two of the following: the Chief Executive Officer, the
President, a Vice President, the Controller or the Secretary or an Assistant
Secretary, the Treasurer or an Assistant Treasurer of such Person. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Certificate has read the
covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" shall mean a written opinion of counsel, who may
------------------
be an employee of the Sponsor, and who shall be acceptable to the Property
Trustee.
"Paying Agent" has the meaning specified in Section 7.4.
------------
"Person" means a legal person, including any individual, corporation,
------
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Securities" has the meaning specified in Section 7.1(a).
--------------------
"Preferred Securities Guarantee" means the guarantee agreement dated
------------------------------
as of __________, 1998 of the Guarantor in respect of the Preferred Securities.
"Preferred Security Beneficial Owner" means, with respect to a Book
-----------------------------------
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Property Trustee" has the meaning set forth in Section 5.3(a).
----------------
"Property Trustee Account" has the meaning set forth in Section
------------------------
3.8(c).
"Quorum" means a majority of the Administrative Trustees or, if there
------
are only two Administrative Trustees, both of them.
"Redemption Price" has the meaning set forth in Section 4(a) of Annex
----------------
I hereto.
"Registrar" has the meaning set forth in Section 7.4.
---------
"Registration Statement" has the meaning set forth in Section 3.6(b).
----------------------
"Related Party" means, with respect to the Sponsor, any direct or
-------------
indirect wholly owned
8
<PAGE>
subsidiary of the Sponsor or any other Person that owns, directly or indirectly,
100% of the outstanding voting securities of the Sponsor.
"Responsible Officer" means, with respect to the Property Trustee, any
-------------------
officer within the Corporate Trust Office of the Property Trustee with
responsibility for the administration of this Trust Agreement and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of and familiarity
with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act, or any
---------
successor rule or regulation.
"Securities" or "Trust Securities" means the Common Securities and the
---------- ----------------
Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee and the
---------------------
Preferred Securities Guarantee.
"Special Event" has the meaning set forth in Section 4(c) of Annex I
-------------
hereto.
"Sponsor" means New South Bancshares, Inc., [a Delaware corporation],
-------
or any successor entity resulting from any merger, consolidation, amalgamation
or other business combination, in its capacity as sponsor of the Trust.
"Successor Entity" has the meaning specified in Section 3.15(b).
-----------------
"Successor Delaware Trustee" has the meaning specified in Section
--------------------------
5.7(b)(ii).
"Successor Property Trustee" has the meaning specified in Section
--------------------------
5.7(b)(i).
"Successor Securities" has the meaning specified in Section 3.15(b).
--------------------
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
--------------
"10% in Liquidation Amount" means, with respect to the Trust
-------------------------
Securities, except as provided in the terms of the Preferred Securities or by
the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting
together as a single class or, as the context may require, Holders of
outstanding Preferred Securities or Holders of outstanding Common Securities
voting separately as a class, who are the record owners of 10% or more of the
aggregate Liquidation Amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
"Treasury Regulations" means the income tax regulations, including
--------------------
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this Trust
------- --------
Agreement as a trustee (including the Property Trustee, the Delaware Trustee and
the Administrative Trustees), so long as such Person shall continue as a trustee
of the Trust in accordance with the terms hereof, and all other Persons who may
from time to time be duly appointed, qualified and serving as Trustees in
accordance with the provisions hereof, and
9
<PAGE>
references herein to a Trustee or the Trustees shall refer to such Person or
Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
-------------------
amended from time to time, or any successor legislation.
"Underwriting Agreement" means the Underwriting Agreement for the
----------------------
initial offering and sale of Preferred Securities in the form of Exhibit C.
10
<PAGE>
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
--------------------------------
(a) This Trust Agreement is subject to the provisions of the
Trust Indenture Act and shall, to the extent applicable, be governed by such
provisions.
(b) The Property Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Trust
Agreement limits, qualifies or conflicts with the duties imposed by (S)(S) 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(d) The application of the Trust Indenture Act to this Trust
Agreement shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
------------------------------
(a) Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide the Property Trustee, unless the Property Trustee is
Registrar for the Securities, (i) within 5 days after each record date for
payment of Distributions, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Holders of the Securities
("List of Holders") as of such record date, provided that neither the Sponsor
nor the Administrative Trustees on behalf of the Trust shall be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Property Trustee by the
Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any
other time, within 30 days of receipt by the Trust of a written request for a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the Property Trustee. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in Lists
of Holders given to it or which it receives in the capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
(S)(S) 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
-------------------------------
(a) The Property Trustee shall transmit to the Holders of the
Preferred Securities such reports concerning the Property Trustee and its
actions under this Trust Agreement as may be required pursuant to the Trust
Indenture Act of 1939 at the times and in the manner provided pursuant thereto.
If required by Section 313(a) of the Trust Indenture Act of 1939, the Property
Trustee shall, within sixty days after each ________ following the date of this
Trust Agreement, commencing _____, 1998, deliver to the Holders of the Preferred
Securities a brief report, dated as of such ________, which complies with the
provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such
transmission to the Holders of the Preferred Securities, be filed by the
Property Trustee with each stock exchange, if any, upon which the Preferred
Securities are listed, with the Commission and with the Company. The Company
will promptly notify the Property Trustee when the Preferred Securities are
listed on any stock exchange.
SECTION 2.4 Periodic Reports to Property Trustee.
------------------------------------
11
<PAGE>
Each of the Sponsor and the Administrative Trustees on behalf of
the Trust shall provide to the Property Trustee such documents, reports and
information as are required by (S) 314 (if any) and the compliance certificate
required by (S) 314 of the Trust Indenture Act in the form, in the manner and at
the times required by (S) 314 of the Trust Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
------------------------------------------------
Each of the Sponsor and an Administrative Trustee on behalf of
the Trust shall provide to the Property Trustee such evidence of compliance with
any conditions precedent provided for in this Trust Agreement that relate to any
of the matters set forth in (S) 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to (S)
314(c)(1) of the Trust Indenture Act may be given in the form of an Officers'
Certificate.
SECTION 2.6 Events of Default; Waiver.
-------------------------
(a) The Holders of a Majority in Liquidation Amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default in respect of the Preferred
Securities and its consequences, provided that, if the underlying Event of
-------- ----
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of
Default under the Trust Agreement shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority
in aggregate principal amount of the holders of the Debentures (a "Super
Majority") to be waived under the Indenture, the Event of Default under the
Trust Agreement may only be waived by the vote of the Holders of at least
the proportion in aggregate Liquidation Amount of the Preferred Securities
that the relevant Super Majority represents of the aggregate principal
amount of the Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of (S)
316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Trust Agreement and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
Default shall cease to exist, and any Event of Default with respect to the
Preferred Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Trust Agreement, but no such waiver shall extend to any
subsequent or other Default or an Event of Default with respect to the Preferred
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Preferred Securities of an Event of Default with respect to the Preferred
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Trust Agreement without any further act,
vote, or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in Liquidation Amount of the
Common Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
-------- ----
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of
Default under the Trust Agreement as provided below in this Section 2.6(b),
the Event of Default under the Trust Agreement shall also not be waivable;
or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to
have waived such Event of Default under the Trust Agreement as provided
below in this Section 2.6(b), the Event of Default under the Trust
Agreement may
12
<PAGE>
only be waived by the vote of the Holders of at least the proportion in
aggregate Liquidation Amount of the Common Securities that the relevant
Super Majority represents of the aggregate principal amount of the
Debentures outstanding;
provided further, that each Holder of Common Securities will be deemed to have
- -------- -------
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences if all Events of Default with respect to
the Preferred Securities have been cured, waived or otherwise eliminated, and
until such Events of Default have been so cured, waived or otherwise eliminated,
the Property Trustee will be deemed to be acting solely on behalf of the Holders
of the Preferred Securities and only the Holders of the Preferred Securities
will have the right to direct the Property Trustee in accordance with the terms
of the Securities. The foregoing provisions of this Section 2.6(b) shall be in
lieu of (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such
(S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby
expressly excluded from this Trust Agreement and the Securities, as permitted by
the Trust Indenture Act. Subject to the foregoing provisions of this Section
2.6(b), upon such waiver, any such Default shall cease to exist and any Event of
Default with respect to the Common Securities arising therefrom shall be deemed
to have been cured for every purpose of this Trust Agreement, but no such waiver
shall extend to any subsequent or other Default or Event of Default with respect
to the Common Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee, at the direction of the Holders of the Preferred Securities,
constitutes a waiver of the corresponding Event of Default under this Trust
Agreement. The foregoing provisions of this Section 2.6(c) shall be in lieu of
(S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Trust Agreement and
the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
------------------------
(a) The Property Trustee shall, within 90 days after a
Responsible Officer of the Property Trustee obtains knowledge of the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Securities, notices of all Defaults with respect to the
Securities actually known to a Responsible Officer of the Property Trustee,
unless such Defaults have been cured before the giving of such notice; provided
that, except for a Default in the payment of principal of (or premium, if any)
or interest on any of the Debentures, the Property Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Property
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge
of any Default or Event of Default except:
(i) Default or Event of Default under Sections 5.01(a) and
5.01(b) of the Indenture; or
(ii) any Default or Event of Default as to which the
Property Trustee shall have received written notice or of which a
Responsible Officer of the Property Trustee charged with the administration
of the Trust Agreement shall have actual knowledge.
(c) Within five Business Days after the occurrence of any Event
of Default actually known to the Property Trustee, the Property Trustee shall
transmit notice of such Event of Default to the Holders of the Preferred
Securities, the Administrative Trustees and the Sponsor, unless such Event of
Default shall have been cured or waived. The Sponsor and the Administrative
Trustees shall file annually with the Property Trustee a certification as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under this Trust Agreement.
13
<PAGE>
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
----
The Trust is named "New South Capital Trust I" as such name may
be modified from time to time by the Administrative Trustees following written
notice to the Property Trustee, the Delaware Trustee and the Holders of
Securities. The Trust's activities may be conducted under the name of the Trust
or any other name deemed advisable by the Administrative Trustees.
SECTION 3.2 Office.
------
The address of the principal office of the Trust is c/o New South
Bancshares, Inc., 1900 Crestwood Boulevard, Birmingham, Alabama 35210. On ten
Business Days written notice to the Property Trustee, the Delaware Trustee and
the Holders of Securities, the Administrative Trustees may designate another
principal office.
SECTION 3.3 Purpose.
-------
The exclusive purposes and functions of the Trust are (a) to
issue and sell Securities, (b) to use the gross proceeds from the sale of the
Securities to acquire the Debentures, and (c) except as otherwise limited
herein, to engage in only those other activities necessary, advisable or
incidental thereto. The Trust shall not borrow money, issue debt or reinvest
proceeds derived from investments, mortgage or pledge any of its assets, or
otherwise undertake (or permit to be undertaken) any activity that would cause
the Trust not to be classified for United States federal income tax purposes as
a grantor trust.
SECTION 3.4 Authority.
---------
Subject to the limitations provided in this Trust Agreement and
to the specific duties of the Property Trustee, the Administrative Trustees
shall have exclusive and complete authority to carry out the purposes of the
Trust. An action taken by the Administrative Trustees in accordance with their
powers shall constitute the act of and serve to bind the Trust and an action
taken by the Property Trustee on behalf of the Trust in accordance with its
powers shall constitute the act of and serve to bind the Trust. In dealing with
the Trustees acting on behalf of the Trust, no Person shall be required to
inquire into the authority of the Trustees to bind the Trust. Persons dealing
with the Trust are entitled to rely conclusively on the power and authority of
the Trustees as set forth in this Trust Agreement.
SECTION 3.5 Title to Property of the Trust.
------------------------------
Except as provided in Section 3.8 with respect to the Debentures
and the Property Trustee Account or as otherwise provided in this Trust
Agreement, legal title to all assets of the Trust shall be vested in the Trust.
The Holders shall not have legal title to any part of the assets of the Trust,
but shall have an undivided beneficial interest in the assets of the Trust.
SECTION 3.6 Powers and Duties of the Administrative Trustees.
------------------------------------------------
The Administrative Trustees shall have the exclusive power, duty
and authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Trust Agreement; provided, however, that
except, in the case of (i) and (ii), as contemplated in Section 7.1(a),
14
<PAGE>
(i) the Trust may issue no more than one series of Preferred Securities and no
more than one series of Common Securities, (ii) there shall be no interests in
the Trust other than the Securities, and (iii) the issuance of Securities shall
be limited to a simultaneous issuance of both Preferred Securities and Common
Securities at any Closing Time;
(b) in connection with the issue and sale of the Preferred
Securities, at the direction of the Sponsor, to:
(i) execute, if necessary, a registration statement (the
"Registration Statement") in preliminary and final form, including any
amendments or supplements thereto, prepared by the Sponsor, in relation to
the offering and sale of Preferred Securities under the Securities Act;
(ii) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary in order to
qualify or register all or part of the Preferred Securities in any State in
which the Sponsor has determined to qualify or register such Preferred
Securities for sale;
(iii) at the direction of the Sponsor, execute and file an
application, prepared by the Sponsor, to the New York Stock Exchange or any
other national stock exchange or the Nasdaq Stock Market's National Market
for listing or quotation of the Preferred Securities;
(iv) execute and deliver letters, documents, or instruments with
DTC and other Clearing Agencies relating to the Preferred Securities;
(v) if required, execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto,
prepared by the Sponsor, relating to the registration of the Preferred
Securities under Section 12(b) of the Exchange Act; and
(vi) execute and enter into the Underwriting Agreement providing
for the sale of the Preferred Securities.
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; provided, however, that the
Administrative Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders of the
Preferred Securities and the Holders of Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of (S) 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of Common Securities
as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required of
the Administrative Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
15
<PAGE>
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(j) to give the certificate required by (S)314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be executed by any
Administrative Trustee;
(k) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, Registrar for the
Securities or to appoint a Paying Agent for the Securities as provided in
Section 7.4 except for such time as such power to appoint a Paying Agent is
vested in the Property Trustee;
(m) to give prompt written notice to the Property Trustee and to
Holders of the Securities of any notice received from the Debenture Issuer of
its election to defer payments of interest on the Debentures by extending the
interest payment period under the Indenture;
(n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(p) to take any action, not inconsistent with this Trust Agreement or
with applicable law, that the Administrative Trustees determine in their
discretion to be necessary or desirable in carrying out the activities of the
Trust as set out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes; and
(q) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Administrative Trustees, on behalf of
the Trust.
The Administrative Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Administrative Trustees shall not take
any action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
16
<PAGE>
Subject to this Section 3.6, the Administrative Trustees shall have
none of the powers or the authority of the Property Trustee set forth in Section
3.8.
Any expenses incurred by the Administrative Trustees pursuant to this
Section 3.6 shall be reimbursed by the Sponsor.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
----------------------------------------------------
The Trust shall not, and the Trustees (including the Property Trustee)
shall not cause the Trust to, engage in any activity other than as required or
authorized by this Trust Agreement. The Trust shall not:
(a) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of Securities
pursuant to the terms of this Trust Agreement and of the Securities;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(e) possess any power or otherwise act in such a way as to vary
the Trust assets or the terms of the Securities in any way whatsoever;
(f) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities; or
(g) other than as provided in this Trust Agreement or Annex I,
(A) direct the time, method and place of conducting any proceeding with
respect to any remedy available to the Debenture Trustee, or exercising any
trust or power conferred upon the Debenture Trustee with respect to the
Debentures, (B) waive any past default that is waivable under the
Indenture, (C) exercise any right to rescind or annul any declaration that
the principal of all the Debentures shall be due and payable, or (D)
consent to any amendment, modification or termination of the Indenture or
the Debentures where such consent shall be required unless the Trust shall
have received an opinion of a nationally recognized independent tax counsel
experienced in such matters to the effect that such amendment, modification
or termination will not cause more than an insubstantial risk that, for
United States federal income tax purposes, the Trust will not be classified
as a grantor trust.
SECTION 3.8 Powers and Duties of the Property Trustee.
-----------------------------------------
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the
Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.7. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
17
<PAGE>
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under the
exclusive control of the Property Trustee on behalf of the Holders of the
Securities and, upon the receipt of payments of funds made in respect of
the Debentures held by the Property Trustee, deposit such funds into the
Property Trustee Account and make, or cause any Paying Agent to make,
payments to the Holders of the Preferred Securities and Holders of the
Common Securities from the Property Trustee Account in accordance with
Section 6.1. Funds in the Property Trustee Account shall be held
uninvested until disbursed in accordance with this Trust Agreement. The
Property Trustee Account shall be an account that is maintained with a
banking institution the rating on whose long-term unsecured indebtedness is
at least equal to the rating assigned to the Preferred Securities by a
"nationally recognized statistical rating organization", as that term is
defined for purposes of Rule 436(g)(2) under the Securities Act;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Preferred
Securities and the Common Securities to the extent the Debentures are
redeemed or mature; and
(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as shall be necessary or appropriate
to effect the distribution of the Debentures to Holders of Securities upon
the occurrence of certain events.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of this Trust Agreement and the Securities.
(e) Subject to Section 3.9(a), the Property Trustee shall take any
Legal Action which arises out of or in connection with an Event of Default of
which a Responsible Officer of the Property Trustee has actual knowledge or the
Property Trustee's duties and obligations under this Trust Agreement or the
Trust Indenture Act and if the Property Trustee shall have failed to take such
Legal Action, the Holders of the Preferred Securities may take such Legal
Action, to the same extent as if such Holders of Preferred Securities held an
aggregate principal amount of Debentures equal to the aggregate Liquidation
Amount of such Preferred Securities, without first proceeding against the
Property Trustee or the Trust; provided, however, that if an Event of Default
-------- -------
has occurred and is continuing and such event is attributable to the failure of
the Debenture Issuer to pay the principal of or premium, if any, or interest on
the Debentures on the date such principal, premium, if any, or interest is
otherwise payable (or in the case of redemption, on the redemption date), then a
Holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such Holder of the principal of or premium, if any, or
interest on the Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such Holder (a "Direct
Action") on or after the respective due date specified in the Debentures. In
connection with such Direct Action, the rights of the Holders of the Common
Securities will be subrogated to the rights of such Holder of Preferred
Securities to the extent of any payment made by the Debenture Issuer to such
Holder of Preferred Securities in such Direct Action. Except as provided in the
preceding sentences, the Holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Debentures.
(f) The Property Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders of Securities pursuant to the
terms of the Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that
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appointment in accordance with Section 5.7(b).
(g) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Property Trustee occurs and is continuing, the Property Trustee shall, for
the benefit of Holders of the Securities, enforce its rights as holder of the
Debentures subject to the rights of the Holders pursuant to this Trust Agreement
and the terms of the Securities. The Property Trustee must exercise the powers
set forth in this Section 3.8 in a manner that is consistent with the purposes
and functions of the Trust set out in Section 3.3, and the Property Trustee
shall not take any action that is inconsistent with the purposes and functions
of the Trust set out in Section 3.3.
(h) The Property Trustee shall be authorized to undertake any actions
set forth in (S)317(a) of the Trust Indenture Act.
(i) For such time as the Property Trustee is the Paying Agent, the
Property Trustee may authorize one or more Persons to act as additional Paying
Agents and to pay Distributions, redemption payments or liquidation payments on
behalf of the Trust with respect to all securities and any such Paying Agent
shall comply with (S)317(b) of the Trust Indenture Act. Any such additional
Paying Agent may be removed by the Property Trustee at any time the Property
Trustee remains as Paying Agent and a successor Paying Agent or additional
Paying Agents may be (but are not required to be) appointed at any time by the
Property Trustee.
(j) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
-----------------------------------------------------------
(a) The Property Trustee, before the occurrence of any Event of
Default and after the curing or waiving of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Trust Agreement and in the Securities and no implied covenants
shall be read into this Trust Agreement against the Property Trustee. In case
an Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) of which a Responsible Officer of the Property Trustee has actual
knowledge, the Property Trustee shall exercise such of the rights and powers
vested in it by this Trust Agreement, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) No provision of this Trust Agreement shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee shall
be determined solely by the express provisions of this Trust Agreement
and in the Securities and the Property Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Trust Agreement and in the Securities,
and no implied covenants or obligations shall be read into this Trust
Agreement against the Property Trustee; and
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(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this Trust Agreement;
provided, however, that in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Property Trustee, the Property Trustee shall be under
a duty to examine the same to determine whether or not they conform to
the requirements of this Trust Agreement;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Property 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 not less than a Majority in
Liquidation Amount of the Securities relating to the time, method and place
of conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the Property
Trustee under this Trust Agreement;
(iv) no provision of this Trust Agreement shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Trust Agreement or
indemnity reasonably satisfactory to the Property Trustee against such risk
or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Property Trustee Account shall be to deal with such property in a similar
manner as the Property Trustee deals with similar property for its own
account, subject to the protections and limitations on liability afforded
to the Property Trustee under this Trust Agreement and the Trust Indenture
Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree in writing
with the Sponsor. Money held by the Property Trustee need not be
segregated from other funds held by it except in relation to the Property
Trustee Account maintained by the Property Trustee pursuant to Section
3.8(c)(i) and except to the extent otherwise required by law; and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Sponsor
with their respective duties under this Trust Agreement, nor shall the
Property Trustee be liable for any default or misconduct of the
Administrative Trustees or the Sponsor.
SECTION 3.10 Certain Rights of Property Trustee.
----------------------------------
(a) Subject to the provisions of Section 3.9:
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(i) the Property Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Administrative
Trustees contemplated by this Trust Agreement may be sufficiently evidenced
by an Officers' Certificate;
(iii) whenever in the administration of this Trust Agreement,
the Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Property Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Sponsor or the Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities
laws) or any rerecording, refiling or reregistration thereof;
(v) the Property Trustee may consult with counsel or other
experts of its selection and the advice or opinion of such counsel and
experts with respect to legal matters or advice within the scope of such
experts' area of expertise shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion, such
counsel may be counsel to the Sponsor or any of its Affiliates, and may
include any of its employees. The Property Trustee shall have the right at
any time to seek instructions concerning the administration of this Trust
Agreement from any court of competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Trust Agreement
at the request or direction of any Holder, unless such Holder shall have
provided to the Property Trustee security and indemnity, reasonably
satisfactory to the Property Trustee, against the costs, expenses
(including reasonable attorneys' fees and expenses and the expenses of the
Property Trustee's agents, nominees or custodians) and liabilities that
might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the Property
Trustee; provided, that, nothing contained in this Section 3.10(a)(vi)
shall be taken to relieve the Property Trustee, upon the occurrence of an
Event of Default, of its obligation to exercise the rights and powers
vested in it by this Trust Agreement;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Property Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, custodians, nominees or attorneys and the Property 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;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Property Trustee or its agents alone shall be sufficient
and effective to perform any such action and no third party shall be
required to inquire as to
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the authority of the Property Trustee to so act or as to its compliance
with any of the terms and provisions of this Trust Agreement, both of which
shall be conclusively evidenced by the Property Trustee's or its agent's
taking such action;
(x) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Property Trustee (i) may request instructions from the
Holders of the Securities which instructions may only be given by the
Holders of the same proportion in Liquidation Amount of the Securities as
would be entitled to direct the Property Trustee under the terms of the
Securities in respect of such remedy, right or action, (ii) may refrain
from enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in conclusively
relying on or acting in or accordance with such instructions;
(xi) except as otherwise expressly provided by this Trust
Agreement, the Property Trustee shall not be under any obligation to take
any action that is discretionary under the provisions of this Trust
Agreement; and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith, without
negligence, and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Trust Agreement.
(b) No provision of this Trust Agreement shall be deemed to impose
any duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
----------------
Notwithstanding any other provision of this Trust Agreement other
than Section 5.2, the Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Administrative Trustees or the Property Trustee
described in this Trust Agreement. Except as set forth in Section 5.2, the
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of (S)3807 of the Business Trust Act and taking such
actions as are required to be taken by the Delaware Trustee under the Business
Trust Act. In the event the Delaware Trustee shall at any time be required to
take any action or perform any duty hereunder, the Delaware Trustee shall be
entitled to the benefits of Section 3.9(b)(ii) through (vii) and Section 3.10.
No implied covenants or obligations shall be read into this Trust Agreement
against the Delaware Trustee.
SECTION 3.12 Execution of Documents.
----------------------
Unless otherwise determined by the Administrative Trustees, and
except as otherwise required by the Business Trust Act, any Administrative
Trustee is authorized to execute on behalf of the Trust any documents that the
Administrative Trustees have the power and authority to execute pursuant to
Section 3.6; provided that, the registration statement referred to in Section
3.6(b)(i), including any amendments thereto, shall be signed by all of the
Administrative Trustees.
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SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained in this Trust Agreement and the
Securities shall be taken as the statements of the Sponsor, and the Trustees do
not assume any responsibility for their correctness. The Trustees make no
representations as to the value or condition of the property of the Trust or any
part thereof. The Trustees make no representations as to the validity or
sufficiency of this Trust Agreement or the Securities.
SECTION 3.14 Duration of Trust.
-----------------
The Trust, unless terminated pursuant to the provisions of
Article VIII hereof, shall have existence up to January 31, 2038.
SECTION 3.15 Mergers.
-------
(a) The Trust may not merge or convert with or into,
consolidate, amalgamate, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, except as
described in Section 3.15(b) and (c).
(b) The Trust may, at the request of the Sponsor, with the
consent of the Administrative Trustees or, if there are more than two, a
majority of the Administrative Trustees and without the consent of the Holders
of the Securities, the Delaware Trustee or the Property Trustee, merge or
convert with or into, consolidate, amalgamate, or be replaced by, or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to, a trust organized as such under the laws of any State; provided
that:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust under
the Securities; or
(B) substitutes for the Securities other securities having
substantially the same terms as the Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the
Securities rank with respect to Distributions and payments upon
liquidation, redemption and otherwise;
(ii) the Sponsor expressly appoints a trustee of the Successor
Entity that possesses the same powers and duties as the Property Trustee as
the holder of the Debentures;
(iii) the Successor Securities are listed or quoted, or any
Successor Securities will be listed or quoted upon notification of
issuance, on any national securities exchange or with another organization
on which the Preferred Securities are then listed or quoted, if any;
(iv) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization;
(v) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the Holders of the Securities
(including any Successor Securities) in any material respect (other than
with respect to any dilution of such Holders' interests in the new entity);
(vi) such Successor Entity has a purpose identical to that of the
Trust;
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(vii) prior to such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Sponsor has
received an opinion of an independent counsel to the Trust experienced in
such matters to the effect that:
(A) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect
the rights, preferences and privileges of the Holders of the
Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the Holders'
interest in the new entity);
(B) following such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the
Trust nor the Successor Entity will be required to register as an
Investment Company under the Investment Company Act; and
(C) following such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer, or lease, the Trust
(or the Successor Entity) will continue to be classified as a grantor
trust for United States federal income tax purposes; and
(viii) the Sponsor or any permitted successor or assignee owns
all of the common securities of such Successor Entity and guarantees the
obligations of such Successor Entity under the Successor Securities at
least to the extent provided by the Preferred Securities Guarantee and the
Common Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of all Holders of the Securities in liquidation amount of the
Securities, consolidate, amalgamate, merge or convert with or into, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, any other Person or permit any
other Person to consolidate, amalgamate, merge or convert with or into, or
replace it if such consolidation, amalgamation, merger, conversion, replacement,
conveyance, transfer or lease would cause the Trust or the Successor Entity not
to be classified as a grantor trust for United States federal income tax
purposes.
(d) The Administrative Trustees shall furnish to the Delaware Trustee
at least five Business Days prior notice of the consummation of any merger,
consolidation, amalgamation, or replacement; provided, however, that failure to
provide such notice shall not effect the validity of any such transaction.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
---------------------------------------
At the Closing Time, the Sponsor will purchase all of the Common
Securities then issued by the Trust, in an amount at least equal to 3% of the
capital of the Trust, at the same time as the Preferred Securities are issued
and sold.
SECTION 4.2 Responsibilities of the Sponsor.
-------------------------------
In connection with the issue and sale of the Preferred Securities,
the Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare the Registration Statement, including any
amendments or supplements thereto;
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(b) to determine the States in which to take appropriate action
to qualify or register for sale all or part of the Preferred Securities and to
do any and all such acts, other than actions which must be taken by the Trust,
and advise the Trust of actions it must take, and prepare for execution and
filing any documents to be executed and filed by the Trust, as the Sponsor deems
necessary or advisable in order to comply with the applicable laws of any such
States;
(c) if deemed necessary or advisable by the Sponsor, to prepare
for filing by the Trust an application to the New York Stock Exchange or any
other national stock exchange or the Nasdaq National Market for listing or
quotation of the Preferred Securities;
(d) if required, to prepare for filing by the Trust with the
Commission a registration statement on Form 8-A relating to the registration of
the Preferred Securities under Section 12(b) of the Exchange Act, including any
amendments thereto; and
(e) to negotiate the terms of the Underwriting Agreement
providing for the sale of the Preferred Securities.
SECTION 4.3 Right to Proceed.
----------------
The Sponsor acknowledges the rights of the Holders of Preferred
Securities, in the event that a failure of the Trust to pay Distributions on the
Preferred Securities is attributable to the failure of the Company to pay
interest or principal on the Debentures, to institute Direct Actions against the
Debenture Issuer for enforcement of its payment obligations on the Debentures.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee.
---------------------------------------------
The number of Trustees initially shall be six (6), and:
(a) at any time before the issuance of any Securities, the
Sponsor may, by written instrument, increase or decrease the number of Trustees;
and
(b) after the issuance of any Securities, the number of Trustees
may be increased or decreased by vote of the Holders of a Majority in
Liquidation Amount of the Common Securities voting as a class at a meeting of
the Holders of the Common Securities; provided, however, that, the number of
-------- -------
Trustees shall in no event be less than two (2); provided further, that (1) one
-------- -------
Trustee shall be the Delaware Trustee; (2) there shall be at least one Trustee
who is an employee or officer of, or is affiliated with the Sponsor (an
"Administrative Trustee"); and (3) one Trustee shall be the Property Trustee for
so long as this Trust Agreement is required to qualify as an indenture under the
Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it
meets the applicable requirements. Notwithstanding the above, unless an Event of
Default shall have occurred and be continuing, at any time or times, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the Trust's property may at the time be
located, the Holders of a Majority in Liquidation Amount of the Common
Securities acting as a class at a meeting of the Holders of the Common
Securities, and the Administrative Trustees shall have power to appoint one or
more Persons either to act as a co-trustee, jointly with the Property Trustee,
of all or any part of the Trust's property, or to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of this Trust Agreement. In case an Event of Default
has occurred and is continuing, the Property Trustee alone shall have power to
make any such appointment of a co-trustee.
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SECTION 5.2 Delaware Trustee.
----------------
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal
place of business in the State of Delaware, and otherwise meets the requirements
of applicable law, provided that, if the Property Trustee has its principal
-------- ----
place of business in the State of Delaware and otherwise meets the requirements
of applicable law, then the Property Trustee shall also be the Delaware Trustee
and Section 3.11 shall have no application to the Property Trustee in its
capacity as Property Trustee.
SECTION 5.3 Property Trustee; Eligibility.
-----------------------------
(a) There shall at all times be one Trustee (the "Property
Trustee") which shall act as Property Trustee and which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation or national banking association organized
and doing business under the laws of the United States of America or any
State or Territory thereof or of the District of Columbia, or a corporation
or Person permitted by the Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
50 million U.S. dollars ($50,000,000), and subject to supervision or
examination by federal, state, territorial or District of Columbia
authority. If such corporation or national banking association publishes
reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority referred to above,
then for the purposes of this Section 5.3(a)(ii), the combined capital and
surplus of such corporation or national banking association shall be deemed
to be its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.7(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of (S)310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in (S)310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of (S) 310(b) of the Trust Indenture Act.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Trust Agreement for purposes of clause (i) of the
first provision contained in (S)310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be:
Bankers Trust Company
_________________________
_________________________
Attention: ______________
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SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware
--------------------------------------------------------------
Trustee Generally.
-----------------
Each Administrative Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural person
who is at least 21 years of age or a legal entity that shall act through one or
more Authorized Officers.
SECTION 5.5 Administrative Trustees.
-----------------------
(a) The initial Administrative Trustees shall be:
Lizabeth R. Nichols
c/o New South Bancshares, Inc.
1900 Crestwood Boulevard
Birmingham, Alabama 35210
Suzanne H. Moore
c/o New South Bancshares, Inc.
1900 Crestwood Boulevard
Birmingham, Alabama 35210
(b) Except as expressly set forth in this Trust Agreement and
except if a meeting of the Administrative Trustees is called with respect to any
matter over which the Administrative Trustees have power to act, any power of
the Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.
(c) Unless otherwise determined by the Administrative Trustees,
and except as otherwise required by the Business Trust Act or applicable law,
any Administrative Trustee is authorized to execute on behalf of the Trust any
documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant to Section 3.6, provided, that, the
registration statement referred to in Section 3.6, including any amendments
thereto, shall be signed by all of the Administrative Trustees; and
(d) An Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purposes of signing any documents which the Administrative
Trustees have power and authority to cause the Trust to execute pursuant to
Section 3.6.
SECTION 5.6 Delaware Trustee.
----------------
The initial Delaware Trustee shall be:
Bankers Trust (Delaware)
_________________________
_________________________
_________________________
Attention: _____________
SECTION 5.7 Appointment, Removal and Resignation of Trustees.
------------------------------------------------
(a) Subject to Section 5.7(b), any Trustee may be appointed or
removed without cause at any time:
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(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) in the case of Administrative Trustees, after the issuance
of any Securities, by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the
Holders of the Common Securities;
(iii) in the case of the Property Trustee and the Delaware
Trustee, unless an Event of Default shall have occurred and be continuing
after the issuance of any Securities, by vote of the Holders of a Majority
in Liquidation Amount of the Common Securities voting as a class at a
meeting of the Holders of the Common Securities; and
(iv) in the case of the Property Trustee and the Delaware
Trustee, if an Event of Default shall have occurred and be continuing after
the issuance of the Securities, by vote of Holders of a Majority in
Liquidation Amount of the Preferred Securities voting as a class at a
meeting of Holders of the Preferred Securities.
(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.7(a) until a successor Trustee possessing
the qualifications to act as Property Trustee under Section 5.3 (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the removed Property Trustee, the Administrative Trustees and the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not be
removed in accordance with this Section 5.7(a) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections 5.2
and 5.4 (a "Successor Delaware Trustee") has been appointed and has
accepted such appointment by written instrument executed by such Successor
Delaware Trustee and delivered to the removed Delaware Trustee, the
Administrative Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:
(i) No such resignation of the Trustee that acts as the Property
Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed and has
accepted such appointment by instrument executed by such Successor Property
Trustee and delivered to the Administrative Trustees, the Sponsor and the
resigning Property Trustee; or
(B) until the assets of the Trust have been completely liquidated
and the proceeds thereof distributed to the Holders of the Securities;
and
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Administrative Trustees, the
Sponsor and the resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use their best efforts
to promptly appoint
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a Successor Delaware Trustee or Successor Property Trustee, as the case may be,
if the Property Trustee or the Delaware Trustee delivers an instrument of
resignation in accordance with this Section 5.7.
(e) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.7 within 60 days after delivery of an instrument of resignation or removal,
the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 5.8 Vacancies Among Trustees.
------------------------
If a Trustee ceases to hold office for any reason and the number
of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees
is increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Administrative Trustees or, if
there are more than two, a majority of the Administrative Trustees, shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.7.
SECTION 5.9 Effect of Vacancies.
-------------------
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee shall not operate to annul the Trust. Whenever a vacancy in the number
of Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 5.7, the
Administrative Trustees in office, regardless of their number, shall have all
the powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Trust Agreement.
SECTION 5.10 Meetings.
--------
If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee. Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 24 hours before such meeting. Notice
of any telephonic meetings of the Administrative Trustees or any committee
thereof shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Trust Agreement, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the written consent of the Administrative Trustees. In the event there is
only one Administrative Trustee, any and all action of such Administrative
Trustee shall be evidenced by a written consent of such Administrative Trustee.
SECTION 5.11 Delegation of Power.
-------------------
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(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrative Trustees shall have power to delegate from time
to time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any Person into which the Property Trustee or the Delaware Trustee or
any Administrative Trustee that is not a natural person, as the case may be, may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Trustee
shall be a party, or any Person succeeding to all or substantially all the
corporate trust business of such Trustee, shall be the successor of such Trustee
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided such Person shall be otherwise
qualified and eligible under this Article.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
-------------
Each Holder shall receive Distributions in accordance with the
applicable terms of such Holder's Securities. If and to the extent that the
Debenture Issuer makes a payment of interest (including Compounded Interest (as
defined in the Indenture) and Additional Sums (as defined in the Indenture)),
premium and/or principal or any other payments on the Debentures held by the
Property Trustee (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a distribution (a "Distribution") of the Payment Amount to
Holders in accordance with the respective terms of the Securities held by them.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities
---------------------------------------
(a) The Administrative Trustees shall on behalf of the Trust issue
one class of Preferred Securities representing undivided beneficial interests in
the assets of the Trust having such terms as are set forth in Annex I (the
"Preferred Securities") and one class of common securities representing
undivided beneficial interests in the assets of the Trust having such terms as
are set forth in Annex I (the "Common Securities"). The Trust shall issue no
securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities.
(b) The Preferred Securities rank pari passu and payment thereon
shall be made Pro Rata (as defined in Annex I hereto) with the Common Securities
except that, where an Event of Default has occurred and is continuing, the
rights of Holders of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption and otherwise are
subordinated to the rights to payment of the Holders of the Preferred
Securities.
30
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(c) The consideration received by the Trust for the issuance of
the Securities shall constitute a contribution to the capital of the Trust and
shall not constitute a loan to the Trust.
(d) Upon issuance of the Securities as provided in this Trust
Agreement, the Securities so issued shall be deemed to be validly issued, fully
paid and non-assessable.
(e) Every Person, by virtue of having become a Holder or a
Preferred Security Beneficial Owner in accordance with the terms of this Trust
Agreement, shall be deemed to have expressly assented and agreed to the terms
of, and shall be bound by, this Trust Agreement.
SECTION 7.2 Execution and Authentication.
----------------------------
The Securities shall be signed on behalf of the Trust by an
Administrative Trustee. Such signature may be by manual or facsimile signature.
Typographical and other minor errors or defects in any reproduction of any such
signature shall not affect the validity of any Security. In case any
Administrative Trustee who shall have signed any of the Securities shall cease
to be such Administrative Trustee before the Securities so signed shall be
delivered by the Trust, such Securities nevertheless may be delivered as though
the Person who signed such Securities had not ceased to be such Administrative
Trustee; and any Securities may be signed on behalf of the Trust by such Persons
who, at the actual date of execution of such Security, shall be the
Administrative Trustees of the Trust, although at the date of the execution and
delivery of the Trust Agreement any such Person was not such an Administrative
Trustee.
A Common Security shall be valid upon execution by an
Administrative Trustee without any act of the Property Trustee. A Preferred
Security shall not be valid until authenticated by the manual signature of an
authorized officer of the Property Trustee. The signature shall be conclusive
evidence that the Preferred Security has been authenticated under this Trust
Agreement.
Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Preferred Securities for
original issue. The aggregate number of Preferred Securities outstanding at any
time shall not exceed the number set forth in the Terms in Annex I hereto except
as provided in Section 7.6.
The Property Trustee may appoint an authenticating agent
acceptable to the Trust to authenticate Preferred Securities. An authenticating
agent may authenticate Preferred Securities whenever the Property Trustee may do
so. Each reference in this Trust Agreement to authentication by the Property
Trustee includes authentication by such agent. An authenticating agent has the
same rights as the Property Trustee to deal with the Sponsor or an Affiliate.
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SECTION 7.3 Form and Dating.
---------------
The Preferred Securities and the Property Trustee's certificate
of authentication shall be substantially in the form of Exhibit A-1 and the
Common Securities shall be substantially in the form of Exhibit A-2, each of
which is hereby incorporated in and expressly made a part of this Trust
Agreement. Certificates representing the Securities may be printed, lithographed
or engraved or may be produced in any other manner as is reasonably acceptable
to the Administrative Trustees, as evidenced by their execution thereof. The
Securities may have letters, CUSIP or other numbers, notations or other marks of
identification or designation and such legends or endorsements required by law,
stock exchange rule, agreements to which the Trust is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Administration Trustees, as evidenced by their execution thereof). The
Trust at the direction of the Sponsor shall furnish any such legend not
contained in Exhibit A-1 to the Property Trustee in writing. Each Preferred
Security shall be dated the date of its authentication. The terms and provisions
of the Securities set forth in Annex I and the forms of Securities set forth in
Exhibits A-1 and A-2 are part of the terms of this Trust Agreement and to the
extent applicable, the Property Trustee and the Sponsor, by their execution and
delivery of this Trust Agreement, expressly agree to such terms and provisions
and to be bound thereby.
(a) Global Securities. The Preferred Securities offered and sold
-----------------
to underwriters named in the Underwriting Agreement shall be issued in the form
of one or more, permanent global Securities in definitive, fully registered form
without Distribution coupons with the appropriate global legends set forth in
Exhibit A-1 hereto (a "Global Preferred Security"), which shall be deposited on
behalf of the purchasers of the Preferred Securities represented thereby with
the Property Trustee or the Registrar, as custodian for the Clearing Agency, and
registered in the name of the Clearing Agency or a nominee of the Clearing
Agency, duly executed by the Trust and authenticated by the Property Trustee as
hereinafter provided. The number of Preferred Securities represented by the
Global Preferred Security may from time to time be increased or decreased by
adjustments made on the records of the Property Trustee and the Clearing Agency
or its nominee as hereinafter provided.
(b) Book-Entry Provisions. The Administrative Trustees shall
---------------------
execute and the Property Trustee shall, in accordance with this Section 7.3,
authenticate and make available for delivery initially one or more Global
Preferred Securities that (i) shall be registered in the name of Cede & Co. or
other nominee of such Clearing Agency and (ii) shall be delivered by the Trustee
to such Clearing Agency or pursuant to such Clearing Agency's written
instructions or held by the Property Trustee or the Registrar as custodian for
the Clearing Agency.
Members of, or participants in, the Clearing Agency
("Participants") shall have no rights under this Trust Agreement with respect to
any Global Preferred Security held on their behalf by the Clearing Agency or by
the Property Trustee or the Registrar as the custodian of the Clearing Agency or
under such Global Preferred Security, and the Clearing Agency may be treated by
the Trust, the Property Trustee and any agent of the Trust or the Property
Trustee as the absolute owner of such Global Preferred Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Trust, the Property Trustee or any agent of the Trust or the Property Trustee
from giving effect to any written certification, proxy or other authorization
furnished by the Clearing Agency or impair, as between the Clearing Agency and
its Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in any
Global Preferred Security.
(c) Definitive Preferred Securities. Except as provided in
-------------------------------
Section 7.9, owners of beneficial interests in a Global Preferred Security will
not be entitled to receive physical delivery of certificated Preferred
Securities (sometimes referred to herein as "Definitive Preferred Securities").
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SECTION 7.4 Registrar and Paying Agent.
--------------------------
The Trust shall maintain in the Borough of Manhattan, The City of
New York, (i) an office or agency where Preferred Securities may be presented
for registration of transfer ("Registrar") and (ii) an office or agency where
Preferred Securities may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Preferred Securities and of their
transfer. The Trust may appoint the Registrar and the Paying Agent and may
appoint one or more co-registrars, one or more additional paying agents in such
other locations as it shall determine. The term "Registrar" includes any
additional registrar and the term "Paying Agent" includes any additional paying
agent. The Trust may change any Paying Agent, Registrar or co-registrar without
prior notice to any Holder. The Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Property Trustee and the
Sponsor. The Trust shall notify the Property Trustee of the name and address of
any Agent not a party to this Trust Agreement. If the Trust fails to appoint or
maintain another entity as Registrar or Paying Agent, the Property Trustee shall
act as such. The Trust or any of its Affiliates may act as Paying Agent or
Registrar. The Property Trustee shall act as Paying Agent and Registrar for the
Common Securities.
The Trust initially appoints the Property Trustee as Registrar
and Paying Agent for the Preferred Securities.
SECTION 7.5 Paying Agent to Hold Money in Trust.
-----------------------------------
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of Liquidation Amounts or Distributions on the Securities, and
will notify the Property Trustee if there are insufficient funds for such
purpose. While any such insufficiency continues, the Property Trustee may
require a Paying Agent to pay all money held by it to the Property Trustee. The
Trust at any time may require a Paying Agent to pay all money held by it to the
Property Trustee and to account for any money disbursed by it. Upon payment
over to the Property Trustee the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money. If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent.
SECTION 7.6 Replacement Securities.
----------------------
If the Holder of a Security claims that the Security has been
lost, destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Preferred Securities to the
Property Trustee, the Administrative Trustees shall execute and the Property
Trustee shall authenticate a replacement Security if the Property Trustee's and
the Administrative Trustees' requirements, as the case may be, are met. An
indemnity bond must be provided by the Holder which, in the judgment of the
Property Trustee, is sufficient to protect the Trustees, the Sponsor or any
authenticating agent from any loss which any of them may suffer if a Security is
replaced. The Trust may charge such Holder for its expenses in replacing a
Security.
Every replacement Security is an additional beneficial interest
in the Trust.
SECTION 7.7 Outstanding Preferred Securities.
--------------------------------
The Preferred Securities outstanding at any time are all the
Preferred Securities authenticated by the Property Trustee except for those
cancelled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.
If a Preferred Security is replaced, paid or purchased pursuant
to Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased
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Preferred Security is held by a bona fide purchaser.
If Preferred Securities are considered paid in accordance with
the terms of this Trust Agreement, they cease to be outstanding and
Distributions on them shall cease to accumulate.
Except as otherwise provided herein, a Preferred Security does
not cease to be outstanding because one of the Trustees, the Sponsor or an
Affiliate of the Sponsor holds the Security.
SECTION 7.8 Preferred Securities in Treasury.
--------------------------------
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Preferred
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be fully
protected in relying on any such direction, waiver or consent, only Preferred
Securities which a Responsible Officer of the Property Trustee actually knows
are so owned shall be so disregarded.
SECTION 7.9 Temporary Securities.
--------------------
(a) Until Definitive Securities are ready for delivery, the Trust
may prepare and, in the case of the Preferred Securities, the Property Trustee
shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of Definitive Securities but may have variations that
the Trust considers appropriate for temporary Securities. Without unreasonable
delay, the Trust shall prepare and, in the case of the Preferred Securities, the
Property Trustee shall authenticate Definitive Securities in exchange for
temporary Securities.
(b) A Global Preferred Security deposited with the Clearing
Agency or with the Property Trustee as custodian for the Clearing Agency
pursuant to Section 7.3 shall be transferred to the beneficial owners thereof in
the form of certificated Preferred Securities only if such transfer complies
with Section 9.2 and (i) the Clearing Agency notifies the Company that it is
unwilling or unable to continue as Clearing Agency for such Global Preferred
Security or if at any time such Clearing Agency ceases to be a "clearing agency"
registered under the Exchange Act and a clearing agency is not appointed by the
Sponsor within 90 days of such notice, (ii) a Default or an Event of Default has
occurred and is continuing or (iii) the Trust at its sole discretion elects to
cause the issuance of certificated Preferred Securities.
(c) Any Global Preferred Security that is transferable to the
beneficial owners thereof in the form of certificated Preferred Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Property Trustee located in _________________________, to be so transferred, in
whole or from time to time in part, without charge, and the Property Trustee
shall authenticate and make available for delivery, upon such transfer of each
portion of such Global Preferred Security, an equal aggregate Liquidation Amount
of Securities of authorized denominations in the form of certificated Preferred
Securities. Any portion of a Global Preferred Security transferred pursuant to
this Section shall be registered in such names as the Clearing Agency shall
direct.
(d) Subject to the provisions of Section 7.9(c), the Holder of a
Global Preferred Security may grant proxies and otherwise authorize any Person,
including Participants and Persons that may hold interests through Participants,
to take any action which such Holder is entitled to take under this Trust
Agreement or the Securities.
(e) In the event of the occurrence of any of the events specified
in Section 7.9(b), the Trust will promptly make available to the Property
Trustee a reasonable supply of certificated Preferred Securities in fully
registered form without Distribution coupons.
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SECTION 7.10 Cancellation.
------------
The Trust at any time may deliver Preferred Securities to the Property
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Property Trustee any Preferred Securities surrendered to them for registration
of transfer, redemption, exchange or payment. The Property Trustee shall
promptly cancel all Preferred Securities surrendered for registration of
transfer, redemption, exchange, payment, replacement or cancellation and shall
dispose of canceled Preferred Securities in accordance with its customary
procedures unless any Administrative Trustee otherwise directs the Property
Trustee in writing. The Trust may not issue new Preferred Securities to replace
Preferred Securities that it has paid or that have been delivered to the
Property Trustee for cancellation or that any Holder has exchanged.
SECTION 7.11 CUSIP Numbers.
-------------
The Trust in issuing the Preferred Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Property Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders of Preferred
Securities; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Preferred
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Preferred
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Sponsor will promptly notify the Property Trustee
of any change in the CUSIP numbers.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
--------------------
(a) The Trust shall automatically be terminated and dissolved and
its affairs wound up upon the earliest to occur of the following events:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor, or the
revocation of the Sponsor's charter and the expiration of 90 days after the
date of revocation without a reinstatement thereof;
(iii) following the distribution of a Like Amount of the
Debentures to the Holders of the Securities, provided that, the Property
Trustee has received written notice from the Sponsor directing the Property
Trustee to terminate the Trust (which direction is optional and within the
discretion of the Sponsor);
(iv) upon the entry of a decree of judicial dissolution of
the Trust by a court of competent jurisdiction;
(v) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have been
paid to the Holders in accordance with the terms of the Securities; or
(vi) the expiration of the term of the Trust provided in
Section 3.14.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a)
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and the completion of the winding up of the Trust and after satisfaction of all
liabilities of the Trust (whether by payment or by making reasonable provision
for payment thereof), the Administrative Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
----------------------
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Trust Agreement and
in the terms of the Securities. Any transfer or purported transfer of any
Security not made in accordance with this Trust Agreement shall be null and
void.
(b) Subject to this Article IX, Preferred Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. Any transfer or purported transfer of any
Security not made in accordance with this Trust Agreement shall be null and
void.
(c) Subject to Section 3.15, the Sponsor and any Related Party may
only transfer the Common Securities to the Sponsor or a Related Party after the
delivery to the Property Trustee of an Officers' Certificate certifying that the
transferee is either the Sponsor or a Related Party.
(d) The Property Trustee shall provide for the registration of
Securities and of the transfer of Securities, which will be effected without
charge but only upon payment (with such indemnity as the Property Trustee may
require) in respect of any tax or other governmental charges that may be imposed
in relation to it. Upon surrender for registration of transfer of any
Securities, the Administrative Trustees shall execute and the Property Trustee
shall cause one or more new Securities to be issued in the name of the
designated transferee or transferees. Every Security surrendered for
registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Property Trustee duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Security
surrendered for registration of transfer shall be delivered to the Property
Trustee and canceled in accordance with Section 7.10. A transferee of a
Security shall be entitled to the rights and subject to the obligations of a
Holder hereunder upon the receipt by such transferee of a Security. By
acceptance of a Security, each transferee shall be deemed to have agreed to be
bound by this Trust Agreement.
SECTION 9.2 Transfer Procedures and Restrictions.
------------------------------------
(a) Transfer and Exchange of Definitive Preferred Securities. When
--------------------------------------------------------
Definitive Preferred Securities are presented to the Registrar or co-Registrar:
(x) to register the transfer of such Definitive Preferred
Securities, or
(y) to exchange such Definitive Preferred Securities which became
mutilated, destroyed, defaced, stolen or lost, for an equal number of
Definitive Preferred Securities,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Preferred Securities surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer in form reasonably satisfactory to the Trust and
the Registrar or co-Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
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(b) Restrictions on Transfer of a Definitive Preferred Security for a
-----------------------------------------------------------------
Beneficial Interest in a Global Preferred Security. A Definitive Preferred
- --------------------------------------------------
Security may not be exchanged for a beneficial interest in a Global Preferred
Security except upon satisfaction of the requirements set forth below. Upon
receipt by the Property Trustee of a Definitive Preferred Security, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Property Trustee, together with Preferred Security is a
Global Preferred Security, written instructions directing the Property Trustee
to make, or to direct the Clearing Agency to make, an adjustment on its books
and records with respect to the appropriate Global Preferred Security to reflect
an increase in the number of the Preferred Securities represented by such Global
Preferred Security, then the Property Trustee shall cancel such Definitive
Preferred Security and cause, or direct the Clearing Agency to cause, the
aggregate number of Preferred Securities represented by the appropriate Global
Preferred Security to be increased accordingly. If no Global Preferred
Securities are then outstanding, the Trust shall issue and the Property Trustee
shall authenticate, upon written order of any Administrative Trustee, an
appropriate number of Preferred Securities in global form.
(c) Transfer and Exchange of Global Preferred Securities. Subject to
----------------------------------------------------
Section 9.2(d), the transfer and exchange of Global Preferred Securities or
beneficial interests therein shall be effected through the Clearing Agency, in
accordance with this Trust Agreement (including applicable restrictions on
transfer set forth herein, if any) and the procedures of the Clearing Agency
therefor.
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(d) Transfer of a Beneficial Interest in a Global Preferred Security
----------------------------------------------------------------
for a Definitive Preferred Security.
- -----------------------------------
(i) Any Person having a beneficial interest in a Global
Preferred Security may upon request, but only upon 20 days prior notice to
the Property Trustee, and if accompanied by the information specified
below, exchange such beneficial interest for a Definitive Preferred
Security representing the same number of Preferred Securities. Upon receipt
by the Property Trustee from the Clearing Agency, or its nominee on behalf
of any Person having a beneficial interest in a Global Preferred Security,
of written instructions or such other form of instructions as is customary
for the Clearing Agency, or the Person designated by the Clearing Agency as
having such a beneficial interest in a Preferred Security, and a
certification from the transferor (in a form substantially similar to that
attached hereto as the "Form of Assignment" in Exhibit A-1), which may be
submitted by facsimile, then the Property Trustee will cause the aggregate
number of Preferred Securities represented by Global Preferred Securities
to be reduced on its books and records and, following such reduction, the
Trust will execute and the Property Trustee will authenticate and make
available for delivery to the transferee a Definitive Preferred Security;
(ii) Definitive Preferred Securities issued in exchange for a
beneficial interest in a Global Preferred Security pursuant to this Section
9.2(d) shall be registered in such names and in such authorized
denominations as the Clearing Agency, pursuant to instructions from its
Participants or indirect participants or otherwise, shall instruct the
Property Trustee in writing. The Property Trustee shall deliver such
Preferred Securities to the Persons in whose names such Preferred
Securities are so registered in accordance with such instructions of the
Clearing Agency.
(e) Restrictions on Transfer and Exchange of Global Preferred
---------------------------------------------------------
Securities. Notwithstanding any other provisions of this Trust Agreement (other
- ----------
than the provisions set forth in subsection (g) of this Section 9.2), a Global
Preferred Security may not be transferred as a whole except by the Clearing
Agency to a nominee of the Clearing Agency or another nominee of the Clearing
Agency or by the Clearing Agency or any such nominee to a successor Clearing
Agency or a nominee of such successor Clearing Agency.
(f) Authentication of Definitive Preferred Securities. If at any time
-------------------------------------------------
Global Preferred Securities are outstanding:
(i) there occurs a Default or an Event of Default which is
continuing,
(ii) the Trust, in its sole discretion, notifies the Property
Trustee in writing that it elects to cause the issuance of Definitive
Preferred Securities under this Trust Agreement, or
(iii) the Trust is required to exchange such Global Preferred
Securities for Definitive Preferred Securities as described in Section
7.9(b),
then the Trust will execute, and the Property Trustee, upon receipt of a written
order of the Trust signed by one Administrative Trustee requesting the
authentication and delivery of Definitive Preferred Securities to the Persons
designated by the Trust, will authenticate and make available for delivery
Definitive Preferred Securities, equal in number to the number of Preferred
Securities represented by the Global Preferred Securities, in exchange for such
Global Preferred Securities.
(g) Cancellation or Adjustment of Global Preferred Security. At such
-------------------------------------------------------
time as all beneficial interests in a Global Preferred Security have either been
exchanged for Definitive Preferred Securities to the extent permitted by this
Trust Agreement or redeemed, repurchased or canceled in accordance with the
terms of this Trust Agreement, such Global Preferred Security shall be canceled
by the Property Trustee. At any time prior to such
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cancellation, if any beneficial interest in a Global Preferred Security is
exchanged for Definitive Preferred Securities, Preferred Securities represented
by such Global Preferred Security shall be reduced and an adjustment shall be
made on the books and records of the Property Trustee (if it is then the
custodian for such Global Preferred Security) with respect to such Global
Preferred Security, by the Property Trustee or the Securities custodian, to
reflect such reduction.
(h) Obligations with Respect to Transfers and Exchanges of
------------------------------------------------------
Preferred Securities.
- --------------------
(i) To permit registrations of transfers and exchanges, the
Trust shall execute and the Property Trustee shall authenticate Definitive
Preferred Securities and Global Preferred Securities at the Registrar's or
co-Registrar's request in accordance with the terms of this Trust
Agreement.
(ii) Registrations of transfers or exchanges will be effected
without charge, but only upon payment (with such indemnity as the Trust,
the Property Trustee or the Sponsor may require) in respect of any tax or
other governmental charge that may be imposed in relation to it.
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange (a) Preferred Securities during a
period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Preferred
Securities for redemption and ending at the close of business on the day of
such mailing; or (b) any Preferred Security so selected for redemption in
whole or in part, except the unredeemed portion of any Preferred Security
being redeemed in part.
(iv) Prior to the due presentation for registrations of
transfer of any Preferred Security, the Trust, the Property Trustee, the
Paying Agent, the Registrar or any co-registrar may deem and treat the
Person in whose name a Preferred Security is registered as the absolute
owner of such Preferred Security for the purpose of receiving Distributions
on such Preferred Security and for all other purposes whatsoever, and none
of the Trust, the Property Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Preferred Securities issued upon any registration of
transfer or exchange pursuant to the terms of this Trust Agreement shall
evidence the same security and shall be entitled to the same benefits under
this Trust Agreement as the Preferred Securities surrendered upon such
registration of transfer or exchange.
(i) No Obligation of the Property Trustee.
-------------------------------------
(i) The Property Trustee shall have no responsibility or
obligation to any beneficial owner of a Global Preferred Security, a
Participant in the Clearing Agency or other Person with respect to the
accuracy of the records of the Clearing Agency or its nominee or of any
Participant thereof, with respect to any ownership interest in the
Preferred Securities or with respect to the delivery to any Participant,
beneficial owner or other Person (other than the Clearing Agency) of any
notice (including any notice of redemption) or the payment of any amount,
under or with respect to such Preferred Securities. All notices and
communications to be given to the Holders and all payments to be made to
Holders under the Preferred Securities shall be given or made only to or
upon the order of the registered Holders (which shall be the Clearing
Agency or its nominee in the case of a Global Preferred Security). The
rights of beneficial owners in any Global Preferred Security shall be
exercised only through the Clearing Agency subject to the applicable rules
and procedures of the Clearing Agency. The Property Trustee may
conclusively rely and shall be fully protected in relying upon information
furnished by the Clearing Agency or any agent thereof with respect to its
Participants and any beneficial owners.
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(ii) The Property Trustee and Registrar shall have no
obligation or duty to monitor, determine or inquire as to compliance with
any restrictions on transfer imposed under this Trust Agreement or under
applicable law with respect to any transfer of any interest in any
Preferred Security (including any transfers between or among Clearing
Agency Participants or beneficial owners in any Global Preferred Security)
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 Trust Agreement, and to examine
the same to determine substantial compliance as to form with the express
requirements hereof.
SECTION 9.3 Deemed Security Holders.
-----------------------
The Trustees may treat the Person in whose name any Security shall be
registered on the books and records of the Trust as the sole owner of such
Security for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Security on the part of any Person, whether
or not the Trustees shall have actual or other notice thereof.
SECTION 9.4 Book Entry Interests.
--------------------
Global Preferred Securities shall initially be registered on the books
and records of the Trust in the name of Cede & Co., the nominee of the Clearing
Agency, and no Preferred Security Beneficial Owner will receive a definitive
Preferred Security certificate (a "Preferred Security Certificate") representing
such Preferred Security Beneficial Owner's interests in such Global Preferred
Securities, except as provided in Section 9.2. Unless and until definitive,
fully registered Preferred Securities certificates have been issued to the
Preferred Security Beneficial Owners pursuant to Section 9.2:
(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Property Trustee and the Administrative
Trustees shall be entitled to deal with the Clearing Agency for all purposes of
this Trust Agreement (including the payment of Distributions on the Global
Preferred Securities and receiving approvals, votes or consents hereunder) as
the Holder of the Preferred Securities and the sole holder of the Global
Certificates and shall have no obligation to the Preferred Security Beneficial
Owners;
(c) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Trust Agreement, the provisions of this
Section 9.4 shall control; and
(d) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants. DTC will make book entry transfers among the
Clearing Agency Participants.
SECTION 9.5 Notices to Clearing Agency.
--------------------------
Whenever a notice or other communication to the Preferred Security
Holders is required under this Trust Agreement, the Trustees shall give all such
notices and communications specified herein to be given to the Holders of Global
Preferred Security to the Clearing Agency, and shall have no notice obligations
to the Preferred Security Beneficial Owners.
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SECTION 9.6 Appointment of Successor Clearing Agency.
----------------------------------------
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Preferred Securities, the
Administrative Trustees may, in their sole discretion, appoint a successor
Clearing Agency with respect to such Preferred Securities.
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ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
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(a) Except as expressly set forth in this Trust Agreement, the
Securities Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; and
(ii) be required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Sponsor shall be liable for all of the fees, expenses,
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders
of the Preferred Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.2 Exculpation.
-----------
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Trust Agreement or by
law, except that an Indemnified Person shall be liable for any such loss, damage
or claim incurred by reason of such Indemnified Person's gross negligence or
willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
SECTION 10.3 Fiduciary Duty.
--------------
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Trust Agreement shall not be liable to the Trust or to any other Covered Person
for its good faith reliance on the provisions of this Trust Agreement. The
provisions of this Trust Agreement, to the extent that they restrict the duties
and liabilities of an Indemnified Person otherwise existing at law or in equity
(other than the duties imposed on the Property Trustee under the Trust Indenture
Act), are agreed by the parties hereto to replace such other duties and
liabilities of such Indemnified Person.
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(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
any Covered Persons; or
(ii) whenever this Trust Agreement or any other agreement
contemplated herein or therein provides that an Indemnified Person shall
act in a manner that is, or provides terms that are, fair and reasonable to
the Trust or any Holder of Securities,
each Covered Person or Indemnified Person shall resolve such conflict of
interest, take such action or provide such terms, considering in each case the
relative interest of each party (including its own interest) to such conflict,
agreement, transaction or situation and the benefits and burdens relating to
such interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Trust Agreement or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Trust Agreement an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Trust Agreement
or by applicable law.
SECTION 10.4 Indemnification.
---------------
(a) (i) The Sponsor shall indemnify, to the full extent
permitted by law, any Company Indemnified 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, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees and expenses), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding 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 Trust, 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 by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Company
Indemnified 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
Trust, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(ii) The Sponsor shall indemnify, to the full extent permitted by
law, any Company Indemnified 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 Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees and expenses) 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 Trust and except that no
such indemnification shall be made in respect of any
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claim, issue or matter as to which such Company Indemnified Person shall
have been adjudged to be liable to the Trust unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such Person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem
proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any
claim, issue or matter therein, he shall be indemnified, to the full extent
permitted by law, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the Sponsor
only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be made (1) by
the Administrative Trustees by a majority vote of a quorum consisting of
such Administrative Trustees who were not parties to such action, suit or
proceeding, (2) if such a quorum is not obtainable, or, even if obtainable,
if a quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion, or (3) by the Common
Security Holder of the Trust.
(v) Expenses (including attorneys' fees and expenses) incurred
by a Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the
Sponsor in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Company
Indemnified Person to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Sponsor as
authorized in this Section 10.4(a). Notwithstanding the foregoing, no
advance shall be made by the Sponsor if a determination is reasonably and
promptly made (i) by the Administrative Trustees by a majority vote of a
quorum of disinterested Administrative Trustees, (ii) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of disinterested
Administrative Trustees so directs, by independent legal counsel in a
written opinion or (iii) the Common Security Holder of the Trust, that,
based upon the facts known to the Administrative Trustees, counsel or the
Common Security Holder at the time such determination is made, such Company
Indemnified Person acted in bad faith or in a manner that such Person did
not believe to be in or not opposed to the best interests of the Trust, or,
with respect to any criminal proceeding, that such Company Indemnified
Person believed or had reasonable cause to believe his conduct was
unlawful. In no event shall any advance be made in instances where the
Administrative Trustees, independent legal counsel or Common Security
Holder reasonably determine that such Person deliberately breached his duty
to the Trust or its Common or Preferred Security Holders.
(vi) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Section 10.4(a)
shall not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the Sponsor
or Preferred Security Holders of the Trust or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office. All rights to indemnification under this Section 10.4(a) shall
be deemed to be provided by a contract between the Sponsor and each Company
Indemnified Person who serves in such capacity at any time while this
Section 10.4(a) is in effect. Any repeal or modification of this Section
10.4(a) shall not affect any rights or obligations then existing.
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(vii) The Sponsor or the Trust may purchase and maintain
insurance on behalf of any Person who is or was a Company Indemnified
Person 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
Sponsor would have the power to indemnify him against such liability under
the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in
a consolidation or merger, so that any Person who is or was a director,
trustee, officer or employee of such constituent entity, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee or agent of another entity, shall stand in the same
position under the provisions of this Section 10.4(a) with respect to the
resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise
provided when authorized or ratified, continue as to a Person who has
ceased to be a Company Indemnified Person and shall inure to the benefit of
the heirs, executors and administrators of such a Person.
(b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii)
the Delaware Trustee, (iii) any Affiliate of the Property Trustee or the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Property Trustee or the Delaware Trustee (each of the Persons in (i) through
(iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold
each Fiduciary Indemnified Person harmless against, any and all loss, liability,
damage, claim or expense including taxes (other than taxes based on the income
of such Fiduciary Indemnified Person) incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses (including reasonable legal fees and expenses) of defending itself
against or investigating any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 10.4(b) shall survive the resignation or
removal of the Property Trustee or the Delaware Trustee and the satisfaction and
discharge of this Trust Agreement.
(c) The Sponsor agrees to pay the Property Trustee and the Delaware
Trustee, from time to time, such compensation for all services rendered by the
Property Trustee and the Delaware Trustee hereunder as may be mutually agreed
upon in writing by the Sponsor and the Property Trustee or the Delaware Trustee,
as the case may be, and, except as otherwise expressly provided herein, to
reimburse the Property Trustee and the Delaware Trustee upon its or their
request for all reasonable expenses, disbursements and advances incurred or made
by the Property Trustee or the Delaware Trustee, as the case may be, in
accordance with the provisions of this Trust Agreement, except any such expense,
disbursement or advance as may be attributable to its or their negligence or bad
faith.
SECTION 10.5 Outside Businesses.
------------------
Any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee may engage in or possess an interest in other business ventures
of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Trust Agreement in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware
Trustee, or the Property Trustee shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and any
Covered Person, the Sponsor, the Delaware Trustee
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and the Property Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity. Any Covered Person, the Delaware
Trustee and the Property Trustee may engage or be interested in any financial or
other transaction with the Sponsor or any Affiliate of the Sponsor, or may act
as depositary for, trustee or agent for, or act on any committee or body of
holders of, securities or other obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
-----------
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
--------------------------
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year of the Trust by a firm of independent certified public
accountants selected by the Administrative Trustees.
(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss.
(c) The Administrative Trustees shall cause to be duly prepared
and delivered to each of the Holders of Securities, any annual United States
federal income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the Code
to deliver any such statement at a later date, the Administrative Trustees shall
endeavor to deliver all such information statements within 30 days after the end
of each Fiscal Year of the Trust.
(d) The Administrative Trustees shall cause to be duly prepared
and filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.
SECTION 11.3 Banking.
-------
The Trust shall maintain one or more bank accounts in the name and
for the sole benefit of the Trust; provided, however, that all payments of funds
in respect of the Debentures held by the Property Trustee shall be made directly
to the Property Trustee Account and no other funds of the Trust shall be
deposited in the Property Trustee Account. The sole signatories for such
accounts shall be designated by the Administrative Trustees; provided, however,
that the Property Trustee shall designate the signatories for the Property
Trustee Account.
SECTION 11.4 Withholding.
-----------
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The Trust and the Administrative Trustees shall comply with all
withholding requirements under United States federal, state and local law. The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Administrative Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to Distributions or allocations to any Holder, the amount
withheld shall be deemed to be a Distribution in the amount of the withholding
to the Holder. In the event of any claimed over withholding, Holders shall be
limited to an action against the applicable jurisdiction. If the amount
required to be withheld was not withheld from actual Distributions made, the
Trust may reduce subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
----------
(a) Except as otherwise provided in this Trust Agreement or by
any applicable terms of the Securities, this Trust Agreement may only be amended
by a written instrument approved and executed by:
(i) the Administrative Trustees (or if there are more than two
Administrative Trustees a majority of the Administrative Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received an Officers' Certificate from
each of the Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Trust Agreement (including the terms of the
Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the
Property Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Trust Agreement (including the terms of the Securities);
and
(B) an opinion of counsel (who may be counsel to the Sponsor
or the Trust) that (x) such amendment is permitted by, and conforms
to, the terms of this Trust Agreement (including the terms of the
Securities) and (y) all conditions precedent to the execution and
delivery of such amendment have been satisfied,
provided, however, that the Property Trustee shall not be required to sign
-------- -------
any such amendment, and
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(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) At such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 10.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in Liquidation Amount of the Common Securities;
(f) The rights of the Holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and remove Trustees
shall not be amended without the consent of the Holders of a Majority in
Liquidation Amount of the Common Securities; and
(g) Notwithstanding Section 12.1(c), this Trust Agreement may be
amended without the consent of the Holders of the Securities to:
(i) cure any ambiguity, correct or supplement any provision in
this Trust Agreement that may be inconsistent with any other provision of
this Trust Agreement or to make any other provisions with respect to
matters or questions arising under this Trust Agreement which shall not be
inconsistent with the other provisions of the Trust Agreement; and
(ii) to modify, eliminate or add to any provisions of the Trust
Agreement to such extent as shall be necessary to (A) ensure that the Trust
will be classified for United States federal income tax purposes as a
grantor trust at all times that any Securities are outstanding, (B) to
ensure that the Trust will not be required to register as an Investment
Company under the Investment Company Act, or (C) to ensure that the
proceeds from the sale of the Securities will constitute "tier 1 capital"
under capital adequacy requirements which may be applicable to the Sponsor;
provided, however, that in the case of clause (i), such action shall not
- -------- -------
adversely affect in any material respect the interests of the Holders of the
Securities, and any amendments of this Trust Agreement shall become effective
when notice thereof is given to the Holders of the Securities.
SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent.
----------------------------------------------------------------
(a) Meetings of the Holders of any class of Securities may be
called at any time by the Administrative Trustees (or as provided in the terms
of the Securities) to consider and act on any matter on which Holders of such
class of Securities are entitled to act under the terms of this Trust Agreement,
the terms of the Securities or the rules of any stock exchange on which the
Preferred Securities are listed or admitted for trading.
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The Administrative Trustees shall call a meeting of the Holders of such class if
directed to do so by the Holders of at least 10% in Liquidation Amount of such
class of Securities. Such direction shall be given by delivering to the
Administrative Trustees one or more notices in a writing stating that the
signing Holders of Securities wish to call a meeting and indicating the general
or specific purpose for which the meeting is to be called. Any Holders of
Securities calling a meeting shall specify in writing the Security Certificates
held by the Holders of Securities exercising the right to call a meeting and
only those Securities specified shall be counted for purposes of determining
whether the required percentage set forth in the second sentence of this
paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat at least seven days
and not more than 60 days before the date of such meeting. Whenever a vote,
consent or approval of the Holders of Securities is permitted or required
under this Trust Agreement or the rules of any stock exchange on which the
Preferred Securities are listed or admitted for trading, such vote, consent
or approval may be given at a meeting of the Holders of Securities. Any
action that may be taken at a meeting of the Holders of Securities may be
taken without a meeting if a consent in writing setting forth the action so
taken is signed by the Holders of Securities owning not less than the
minimum amount of Securities in Liquidation Amount that would be necessary
to authorize or take such action at a meeting at which all Holders of
Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the
Holders of Securities entitled to vote who have not consented in writing.
The Administrative Trustees may specify that any written ballot submitted
to the Security Holder for the purpose of taking any action without a
meeting shall be returned to the Trust within the time specified by the
Administrative Trustees;
(ii) each Holder of a Security may authorize any Person to act
for it by proxy on all matters in which a Holder of Securities is entitled
to participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of Securities
executing it. Except as otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and
the Holders of the Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Administrative Trustees or by such other Person that the
Administrative Trustees may designate; and
(iv) unless the Business Trust Act, this Trust Agreement, the
terms of the Securities, the Trust Indenture Act or the listing rules of
any stock exchange on which the Preferred Securities are then listed or
trading, otherwise provides, the Administrative Trustees, in their sole
discretion, shall establish all other provisions relating to meetings of
Holders of Securities, including notice of the time, place or purpose of
any meeting at which any matter is to be voted on by any Holders of
Securities, waiver of any such notice, action by consent without a meeting,
the establishment of a record date, quorum requirements, voting in person
or by proxy or any other matter with respect to the exercise of any such
right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
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SECTION 13.1 Representations and Warranties of Property Trustee.
--------------------------------------------------
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Trust Agreement,
and each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a national banking association with
trust powers and authority to execute and deliver, and to carry out and perform
its obligations under the terms of, this Trust Agreement;
(b) The execution, delivery and performance by the Property
Trustee of this Trust Agreement has been duly authorized by the Property
Trustee. This Trust Agreement has been duly executed and delivered by the
Property Trustee and constitutes a legal, valid and binding obligation of the
Property Trustee, enforceable against it in accordance with its terms, subject
to applicable bankruptcy, reorganization, moratorium, insolvency, and other
similar laws affecting creditors' rights generally and to general principles of
equity and the discretion of the court (regardless of whether the enforcement of
such remedies is considered in a proceeding in equity or at law);
(c) The execution, delivery and performance of this Trust
Agreement by the Property Trustee does not conflict with or constitute a breach
of the charter or by-laws of the Property Trustee; and
(d) No consent, approval or authorization of, or registration
with or notice to, any [North Carolina State] or federal banking authority is
required for the execution, delivery or performance by the Property Trustee of
this Trust Agreement.
SECTION 13.2 Representations and Warranties of Delaware Trustee.
--------------------------------------------------
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Trust Agreement,
and each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
or is a national banking association, with trust power and authority to execute
and deliver, and to carry out and perform its obligations under the terms of,
this Trust Agreement;
(b) The execution, delivery and performance by the Delaware
Trustee of this Trust Agreement has been duly authorized by all necessary
corporate action on the part of the Delaware Trustee and does not conflict with
or constitute a breach of the charter or by-laws of the Delaware Trustee. This
Trust Agreement has been duly executed and delivered by the Delaware Trustee and
constitutes a legal, valid and binding obligation of the Delaware Trustee,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, reorganization, moratorium, insolvency, and other similar laws
affecting creditors' rights generally and to general principles of equity and
the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law);
(c) No consent, approval or authorization of, or registration
with or notice to, any federal or Delaware banking authority is required for the
execution, delivery or performance by the Delaware Trustee of this Trust
Agreement; and
(d) The Delaware Trustee is a natural person who is a resident
of the State of Delaware or,
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if not a natural person, an entity which has its principal place of business in
the State of Delaware.
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ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
-------
All notices provided for in this Trust Agreement shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Administrative
Trustees at the Trust's mailing address set forth below (or such other address
as the Trust may give notice of to the Holders of the Securities):
New South Capital Trust I
c/o New South Bancshares, Inc.
1900 Crestwood Boulevard
Birmingham, Alabama 35210
Attention: __________________
Telecopy: (205) 951-____
(b) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as Delaware Trustee may give notice of to the
Holders of the Securities):
Bankers Trust (Delaware)
[Delaware address]
_______________________
_______________________
Attention: _____________________
Telecopy: (___) ____-____
(c) if given to the Property Trustee, at the Property Trustee's
mailing address set forth below (or such other address as the Property Trustee
may give notice of to the Holders of the Securities):
Bankers Trust Company
_______________________
_______________________
Attention: Sandra Shaffer
Telecopy: (___) ___-____
(d) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice to the Trust):
New South Bancshares, Inc.
1900 Crestwood Boulevard
Birmingham, Alabama 35210
Attention: __________________
Telecopy: (205) 951-____
(e) if given to any other Holder, at the address set forth on
the books and records of the Trust.
All such notices shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused
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delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 14.2 Governing Law.
-------------
This Trust Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
SECTION 14.3 Intention of the Parties.
------------------------
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust. The
provisions of this Trust Agreement shall be interpreted to further this
intention of the parties.
SECTION 14.4 Headings.
--------
Headings contained in this Trust Agreement are inserted for
convenience of reference only and do not affect the interpretation of this Trust
Agreement or any provision hereof.
SECTION 14.5 Successors and Assigns.
----------------------
Whenever in this Trust Agreement any of the parties hereto is
named or referred to, the successors and assigns of such party shall be deemed
to be included, and all covenants and agreements in this Trust Agreement by the
Sponsor and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether or not so expressed.
SECTION 14.6 Partial Enforceability.
----------------------
If any provision of this Trust Agreement, or the application of
such provision to any Person or circumstance, shall be held invalid, the
remainder of this Trust Agreement, or the application of such provision to
Persons or circumstances other than those to which it is held invalid, shall not
be affected thereby.
SECTION 14.7 Counterparts.
------------
This Trust Agreement may contain more than one counterpart of the
signature page and this Trust Agreement may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
_______________________________________________
Lizabeth R. Nichols, solely in her capacity as
Administrative Trustee
_______________________________________________
Suzanne H. Moore, solely in her capacity as
Administrative Trustee
BANKERS TRUST (DELAWARE),
solely in its capacity as Delaware Trustee
By:____________________________________________
Name:
Title:
BANKERS TRUST COMPANY,
solely in its capacity as Property Trustee
By:____________________________________________
Name:
Title:
NEW SOUTH BANCSHARES, INC.
as Sponsor
By:____________________________________________
Name:
Title:
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ANNEX I
TERMS OF
_____% PREFERRED SECURITIES
_____% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Trust Agreement,
dated as of __________, 1998 (as amended from time to time, the "Trust
Agreement"), the designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Preferred Securities and the Common Securities
(collectively, the "Securities") are set out below (each capitalized term used
but not defined herein has the meaning set forth in the Trust Agreement or, if
not defined in such Trust Agreement, as defined in the Registration Statement
referred to below in Section 2(c) of this Annex I):
1. Designation and Number.
----------------------
(a) Preferred Securities. 3,000,000 Preferred Securities of the Trust
--------------------
with an aggregate liquidation amount with respect to the assets of the Trust of
Thirty Million Dollars ($30,000,000) and each with a liquidation amount with
respect to the assets of the Trust of $10 per security, are hereby designated
for the purposes of identification only as "_____% Preferred Securities" (the
"Preferred Securities"). The certificates evidencing the Preferred Securities
shall be substantially in the form of Exhibit A-1 to the Trust Agreement, with
such changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice or to conform to the rules of any stock
exchange or quotation system on which the Preferred Securities are listed or
quoted.
(b) Common Securities. 92,783.4 Common Securities of the Trust with
-----------------
an aggregate liquidation amount with respect to the assets of the Trust of Nine
Hundred Twenty Seven Thousand, Eight Hundred and Forty Dollars ($927,840)
and a liquidation amount with respect to the assets of the Trust of $10 per
security, are hereby designated for the purposes of identification only as
"_____% Common Securities" (the "Common Securities"). The certificates
evidencing the Common Securities shall be substantially in the form of Exhibit
A-2 to the Trust Agreement, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice.
2. Distributions.
-------------
(a) Distributions payable on each Security will be fixed at a rate
per annum of _____% (the "Coupon Rate") of the liquidation amount of $10 per
Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one quarterly period will bear additional distributions
thereon compounded quarterly at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions", as used herein, includes
distributions of any such interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
(b) Distributions on the Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from __________, 1998, and will be payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing on September 30, 1998, except as otherwise described below.
The amount of Distributions payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months and for any period less
than a full calendar month on the basis of the actual number of days elapsed in
such month. If any date on which Distributions are payable on the Securities is
not a Business Day, then payment of the Distribution payable on such date shall
be made on the next succeeding day that is a Business Day (and without any
interest or other payment in
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respect of any such delay), with the same force and effect as if made on
such date (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). As long as no Event of Default has occurred
and is continuing under the Indenture, the Debenture Issuer has the right under
the Indenture to defer payments of interest by extending the interest payment
period at any time and from time to time on the Debentures for a period not
exceeding 20 consecutive quarterly periods, including the first such quarterly
period during such period (each an "Extension Period"), provided that no
Extension Period shall extend beyond the Maturity Date of the Debentures. Upon
any such election, distributions will be deferred during such Extension Period.
Notwithstanding such deferral, Distributions to which Holders of Securities are
entitled shall continue to accumulate with additional Distributions thereon (to
the extent permitted by applicable law but not at a rate greater than the rate
at which interest is then accruing on the Debentures) at the Coupon Rate
compounded quarterly from the relevant Distribution Date, during any such
Extension Period. Prior to the expiration of any such Extension Period, the
Debenture Issuer may further defer payments of interest by further extending
such Extension Period; provided that such Extension Period, together with all
such previous and further extensions within such Extension Period, may not
exceed 20 consecutive quarterly periods, including the first quarterly period
during such Extension Period, or extend beyond the Maturity Date of the
Debentures. Upon the expiration of any Extension Period and the payment of all
amounts then due, the Debenture Issuer may commence a new Extension Period,
subject to the above requirements.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust at the close of
business on the first day of the month in which the relevant Distribution Date
falls, which Distribution Dates correspond to the interest payment dates on the
Debentures. Subject to any applicable laws and regulations and the provisions
of the Trust Agreement, each such payment in respect of the Preferred Securities
will be made as follows: (i) if the Preferred Securities are held in global form
by a Clearing Agency (or its nominee), in accordance with the procedures of the
Clearing Agency; and (ii) if the Preferred Securities are held in definitive
form by check mailed to the address of the Holder thereof as reflected in the
records of the Registrar unless otherwise agreed by the Trust. The relevant
record dates for the Common Securities shall be the same as the record dates for
the Preferred Securities. Distributions payable on any Securities that are not
punctually paid on any Distribution Date, as a result of the Debenture Issuer
having failed to make a payment under the Debentures, will cease to be payable
to the Holder on the relevant record date, and such defaulted Distribution will
instead be payable to the Person in whose name such Securities are registered on
the special record date or other specified date determined in accordance with
the Indenture.
(d) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) pursuant to Section 8 among the Holders
of the Securities.
3. Liquidation Distribution Upon Dissolution.
-----------------------------------------
In the event of any termination of the Trust or the Sponsor otherwise
gives notice of its election to liquidate the Trust pursuant to Section
8.1(a)(iii) of the Trust Agreement, the Trust shall be liquidated by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to the Holders of the
Securities a Like Amount (as defined below) of the Debentures, unless such
distribution is determined by the Property Trustee not to be practicable, in
which event such Holders will be entitled to receive out of the assets of the
Trust legally available for distribution to Holders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, an amount
equal to the aggregate of the Liquidation Amount of $10 per Security plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to the principal amount
of Debentures to be paid in accordance with their terms and (ii)
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with respect to a distribution of Debentures upon the liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Securities of the Holder to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets on hand legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Securities shall be paid on a Pro
Rata basis as set forth in Section 8.
4. Redemption and Distribution.
---------------------------
(a) Upon the repayment of the Debentures on the Maturity Date thereof
or prepayment thereof prior thereto in accordance with the terms thereof, the
proceeds from such repayment or prepayment shall be simultaneously applied by
the Property Trustee (subject to the Property Trustee having received notice no
later than 45 days prior to such repayment or prepayment) to redeem a Like
Amount of the Securities at a redemption price equal to 100% of the Liquidation
Amount of the Securities, plus accumulated and unpaid Distributions thereon, if
any, to the date of such redemption (the "Redemption Price"). Holders will be
given not less than 30 nor more than 60 days notice of such redemption.
(b) At any time after _______, 2003, the Debenture Issuer shall have
the right to prepay the Debentures in whole or in part, from time to time, and
simultaneous with such redemption, to cause a Like Amount of the Securities to
be redeemed by the Trust at the Redemption Price on a Pro Rata basis.
(c) If at any time a Capital Event, Tax Event or an Investment
Company Event (each as defined below, and each a "Special Event") occurs, the
Debenture Issuer shall have the right (subject to the conditions set forth in
the Indenture), upon not less than 30 nor more than 60 days notice, to prepay
the Debentures in whole, but not in part, within the 90 days following the
occurrence of such Special Event (the "90 Day Period"), and, simultaneous with
such redemption, to cause a Like Amount of the Securities to be redeemed by the
Trust at the Redemption Price on a Pro Rata basis.
"Capital Event" shall mean the receipt by the Company and the Trust of
an opinion of Balch & Bingham LLP, or any other independent bank regulatory
counsel experienced in such matters, to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any rules,
guidelines or policies of the OTS, the Federal Reserve or any other federal bank
regulatory agency or (b) any official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such pronouncement or decision is announced on or after
the date the Subordinated Debenture is issued by the Company to the Trust
pursuant to the Indenture (the "Issue Date"), (i) the Company is or within 90
days will be subject to capital adequacy requirements and such requirements do
not or will not permit the Preferred Securities to constitute, subject to
limitations on inclusion of the Preferred Securities as Tier 1 capital imposed
by Federal Reserve capital guidelines in effect as of the date of this
Prospectus, Tier 1 capital (or its then-equivalent) or (ii) the amount of net
proceeds received from the sale of the Preferred Securities and contributed by
the Company to New South does not or within 90 days will not constitute Tier 1
(core) capital (or its then-equivalent).
"Tax Event" shall mean the receipt by the Sponsor and the Trust of an
Opinion of Counsel, requested by the Sponsor, (a "Tax Event Opinion")
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws or any
regulations thereunder of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative written decision or pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is made on or after ___________,
1998, there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date of
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such opinion, subject to United States federal income tax with respect to income
received or accrued on the Debentures, (ii) interest payable by the Debenture
Issuer on the Debentures is not, or within 90 days of the date of such opinion,
will not be, deductible by the Debenture Issuer, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is, or will be within 90
days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Investment Company Event" means the Sponsor and the Trust shall have
received an opinion, requested by the Sponsor of counsel experienced in practice
under the Investment Company Act, to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in Investment Company Act Law"), there
is more than an insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act, which Change in Investment Company Act Law becomes effective on or
after __________, 1998.
(d) On and from the date fixed by the Administrative Trustees for any
distribution of Debentures and liquidation of the Trust: (i) the Securities will
no longer be deemed to be outstanding, (ii) the Clearing Agency or its nominee
(or any successor Clearing Agency or its nominee), as the Holder of the
Preferred Securities, will receive a registered global certificate or
certificates representing the Debentures to be delivered upon such distribution
and (iii) any certificates representing Securities not held by the Clearing
Agency or its nominee (or any successor Clearing Agency or its nominee) will be
deemed to represent beneficial interests in a Like Amount of Debentures until
such certificates are presented to the Administrative Trustees or their agent
for cancellation, whereupon the Debenture Issuer will issue to such holder, and
the Debenture Trustee will authenticate, a certificate representing such
Debentures.
(e) The procedure with respect to redemptions or distributions of
Debentures shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution
Notice") will be given by the Trust by mail to each Holder of Securities to
be redeemed or exchanged not fewer than 30 nor more than 60 days before the
date fixed for redemption or exchange thereof which, in the case of a
redemption, will be the date fixed for repayment or prepayment of the
Debentures. For purposes of the calculation of the date of redemption or
exchange and the dates on which notices are given pursuant to this Section
4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the
day such notice is first mailed by first-class mail, postage prepaid, to
Holders of Securities. Each Redemption/Distribution Notice shall be
addressed to the Holders of Securities at the address of each such Holder
appearing in the books and records of the Trust. No defect in the
Redemption/Distribution Notice or in the mailing of either thereof with
respect to any Holder shall affect the validity of the redemption or
exchange proceedings with respect to any other Holder.
(ii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, (which notice will be irrevocable), then (A)
with respect to Preferred Securities registered in the name of or held of
record by a Clearing Agency or its nominee, by 12:00 noon, New York City
time, on the redemption date, provided that the Debenture Issuer has paid
the Property Trustee a sufficient amount of cash in connection with the
related maturity or prepayment of the Debentures by 10:00 a.m., New York
City time, on the Maturity Date or the date of prepayment, as the case may
be, the Property Trustee will deposit irrevocably with the Clearing Agency
or its nominee (or successor Clearing Agency or its nominee) funds
sufficient to pay the applicable Redemption Price with respect to such
Preferred Securities and will give the Clearing Agency irrevocable
instructions and authority to pay the Redemption Price to the relevant
Clearing Agency Participants, and (B) with respect to Preferred Securities
issued in certificated form and Common Securities, provided that the
Debenture Issuer has paid the Property Trustee a sufficient amount of cash
in connection with the related maturity or prepayment of the Debentures, the
Property Trustee will pay the relevant Redemption Price to the Holders of
such Securities by check mailed to the address of the relevant Holder
appearing on the books and records of the Trust on the redemption date. If
a
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Redemption/Distribution Notice shall have been given and funds deposited
as required, if applicable, then immediately prior to the close of business
on the date of such deposit, or on the redemption date, as applicable,
Distributions will cease to accumulate on the Securities so called for
redemption and all rights of Holders of such Securities so called for
redemption will cease, except the right of the Holders of such Securities to
receive the Redemption Price, but without interest on such Redemption Price,
and such Securities shall cease to be outstanding.
(iii) Payment of accumulated and unpaid Distributions on the Redemption
Date of the Securities will be subject to the rights of Holders of
Securities on the close of business on a regular record date in respect of a
Distribution Date occurring on or prior to such Redemption Date.
(iv) Neither the Administrative Trustees nor the Trust shall be
required to register or cause to be registered the transfer of (i) any
Securities beginning on the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Securities
for redemption or (ii) any Securities selected for redemption. If any date
fixed for redemption of Securities is not a Business Day, then payment of
the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), with the same force and effect as if
made on such date fixed for redemption. If payment of the Redemption Price
in respect of any Securities is improperly withheld or refused and not paid
either by the Property Trustee or the Paying Agent or by the Sponsor as
guarantor pursuant to the relevant Securities Guarantee, Distributions on
such Securities will continue to accumulate from the original redemption
date to the actual date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating
the Redemption Price.
(v) Redemption/Distribution Notices shall be sent by the Property
Trustee on behalf of the Trust to (A) in respect of the Preferred
Securities, the Clearing Agency or its nominee (or any successor Clearing
Agency or its nominee) if the Global Certificates have been issued or, if
Definitive Preferred Security Certificates have been issued, to the Holder
thereof, and (B) in respect of the Common Securities to the Holder thereof.
(vi) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws and banking laws),
provided the acquiror is not the Holder of the Common Securities or the
obligor under the Indenture, the Sponsor or any of its Affiliates may at any
time and from time to time purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
5. Voting Rights - Preferred Securities.
------------------------------------
(a) Except as provided under Sections 5(b) and 7 and as
otherwise required by law and the Trust Agreement, the Holders of the Preferred
Securities will have no voting rights.
(b) So long as any Debentures are held by the Property Trustee,
the Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on such Debenture Trustee with respect to the
Debentures, (ii) waive any past default that is waivable under Section 5.07 of
the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in Liquidation Amount
of all outstanding Preferred Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Preferred Securities. The Trustees
shall not revoke any action previously
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authorized or approved by a vote of the Holders of the Preferred Securities
except by subsequent vote of such Holders. The Property Trustee shall notify
each Holder of Preferred Securities of any notice of default with respect to the
Debentures. In addition to obtaining the foregoing approvals of such Holders of
the Preferred Securities, prior to taking any of the foregoing actions, the
Trustees shall obtain an opinion of counsel experienced in such matters to the
effect that the Trust will not be classified as an association taxable as a
corporation for United States federal income tax purposes on account of such
action.
If and Event of Default under the Trust Agreement has occured and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on any due
date (including any Interest Payment Date or prepayment date or Maturity Date),
then a Holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such Holder of the principal of or premium, if any, or
interest on a Like Amount of Debentures (a "Direct Action") on or after the
respective due date specified in the Debentures. In connection with such Direct
Action, the rights of the Common Securities Holder will be subrogated to the
rights of such Holder of Preferred Securities to the extent of any payment made
by the Debenture Issuer to such Holder of Preferred Securities in such Direct
Action. Except as provided in the second preceding sentence, the Holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Debentures.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of Holders of Preferred Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which Holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Preferred Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consent.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or to
distribute the Debentures in accordance with the Trust Agreement and the terms
of the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
---------------------------------
(a) Except as provided under Sections 6(b), 6(c), and 7 as otherwise
required by law and the Trust Agreement, the Holders of the Common Securities
will have no voting rights.
(b) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the Holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a Majority in Liquidation Amount of the outstanding Preferred
Securities. In no event will the Holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Sponsor as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee shall be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
(c) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i)
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direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee, or executing any trust or power conferred on
such Debenture Trustee with respect to the Debentures, (ii) waive any past
default that is waivable under Section 5.07 of the Indenture, (iii) exercise any
right to rescind or annul a declaration of acceleration of the maturity of the
principal of the Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the Holders of
a Majority in Liquidation Amount of all outstanding Common Securities; provided,
however, that where a consent under the Indenture would require the consent of
each holder of Debentures affected thereby, no such consent shall be given by
the Property Trustee without the prior approval of each Holder of the Common
Securities. The Trustees shall not revoke any action previously authorized or
approved by a vote of the Holders of the Common Securities except by subsequent
vote of such Holders. The Property Trustee shall notify each Holder of Common
Securities of any notice of default with respect to the Debentures. In addition
to obtaining the foregoing approvals of such Holders of the Common Securities,
prior to taking any of the foregoing actions, the Trustees shall obtain an
Opinion of Counsel experienced in such matters to the effect that the Trust will
not be classified as an association taxable as a corporation for United States
federal income tax purposes on account of such action.
If an Event of Default under the Trust Agreement has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay principal of or premium, if any, or interest on the Debentures on the due
date (including any Interest Payment Date or prepayment date or Maturity Date)
(or in the case of redemption, on the redemption date), then a Holder of Common
Securities may institute a Direct Action for enforcement of payment to such
Holder of the principal of or premium, if any, or interest on a Like Amount of
Debentures on or after the respective due date specified in the Debentures. In
connection with Direct Action, the rights of the Holders of Preferred Securities
will be subrogated to the rights of such Holder of Common Securities to the
extent of any payment made by the Debenture Issuer to such Holder of Common
Securities in such Direct Action. Except as provided in the second preceding
sentence, the Holders of Common Securities will not be able to exercise directly
any other remedy available to the holders of the Debentures.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent. The Administrative Trustees will cause a notice of any meeting
at which Holders of Common Securities are entitled to vote, or of any matter
upon which action by written consent of such Holders is to be taken, to be
mailed to each Holder of record of Common Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Trust Agreement and the terms of the
Securities.
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7. Amendments to Trust Agreement and Indenture.
-------------------------------------------
In addition to the requirements set out in Section 12.1 of the Trust
Agreement, the Trust Agreement may be amended from time to time by the Sponsor
and the Trustees, without the consent of the Holders of the Securities (i) to
cure any ambiguity, correct or supplement any provisions in the Trust Agreement
that may be inconsistent with any other provisions, or to make any other
provisions with respect to matters or questions arising under the Trust
Agreement which shall not be inconsistent with the other provisions of the Trust
Agreement, or (ii) to modify, eliminate or add to any provisions of the Trust
Agreement to such extent as shall be necessary (A) to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Securities are outstanding, (B)to ensure that the Trust
will not be required to register as an "investment company" under the Investment
Company Act, or (C) to ensure that the proceeds from the sale of the Securities
will constitute "tier 1 capital" under capital adequacy requirements which may
be applicable to the Sponsor; provided, however, that in the case of clause (i),
-------- -------
such action shall not adversely affect in any material respect the interests of
any Holder of Securities. Any amendments of the Trust Agreement pursuant to the
foregoing shall become effective when notice thereof is given to the holders of
the Securities. The Trust Agreement also may be amended by the Trustees and the
Sponsor with (i) the consent of Holders representing a Majority in Liquidation
Amount of all outstanding Securities, and (ii) receipt by the Trustees of an
Opinion of Counsel to the effect that such amendment or the exercise of any
power granted to the Trustees in accordance with such amendment will not affect
the Trust's status as a grantor trust for United States federal income tax
purposes or the Trust's exemption from status as an investment company under the
Investment Company Act, provided that, without the consent of each Holder of
-------- ----
Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
8. Pro Rata.
--------
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate Liquidation Amount of the Securities
held by the relevant Holder in relation to the aggregate Liquidation Amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Trust Agreement has occurred and is continuing, in which case any
funds available to make such payment shall be paid first to each Holder of the
Preferred Securities pro rata according to the aggregate Liquidation Amount of
Preferred Securities held by the relevant Holder relative to the aggregate
Liquidation Amount of all Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate liquidation
amount of Common Securities held by the relevant Holder relative to the
aggregate Liquidation Amount of all Common Securities outstanding.
9. Ranking.
-------
The Preferred Securities rank pari passu with the Common Securities
and payment thereon shall be made Pro Rata with the Common Securities, except
that, if an Event of Default under the Trust Agreement occurs and is continuing,
no payments in respect of Distributions on, or payments upon liquidation,
redemption or otherwise with respect to, the Common Securities shall be made
until the Holders of the Preferred Securities shall be paid in full the
Distributions, Redemption Price, Liquidation Distribution and other payments to
which they are entitled at such time.
10. Acceptance of Securities Guarantee and Indenture.
------------------------------------------------
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including
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the subordination provisions therein and to the provisions of the Indenture.
11. No Preemptive Rights.
--------------------
The Holders of the Securities shall have no preemptive rights or
similar rights to subscribe for any additional securities.
12. Miscellaneous.
-------------
These terms constitute a part of the Trust Agreement.
The Sponsor will provide a copy of the Trust Agreement, the Preferred
Securities Guarantee or the Common Securities Guarantee (as may be appropriate)
and the Indenture (including any supplemental indenture) to a Holder without
charge on written request to the Sponsor at its principal place of business.
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EXHIBIT A-1
FORM OF PREFERRED SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS GLOBAL SECURITY IS A GLOBAL PREFERRED SECURITY, INSERT: THIS
PREFERRED SECURITY IS A GLOBAL PREFERRED SECURITY WITHIN THE MEANING OF THE
TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE
ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT AND NO
TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED
SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY
OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE
OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.]
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Certificate Number Number of Preferred Securities
CUSIP NO.
Certificate Evidencing Preferred Securities
of
NEW SOUTH CAPITAL TRUST I
_____% Preferred Securities
(Liquidation Amount $10 per Preferred Security)
NEW SOUTH CAPITAL TRUST I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that
______________________ (the "Holder") is the registered owner of
___________________ Preferred Securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the _____% Preferred
Securities (Liquidation Amount $10 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and
records of the Trust, in person or by a duly authorized attorney, upon surrender
of this certificate duly endorsed and in proper form for transfer. The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities represented hereby are issued and shall
in all respects be subject to the provisions of the Amended and Restated Trust
Agreement of the Trust dated as of __________, 1998, as the same may be amended
from time to time (the "Trust Agreement"), including the designation of the
terms of the Preferred Securities as set forth in Annex I to the Trust
Agreement. Capitalized terms used but not defined herein shall have the meaning
given them in the Trust Agreement. The Sponsor will provide a copy of the Trust
Agreement, the Preferred Securities Guarantee and the Indenture to a Holder
without charge upon written request to the Trust at its principal place of
business.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder and to the benefits of the
Preferred Securities Guarantee to the extent provided therein.
By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Preferred Securities as evidence of indirect beneficial ownership in the
Debentures.
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IN WITNESS WHEREOF, an Administrative Trustee on behalf of the Trust
has duly executed this certificate.
Date:_________________
NEW SOUTH CAPITAL TRUST I
By: ______________________
Name:
Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the within-
mentioned Trust Agreement.
BANKERS TRUST COMPANY,
as Property Trustee
By: _________________________
Authorized Officer
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<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed at a
rate per annum of _____% (the "Coupon Rate") of the Liquidation Amount of $10
per Preferred Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for
more than one quarterly period will bear interest thereon compounded quarterly
at the Coupon Rate (to the extent permitted by applicable law). The term
"Distributions", as used herein, includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds on hand legally
available therefor.
Distributions on the Preferred Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if any Distributions have been paid, from __________, 1998, and will be payable
quarterly in arrears, on March 31, June 30, September 30 and December 31 of each
year, commencing on September 30, 1998, except as otherwise described below and
in the Trust Agreement. Distributions will be computed on the basis of a 360-
day year consisting of twelve 30-day months and, for any period less than a full
calendar month, the number of days elapsed in such month. As long as no Event
of Default has occurred and is continuing under the Indenture, the Debenture
Issuer has the right under the Indenture to defer payments of interest by
extending the interest payment period at any time and from time to time on the
Debentures for a period not exceeding 20 consecutive calendar quarterly periods,
including the first such quarterly period during such extension period (each an
"Extension Period"), provided that no Extension Period shall extend beyond the
Maturity Date of the Debentures. As a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, quarterly
Distributions will continue to accumulate with interest thereon (to the extent
permitted by applicable law, but not at a rate exceeding the rate of interest
then accruing on the Debentures) at the Coupon Rate compounded quarterly during
any such Extension Period. Prior to the termination of any such Extension
Period, the Debenture Issuer may further defer payments of interest by further
extending such Extension Period; provided that such Extension Period, together
with all such previous and further extensions within such Extension Period, may
not exceed 20 consecutive quarterly periods, including the first quarterly
period during such Extension Period, or extend beyond the Maturity Date of the
Debentures. Payments of Distributions that have accumulated but not been paid
during any Extension Period will be payable to Holders as they appear on the
books and records of the Trust on the records of the Trust on the record date
for the first scheduled Distribution payment date following the expiration of
such first record date after the end of the Extension Period. Upon the
expiration of any Extension Period and the payment of all amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
Subject to certain conditions set forth in the Trust Agreement and the
Indenture, the Property Trustee shall, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders of the Securities in liquidation of the Trust or, simultaneous with any
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Preferred Securities shall be redeemable as provided in the Trust
Agreement.
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__________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security Certificate to:
___________________________
___________________________
___________________________
(Insert assignee's social security or tax identification number)
___________________________
___________________________
___________________________
(Insert address and zip code of assignee)
and irrevocably appoints
___________________________
___________________________
___________________________ agent to transfer this Preferred Security
Certificate on the books of the Trust. 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 Preferred Security
Certificate)
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 by the
Registrar 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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[Include the following if the Preferred Security bears a Global Preferred
Securities Legend --
Date: _______________________
Signature
(Sign exactly as you name appears on the
other side of this Preferred Security
Certificate)
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EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY 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.
THIS COMMON SECURITY MAY NOT BE TRANSFERRED EXCEPT TO NEW SOUTH
BANCSHARES, INC. OR A RELATED PARTY (AS DEFINED IN THE TRUST AGREEMENT).
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Certificate Number Number of Common Securities
Certificate Evidencing Common Securities
of
NEW SOUTH CAPITAL TRUST I
_____% Common Securities
(Liquidation Amount $10 per Common Security)
NEW SOUTH CAPITAL TRUST I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that New South
Bancshares, Inc. (the "Holder") is the registered owner of __________________
common securities of the Trust representing undivided beneficial interests in
the assets of the Trust designated the _____% Common Securities (liquidation
amount $10 per Common Security) (the "Common Securities"). The Common
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities represented hereby are issued and shall in all respects be subject to
the provisions of the Amended and Restated Trust Agreement of the Trust dated as
of __________, 1998, as the same may be amended from time to time (the "Trust
Agreement"), including the designation of the terms of the Common Securities as
set forth in Annex I to the Trust Agreement. Capitalized terms used but not
defined herein shall have the meaning given them in the Trust Agreement. The
Sponsor will provide a copy of the Trust Agreement, the Common Securities
Guarantee and the Indenture (including any supplemental indenture) to a Holder
without charge upon written request to the Sponsor at its principal place of
business.
Upon receipt of this certificate, the Sponsor is bound by the Trust
Agreement and is entitled to the benefits thereunder and to the benefits of the
Common Securities Guarantee to the extent provided therein.
By its acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Common Securities as evidence of indirect beneficial ownership in the
Debentures.
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IN WITNESS WHEREOF, the Trust has executed this certificate this
________ day of __________, 1998.
NEW SOUTH CAPITAL TRUST I
By: _________________
Name:
Administrative Trustee
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<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of _____% (the "Coupon Rate") of the liquidation amount of $10 per
Common Security, such rate being the rate of interest payable on the Debentures
to be held by the Property Trustee. Distributions in arrears for more than one
quarterly period will bear interest thereon compounded quarterly at the Coupon
Rate (to the extent permitted by applicable law). The term "Distributions", as
used herein, includes such cash distributions and any such interest payable
unless otherwise stated. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee and
to the extent the Property Trustee has funds available therefor.
Distributions on the Common Securities will be cumulative, will accrue
from the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from __________, 1998 and will be payable
quarterly in arrears, on March 31, June 30, September 30 and December 31 of each
year, commencing on September 30, 1998, except as otherwise described below and
in the Trust Agreement. Distributions will be computed on the basis of a 360-day
year consisting of twelve 30 day months and, for any period less than a full
calendar month, the number of days elapsed in such month. As long as no Event of
Default has occurred and is continuing under the Indenture, the Debenture Issuer
has the right under the Indenture to defer payments of interest by extending the
interest payment period at any time and from time to time on the Debentures for
a period not exceeding 10 consecutive calendar quarterly periods, including the
first such quarterly period during such extension period (each an "Extension
Period"), provided that no Extension Period shall extend beyond the Maturity
Date of the Debentures. As a consequence of such deferral, Distributions will
also be deferred. Despite such deferral, Distributions will continue to
accumulate with interest thereon (to the extent permitted by applicable law, but
not at a rate exceeding the rate of interest then accruing on the Debentures) at
the Coupon Rate compounded quarterly during any such Extension Period. Prior to
the termination of any such Extension Period, the Debenture Issuer may further
defer payments of interest by further extending such Extension Period; provided
that such Extension Period, together with all such previous and further
extensions within such Extension Period, may not exceed 20 consecutive quarterly
periods, including the first quarterly period during such Extension Period, or
extend beyond the Maturity Date of the Debentures. Payments of Distributions
that have accumulated will be payable to Holders as they appear on the books and
records of the Trust on the record date for the first Distribution Date
following the expiration of such Extension Period. Upon the expiration of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period, subject to the above requirements.
Subject to certain conditions set forth in the Trust Agreement and the
Indenture, the Property Trustee shall, at the direction of the Sponsor, at any
time liquidate the Trust and cause the Debentures to be distributed to the
holders to the Securities in liquidation of the Trust or, simultaneous with any
redemption of the Debentures, cause a Like Amount of the Securities to be
redeemed by the Trust.
The Common Securities shall be redeemable as provided in the Trust
Agreement.
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__________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
___________________________
___________________________
___________________________
(Insert assignee's social security or tax identification number)
___________________________
___________________________
___________________________
(Insert address and zip code of assignee)
and irrevocably appoints _____________
___________________________
__________________________ agent to transfer this Common Security Certificate on
the books of the Trust. 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 Common Security
Certificate)
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 by the
Registrar 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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EXHIBIT 5.1
[LETTERHEAD OF BALCH & BINGHAM LLP APPEARS HERE]
_____________, 1998
New South Bancshares, Inc.
1900 Crestwood Boulevard
Birmingham, Alabama 35210
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to New South Bancshares, Inc. (the "Company")
in connection with the preparation of a Registration Statement on Form S-1,
including a preliminary prospectus (the "Registration Statement"), which has
been filed with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), for the registration under
the Act of (1) Subordinated Deferred Interest Debenture (the "Subordinated
Debentures") to be issued by the Company, (2) Preferred Securities
(liquidation amount $10 per Preferred Security) to be issued by New South
Capital Trust I, and (3) the Company's Guarantee (as defined in the Registration
Statement) with respect to such Preferred Securities. The Subordinated
Debentures will be issued pursuant to an indenture, as supplemented, between the
Company and the trustee named therein (the "Indenture") and the Guarantee
will be issued pursuant to a guaranty agreement between the Company and the
trustee named therein (the "Guaranty Agreement"), in each case in the respective
forms filed as exhibits to the Registration Statement.
We are of the opinion that, upon compliance with the pertinent
provisions of the Act and the Trust Indenture Act of 1939, as amended, upon
compliance with applicable securities or blue sky laws of various jurisdictions,
upon the adoption of appropriate resolutions by the Board of Directors of the
Company, when the Indenture and the Guaranty Agreement have been duly executed
and delivered by the proper officers of the Company and the Trustees named
therein, and when the Subordinated Debentures and the Guarantee have been
executed, authenticated and delivered in accordance with the terms of the
Indenture and the Guarantee, as the case may be, the Subordinated Debentures and
the Guarantee will be valid, binding and legal obligations of the Company
(subject to applicable bankruptcy, moratorium and similar laws from time to time
in force and to general principles of equity, whether considered in a proceeding
at law or in equity). We consent to the filing of this opinion as an exhibit to
the Registration Statement. We also consent to the reference to Balch & Bingham
LLP under the caption "Validity of Securities" in the Registration Statement.
Very truly yours,
/s/ Balch & Bingham LLP
-------------------------------
Balch & Bingham
<PAGE>
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
EXHIBIT 5.2
May 12, 1998
New South Capital Trust I
c/o New South Bancshares, Inc.
2000 Crestwood Boulevard
Birmingham, Alabama 35210
Re: New South Capital Trust I
-------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for New South Bancshares,
Inc., a Delaware corporation (the "Company"), and New South Capital Trust I, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated April 2, 1998 (the
"Certificate"), as filed in the office of the Secretary of State of the State of
Delaware (the "Secretary of State") on April 2, 1998;
(b) The Trust Agreement of the Trust, dated as of April 2, 1998,
between the Company, as Sponsor, and the trustee of the Trust named therein;
(c) Amendment No. 1 to the Registration Statement (the "Registration
Statement") on Form S-1, including a preliminary prospectus (the "Prospectus"),
relating to the Preferred Securities of the Trust representing preferred
undivided beneficial interests in the assets of the Trust (each, a "Preferred
Security" and collectively, the "Preferred Securities"), filed by the Company
and the Trust with the Securities and Exchange Commission on or about May 12,
1998;
<PAGE>
New South Capital Trust I
May 12, 1998
Page 2
(d) A form of Amended and Restated Trust Agreement of the Trust, to be
entered into among the Company, as Sponsor, the trustees of the Trust named
therein, and the holders, from time to time, of undivided beneficial interests
in the assets of the Trust (including Annex 1 and Exhibits A-1 and A-2 thereto)
(the "Trust Agreement"), attached as an exhibit to the Registration Statement;
and
(e) A Certificate of Good Standing for the Trust, dated May 12, 1998,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (e) above. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (e) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our
own but rather have relied solely upon the foregoing documents, the statements
and information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the Certificate are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, the due
creation or due organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us under
the laws of the jurisdiction governing its creation, organization or formation,
(iii) the legal capacity of natural persons who are parties to the documents
examined by us, (iv) that each of the parties to the documents examined by us
has the power and authority to execute and deliver, and to perform its
obligations under, such documents, (v) the due authorization, execution and
delivery by all parties thereto of all documents examined by us, (vi) the
receipt by each Person to whom a Preferred Security is to be issued by the Trust
(collectively, the "Preferred Security Holders") of a Preferred Securities
Certificate for such Preferred Security and the payment for the Preferred
Security acquired by it, in accordance with the Trust Agreement and the
Registration Statement, and (vii) that the Preferred Securities are issued and
sold to the Preferred Security Holders in accordance with the Trust Agreement
and the Registration Statement. We have not participated in the preparation of
the Registration Statement and assume no responsibility for its contents.
<PAGE>
New South Capital Trust I
May 12, 1998
Page 3
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examinations of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities will represent valid and, subject to the
qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the Trust,
will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In addition, we
hereby consent to the use of our name under the heading "Validity of Securities"
in the Prospectus. In giving the foregoing consents, we do not thereby admit
that we come within the category of Persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
stated above, without our prior written consent, this opinion may not be
furnished or quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
CDK
/s/ Richards, Layton & Finger PA
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF BALCH & BINGHAM LLP APPEARS HERE]
_____________, 1998
New South Bancshares, Inc.
1900 Crestwood Boulevard
Birmingham, Alabama 35210
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to New South Bancshares, Inc. in connection
with the preparation of a Registration Statement on Form S-1, including a
preliminary prospectus (the "Registration Statement"), which has been filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act").
We have reviewed copies of the Registration Statement and such other
documents as we have deemed necessary or appropriate as a basis for the opinion
set forth below.
Based on the foregoing, we are of the opinion that the statements and
legal conclusions contained in the Registration Statement under the caption
"Certain Federal Income Tax Consequences" are correct and that the discussion
thereunder does not omit any material provision with respect to the matters
covered.
We consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to Balch & Bingham LLP
under the captions "Certain Federal Income Tax Consequences" and "Validity of
Securities" in the Registration Statement.
Very truly yours,
/s/ Balch & Bingham LLP
------------------------
Balch & Bingham LLP
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
BETWEEN
COLLATERAL MORTGAGE, LTD
AND
NEW SOUTH FEDERAL SAVINGS BANK
1
<PAGE>
INDEX TO AGREEMENT
Page
Article 1 - Definitions 3
Article 2 - The Sale 5
Article 3 - Representations and Warranties 6
Article 4 - Fees, Expenses and Taxes 7
Article 5 - Closing 7
Article 6 - Miscellaneous 8
INDEX TO EXHIBITS
Exhibit A - Contracts and Lease Agreements
Exhibit B - Employees
Exhibit C - Lease Agreement for Furniture, Fixtures and Equipment
Exhibit D- Residential Loan Origination Offices
2
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT effective July 1, 1997 (the "Agreement") is
made and entered into by and between Collateral Mortgage, Ltd., whose address
is 1900 Crestwood Boulevard, Birmingham, Alabama (the "Seller") and New South
Federal Savings Bank whose address is 2000 Crestwood Boulevard, Birmingham,
Alabama (the "Purchaser").
RECITALS
WHEREAS, the Seller is the owner of certain assets related to the operation
of its residential mortgage origination business.
WHEREAS, the Seller desires to sell, and the Purchaser desires to buy, the
assets relating to Seller's residential mortgage origination business (the
"Business") upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual and several promises and
undertakings herein contained, and for other good and valuable consideration,
the parties do freely and voluntarily agree as follows:
ARTICLE ONE
DEFINITIONS
Except as otherwise specified or as the context may otherwise require, the
following words and phrases as used in this Agreement shall have the following
meanings:
1.1 Assets. The Residential Loan Origination Offices, the Mortgage Loans
and the Seller's right, title and interest in and to the Leases and the
Contracts.
1.2 Closing. The closing of the transaction contemplated by this
Agreement.
1.3 Closing Date. June 30, 1997, or such subsequent date as mutually
agreed to by both parties.
1.4 Contracts. All contracts and agreements entered into by the Seller in
connection with its residential loan origination operations and its residential
loan brokerage operations described on Exhibit A.
1.5 Effective Date. July 1, 1997, or such subsequent date as mutually
agreed to by both parties.
1.6 Employees. Those employees of the Seller listed on Exhibit B who will
become employees of Purchaser upon the Effective Date.
1.7 Escrow Accounts. All escrow accounts and the money contained therein
which are maintained by the Seller in connection with the Mortgage Loans,
including, without limitation, items escrowed for private
Page 3
<PAGE>
mortgage insurance, property taxes (either real or personal), hazard insurance,
or any other items required to be escrowed by the terms of the Mortgage Loans.
1.8 Lease Agreement for Furniture, Fixtures and Equipment. The furniture,
fixtures, cars and equipment to be leased by Purchaser from Seller as described
on the Lease Agreement effective July 1, 1997, a copy of which is attached
hereto as Exhibit C and made a part hereof as if set forth in full at this
point.
1.9 Leases. All leases for Seller's residential loan origination offices,
as described on Exhibit A attached hereto, and made a part hereof as if set
forth in full at this point.
1.10 Mortgage Loans. Those certain loans agreed to by the parties which
are originated by the Seller which have not closed prior to June 30, 1997, which
shall be assigned and transferred to Purchaser on or after the Effective Date.
1.11 Payment Dates: January 5, 1998, July 6, 1998, January 5, 1999, July 5,
1999, January 5, 2000, and July 5, 2000, respectively.
1.12 Residential Mortgage Loans. Those loans originated by Purchaser during
the three (3) year period from the Effective Date which are produced by the
Residential Loan Origination Offices, as described herein.
1.13 Related Documents. All documents, files and other underlying
materials which are maintained by the Seller in connection with the Mortgage
Loans and/or the Seller's residential loan operations which are required to be
delivered to Purchaser in connection with this Agreement.
1.14 Transfer Date. The date that the Purchaser shall assume the Mortgage
Loans. This date shall be the close of business of June 30, 1997, or such other
date as mutually agreed to by both parties.
1.15 Residential Loan Origination Offices. Those residential loan
origination offices of Seller which shall be transferred to Purchaser as of the
Effective Date which are described on Exhibit D attached hereto, and made a part
hereof as if set forth in full at this point.
ARTICLE TWO
THE SALE
2.1 Agreement to Purchase and Sell. Subject to the terms and conditions
------------------------------
contained herein, the Purchaser agrees to purchase and the Seller agrees to sell
on the Closing Date the Assets which comprise Seller's residential loan
origination operations. Such sale shall include the transfer to the Purchaser of
all of the Seller's rights to: (i) the Escrow Accounts; (ii) the Related
Documents; (iii) the Residential Loan Origination Offices; and the (iv) Mortgage
Loans.
Page 4
<PAGE>
2.2 Purchase Price. The Purchaser agrees to pay the Seller an amount
--------------
(the "Purchase Price") equal to the sum of the following for said Assets. The
Purchaser shall pay to the Seller the Purchase Price in installments which shall
be calculated, due and payable on the Payment Dates set forth below.
(i) On January 5, 1998, the Purchaser shall pay Seller the product of
.35% times the aggregate of the original principal balances of all
Residential Mortgage Loans originated by Purchaser from the Effective
Date through December 31, 1997; plus
(ii) On July 6, 1998, the Purchaser shall pay Seller the product of .35%
times the aggregate of the original principal balances of all
Residential Mortgage Loans originated by Purchaser from January 1,
1998 through June 30, 1998; plus
(iii) On January 5, 1999, the Purchaser shall pay the Seller the product of
.20% times the aggregate of the original principal balances of all
Residential Mortgage Loans originated by Purchaser from July 1, 1998
through December 31, 1998; plus
(iv) On July 5, 1999, the Purchaser shall pay the Seller the product of
.20% times the aggregate of the original principal balances of all
Residential Mortgage Loans originated by Purchaser from January 1,
1999 through June 30, 1999; plus
(v) On January 5, 2000, the Purchaser shall pay the Seller the product of
.10% times the aggregate of the original principal balances of all
Residential Mortgage Loans originated by Purchaser from July 1, 1999
through December 31, 1999; plus
(vi) On July 5, 2000, the Purchaser shall pay the Seller the product of
.10% times the aggregate of the original principal balances of all
Residential Mortgage Loans originated by Purchaser from January 1,
2000 through June 30, 2000.
Purchaser shall deliver to Seller on the Payment Dates set forth above a
list of all Residential Mortgage Loans originated by Purchaser for the time
period as set forth in items (i) through (vi) above. Seller shall have the
right to have its accountants review all documentation provided by Purchaser in
conjunction with the calculations of Purchase Price.
2.3 Liabilities. Upon its acquisition of the Assets, the Purchaser shall
-----------
assume all liabilities associated with the Assets.
2.4 Employees. Purchaser assumes any liability of Seller relating to
---------
employees of Seller transferred to Purchaser in regards to any employee welfare
benefit, health or disability benefits of Seller to its employees. Purchaser
agrees to offer employee welfare benefit, health or disability benefits to the
former employees of Seller, if any, which are transferred to Purchaser on or
after the Effective Date to the same extent such benefits are provided by
Purchaser to its other employees as of the date such former Seller employees, if
any, are transferred to Purchaser. Nothing contained herein shall operate to
preclude Purchaser from altering employee welfare benefit, health or disability
benefits provided to any employee after the Effective Date.
Page 5
<PAGE>
2.5 Lease Agreement for Furniture, Fixtures. On the Effective Date,
---------------------------------------
Seller and Purchaser shall enter into a Lease Agreement for the Furniture,
Fixtures and Equipment in form as set forth in Exhibit C hereto.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
3.1 Liens. Seller warrants that no person, firm or corporation has any
-----
claim, lien, judgment or right of action, legal or equitable, against or in any
Assets transferred to Purchaser under the terms of this Agreement, and Seller
agrees to indemnify and save harmless Purchaser against and from any claim or
lien against said Assets prior to the Effective Date.
3.2 Ownership. Seller warrants that it has all the rights of ownership in
---------
the Assets, and that it freely transfers these ownership rights in the Assets to
Purchaser free and clear of any claims, actions, proceedings, investigations,
liens, judgments or rights of action, legal or equitable, which might otherwise
be made against Seller's ownership rights, and Seller's agrees to indemnify and
save harmless Purchaser against and from any claim or lien against said
ownership rights.
3.3 Seller's Organization. Seller represents and warrants that it is a
---------------------
limited partnership, duly, validly existing and in good standing under the laws
of the State of Alabama with power and authority to conduct the business in
which it is engaged and it has complete and unrestricted power to enter into and
to consummate this Agreement.
3.4 Tax Matters. Seller has filed or caused to be filed completely and
-----------
accurately all Federal, state, local and foreign tax information returns
required under the statutes, rules or regulations of such jurisdictions
pertaining to Seller and the Assets.
3.5 Purchaser's Organization. Purchaser represents and warrants it is a
------------------------
federally chartered savings bank and it has the power and authority to conduct
the business in which it is engaged and has complete and unrestricted power to
enter into and to consummate this Agreement.
3.6 Contracts; Leases. Seller has duly and punctually performed all the
-----------------
terms, covenants, conditions and warranties of the Leases and Contracts. To the
best of Seller's knowledge, the other parties to such leases and contracts are
not in default under any of the terms thereof.
ARTICLE FOUR
FEES, EXPENSES, AND TAXES
4.1 Costs. Each party shall pay all costs incurred by it for legal and
-----
other services received or utilized in connection herewith, except as otherwise
provided in this Agreement.
4.2 Mortgage Payments. Payments and other receipts on the Mortgage Loans
-----------------
attributable to periods commencing on or after the Effective Date shall be the
sole property of Purchaser and Seller shall not have any right, title or
interest therein.
Page 6
<PAGE>
4.3 Receivables. On or after the Effective Date, Purchaser shall have the
-----------
right and authority to collect all receivables and other items which shall be
transferred by Seller to Purchaser hereunder and to endorse without recourse and
without warranties of any kind.
4.4 Correspondence. Any and all correspondence, records or other
--------------
documents coming to Seller after the Effective Date pertaining to the Assets
shall be immediately and forthwith delivered to Purchaser, without charge.
4.5 Access to Files. Seller agrees to make available prior to the
---------------
Effective Date and to deliver without charge to Purchaser on the Effective Date
all of Seller's files, and records related to the Assets transferred hereunder.
ARTICLE FIVE
CLOSING
5.1 Time and Place for Closing. The closing shall occur on the Closing
--------------------------
Date at the offices of the Purchaser in Birmingham, Alabama, provided all
appropriate regulatory approvals, if any are required, have been received.
5.2 Reporting. The Seller shall make all remittances and reports which
---------
are due prior to the Effective Date.
5.3 Related Documents. Seller agrees to execute any and all necessary
-----------------
documents and agrees to take all other reasonable actions necessary to
effectuate or facilitate the assignment and transfer to Purchaser of the Assets
pursuant to this Agreement.
5.4 Leases and Contracts. On the Closing Date, the Seller shall assign
--------------------
all of its rights and obligations under the Leases and the Contracts to
Purchaser.
5.5 Mortgage Loans. Seller shall endorse the Mortgage Loans owned by
--------------
Seller to the Purchaser and shall execute and deliver such assignment as may be
necessary in order to convey all of Seller's right, title and interest in and to
said Mortgage Loans.
5.7 Employees. On the Closing Date, the Employees shall become the
---------
employees of the Purchaser and the Purchaser shall thereafter pay directly to
the Employees all salary, benefits, commissions and bonuses that may become due
and payable.
5.8 Deliveries of Seller. At Closing, Seller shall deliver to Purchaser
--------------------
the following:
a) Duly executed assignments and other instruments of transfer and
conveyance in appropriate form so as effectively to convey, transfer and assign
to Purchaser all items to be transferred to Purchaser pursuant to the terms of
this Agreement.
Page 7
<PAGE>
b) Certificate of the President or Chief Executive Officer of Seller
certifying that the representations and warranties of Seller contained herein
are true and correct as of the Closing Date and that all obligations, covenants
and conditions required to be performed or satisfied by Seller prior to the date
of Closing have been performed and satisfied.
c) The Related Documents.
d) Duly executed Lease Agreement for Furniture, Fixtures and Equipment.
5.9 Deliveries of Purchaser. At Closing, Purchaser shall deliver to
-----------------------
Seller the following:
a) Certificate of the President or Chief Executive Officer of Purchaser
certifying that the representations and warranties of Purchaser contained herein
are true and correct as of the Closing Date and that all obligations, covenants
and conditions required to be performed or satisfied by Purchaser prior to the
date of Closing have been performed and satisfied.
b) Duly executed Lease Agreement for Furniture, Fixtures and Equipment.
ARTICLE SIX
MISCELLANEOUS
6.1 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the Seller and the Purchaser with respect to the subject matter hereof
and supersedes all prior agreements or communications, written or oral, express
or implied.
6.2 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective permitted successors and
assigns.
6.3 No Assignment. This Agreement may not be assigned, in whole or in
-------------
part, by either party hereto without the prior written consent of the other,
which consent shall not be unreasonably withheld or denied.
6.4 Applicable Law. This Agreement shall be construed in accordance with
--------------
the governed by the laws of the State of Alabama. Except as to the provisions
of this Agreement relating to arbitration of disputes hereunder which shall be
governed by the Federal Arbitration Act, 9 U.S.C. Section 1 et. seq., and , to
the extent not in conflict with the Federal Arbitration Act, by the Commercial
Arbitration Rules of the American Arbitration Association. The venue for any
court action involving this Agreement shall be the State of Alabama.
6.5 Number and Gender of Words. Whenever herein the singular number is
--------------------------
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.
6.6 Captions. The captions, headings and arrangements used in this
--------
Agreement are for convenience only and do not affect, limit, or amplify the
terms and provisions hereof.
Page 8
<PAGE>
6.7 Amendment. This Agreement may not be amended or modified without the
---------
express written consent of the parties hereto.
6.8 Arbitration. All disputes or differences between the parties arising
-----------
under or which are related to this Agreement upon which an amicable
understanding cannot be reached within thirty (30) days shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, except as hereinafter provided, and judgment upon the
award entered by the arbitrators may be entered in any court having jurisdiction
thereof.
The Court of Arbitrators shall consist of three arbitrators familiar with
mortgage business. The parties agree that this Court of Arbitrators, if
implemented under this Agreement, shall be held at a site selected by the
Arbitrators.
The parties agree to arbitrate within thirty (30) days following the
transmittal of written demand of either party to arbitrate any dispute
arbitrable under this Agreement. Each of the parties shall appoint an
arbitrator within thirty (30) days following notice of written demand to
arbitrate, notifying the other party of the name and address of such arbitrator.
If either party shall fail to appoint an Arbitrator as herein provided, or
should the two arbitrators so named fail to select the third arbitrator within
thirty (30) days of their appointment, then, in either event, the President of
the American Arbitration Association or its successor shall appoint such second
and/or third arbitrator. The three arbitrators so selected shall constitute the
Court of Arbitrators.
A decision of a majority of the Court of Arbitrators shall be final and
binding and there shall be no appeal therefrom. The Court of Arbitrators shall
not be bound by legal rules of procedure and may receive evidence in such a way
as to do justice between the parties. The Court of Arbitrators shall promptly
enter an award which shall do justice between the parties and the award shall be
supported by a written opinion.
The cost of arbitration, including the fees of the arbitrators, shall be
borne by the losing party unless a Court of Arbitrators shall decide otherwise.
6.9 Seller's Indemnification. Seller shall and hereby agrees to indemnify
------------------------
and hold Purchaser harmless against and with respect to any damages as
hereinafter defined. Damages to Purchaser, as used herein, shall include any
claim, action, loss, cost, expense, liability, penalty, interest or damage,
including without limitation, reasonable attorneys' fees, and all costs and
expenses of all actions, suits, proceedings, demands, assessments, claims and
judgments resulting from, occurring in connection with, or arising out of:
a) any inaccurate representation made by Seller in this Agreement;
b) any breach of any of the warranties made by Seller in this Agreement;
c) breach or default in performance by Seller of any of the obligations
that are to be performed by Seller under this Agreement.
Page 9
<PAGE>
Except as provided below, the above indemnification shall extend for a
period of two years after the Closing Date, provided, however, that the
foregoing two year limitation shall not apply to any claim resulting from the
assessment of taxes or claims of third parties, for which indemnification shall
extend for the period of the statute of limitations applicable to such claims.
Purchaser shall give notice to Seller within a reasonable time from
discovery by Purchaser of any matters that may give rise to a claim for
indemnification from Seller under this Agreement, and Purchaser shall cooperate
with Seller in any investigation by Lessee of such matters.
6.10 Purchaser's Indemnification. Purchaser shall and hereby agrees to
---------------------------
indemnify and hold Seller harmless against and with respect to any damages as
hereinafter defined. Damages to Seller as used herein, shall include any claim,
action, loss, cost, expense, liability, penalty or interest or damage, including
without limitation, reasonable attorneys' fees, and all costs and expenses of
all actions, suits, proceedings, demands, assessments, claims or judgments
resulting from, occurring in connection with, or arising out of:
a) any inaccurate representation made by Purchaser;
b) breach of any of the warranties made by Purchaser in this Agreement;
and,
c) breach or default in performance by Purchaser of any of the
obligations that are to be performed by it under this Agreement.
Except as provided below, the above indemnification shall extend for a
period of two years after Closing Date, provided, however, that the foregoing
two-year limitation shall not apply to any claim resulting from the assessment
of taxes or claims of third parties, for which indemnification shall extend for
the period of the statute of limitations applicable to such claims.
Seller shall give notice to Purchaser within a reasonable time from
discovery by Seller of any matters that may give rise to a claim for
indemnification from Purchaser under the Agreement, and Seller shall cooperate
with Purchaser in any investigation by Purchaser of such matters.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be executed by their duly authorized officers, on the day and year shown
below.
SELLER: COLLATERAL MORTGAGE, LTD.
BY:
--------------------------------
ITS:
-------------------------------
Page 10
<PAGE>
PURCHASER: NEW SOUTH FEDERAL SAVINGS BANK
BY:
--------------------------------
ITS:
-------------------------------
Page 11
<PAGE>
EXHIBIT 10.2
LEASE AGREEMENT
THIS LEASE AGREEMENT effective July 1, 1997 is entered into by Collateral
Mortgage, Ltd., an Alabama Limited partnership ("Lessor") and New South Federal
Savings Bank, an Alabama Corporation ("Lessee").
RECITALS
Lessor wishes to lease and Lessee wishes to lease from Lessor on the terms
and conditions set forth in this Agreement certain assets of Lessor related to
Lessor's operation of its residential mortgage origination business (the
"Business").
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements contained herein Lessor and Lessee hereby agree as follows:
ARTICLE 1 - LEASE OF ASSETS
1.1 Subject to the terms and conditions of this Agreement, Lessor agrees
to lease and deliver to Lessee, and Lessee agrees to lease from Lessor, the
furniture, fixtures, equipment, machinery, and all other personal property used
in the operation of Lessor's business identified on Schedule 1 attached hereto
owned by Lessor, except such thereof as may be disposed of by Lessor in the
ordinary course of business prior to the Effective Date (the "Leased Assets).
1.2 The total Lease amount to be paid for the Leased Assets (the "Leased
Amount") shall be $575,487.00. Such Lease amount will be paid by Lessee in equal
monthly installments over a period of eleven (11) months from the Effective Date
hereof. Lease shall make each monthly installment, five business days after the
first day of each month, with the first monthly installment payment due on
August 5, 1997.
1.3 The term of this Agreement shall be for a period of eleven months from
the Effective Date.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF LESSOR
Lessor represents and warrants as follows:
Page 0
<PAGE>
2.1 Organization and Authority of Lessor. Lessor is a Limited Partnership
-------------------------------------
organized, validly existing and in good standing under the laws of the State of
Alabama. Lessor has the full power and authority to carry out and perform its
undertakings and obligations under this Agreement. This Agreement has been duly
and validly executed and delivered by Lessor. This Agreement is , valid and
binding obligation of Lessor, enforceable against it in accordance with their
respective terms.
2.2 Condition of Properties. The equipment, machinery and fixtures
-------------------------
utilized by Lessor in the Business are and will be as of the Effective Date in
good repair and operating condition and fit for their intended purpose.
2.3 Litigation. There are no claims, actions, suits, proceedings or
-----------
investigations pending nor, to the knowledge of the Lessor, threatened against
or affecting the property of the Business or any of the transactions
contemplated by this Agreement. Lessor does not have any knowledge of any state
of facts or contemplated event that reasonably may be expected to give rise to
any such claim, action, suit, proceeding or investigation.
2.4 Consent. No consent or approval of, other action by, or any notice to,
--------
any governmental body or agency, domestic or foreign, or any third party is
required in connection with the execution an delivery of this Agreement by
Lessor or the consummation by Lessor of the transactions contemplated hereby.
2.5 Tax Matters. Lessor has filed or caused to be filed completely and
accurately all Federal, state, local and foreign tax information returns
required under the statutes, rules or regulations of such jurisdictions
pertaining to Lessor and the Leased Assets.
2.6 Insurance. Lessor has, and will maintain until after the Effective
----------
Date, fire and casualty insurance policies, with extended coverage, for all of
the Leased Assets in an amount sufficient to allow it to avoid any material loss
with respect thereto.
2.7 Warranties True at the Effective Date and Survival of Warranties. The
-----------------------------------------------------------------
representations and warranties hereinabove made by Lessor shall be true and
correct in all material respects at the Effective Date, except that any
Page 1
<PAGE>
representation or warranty that by its terms is made with reference to a
specific date will have been correct in all material respects as of such date.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF LESSEE
Lessee represents and warrants to Lessor as follows:
3.1 Organization and Authority. Lessee is a federally chartered savings
---------------------------
bank, with full power and authority to carry out and perform its undertakings
and obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by Lessee.
3.2 Consents. No consent or approval of, other action by, or any notice to
---------
any governmental body or agency, domestic or foreign, or any third party is
required in connection with the execution and delivery of this Agreement by
Lessee or the consummation by Lessee's of the transactions contemplated hereby.
3.3 Warranties True at the Effective Date and Survival of Warranties. The
-----------------------------------------------------------------
representations and warranties hereinabove made by Lessee will be true and
correct in all material respects at the Effective Date.
ARTICLE 4 - MISCELLANEOUS
4.1 The parties agree to cooperate in promptly taking any and all action
appropriate to consummate the transactions contemplated by this Agreement.
4.2 Termination. This Agreement will automatically terminate on May 30,
------------
1998.
4.3 Amendment. This Agreement may be amended or supplemented at any time
----------
by mutual written agreement of the parties.
4.4 Indemnification by Lessor. Lessor shall and hereby agrees to indemnify
--------------------------
and hold Lessee harmless against and with respect to any damages as hereinafter
defined. Damages to Lessee, as used herein, shall include any claim, action,
loss, cost, expense, liability, penalty, interest or damage, including, without
limitation, reasonable attorneys' fees, and all costs and expenses of all
actions, suits, proceedings, demands, assessments, claims and judgments
resulting from, occurring in connection with, or arising out of:
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<PAGE>
a) Any inaccurate representation made by Lessor in this Agreement;
b) Any breach of any of the warranties made by Lessor in this Agreement;
c) Breach or default in performance by Lessor of any of the obligations
that are to be performed by Lessor under this Agreement.
The above indemnification shall extend for a period of one year after the
Effective Date.
Lessee shall give notice to Lessor within a reasonable time from discovery
by Lessee of any matters that may give rise to a claim for indemnification from
Lessor under this Agreement, and Lessee shall cooperate with Lessor in any
investigation by Lessee of such matters.
4.5 Indemnification by Lessee. Lessee shall and hereby agrees to indemnify
--------------------------
and hold Lessor harmless against and with respect to any damages as hereinafter
defined. Damages to Lessor as used herein, shall include any claim, action,
loss, cost, expense, liability, penalty or interest or damage, including without
limitation, reasonable attorneys' fees, and all costs and expenses of all
actions, suits, proceedings, demands, assessments, claims or judgements
resulting from, occurring in connection with, or arising out of:
a) Any inaccurate representation made by Lessee in this Agreement:
b) Breach of any of the warranties made by Lessee in this Agreement; and
c) Breach or default in performance by Lessee of any of the obligations
that are to be performed by it under this Agreement.
The above indemnification shall extend for a period of one year after
Effective Date.
Lessor shall give notice to Lessee within a reasonable time from discovery
by Lessor of any matters that may give rise to a claim for indemnification from
Lessee under the Agreement, and Lessor shall cooperate with Lessee in any
investigation by Lessee of such matters.
Page 3
<PAGE>
4.6 Assignment of Contracts. To the extent that the assignment of any
------------------------
contract, lease, license, commitment, sales order or purchase order to be
assigned to Lessee as part of the Leased Assets shall require the consent of any
other party, this Agreement shall not constitute an agreement to assign the same
if the attempted assignment would constitute a breach thereof. Lessee and Lessor
agree to use reasonable efforts to obtain each such consent to the assignment to
the Lessee and, failing to obtain such consent will cooperate with each other in
order to affect a reasonable arrangement for performance under any such assigned
contract.
4.7 Possession of Assets. Lessor agrees that on and after the Effective
---------------------
Date it will upon reasonable request take any and all steps reasonably required
to place Lessee in operating control of the Leased Assets to be transferred
hereunder and will execute, acknowledge or cause to be executed, acknowledged
and delivered all such further assignments, transfers and conveyances as may be
reasonably required by Lessee for transferring and confirming to Lessee the
Leased Assets.
4.8 Expense. Except as otherwise provided in this Agreement:
--------
(a) each party shall pay its own expense for the preparation and execution
of this Agreement and in connection with the transactions contemplated hereby;
(b) all transfers, sales, use or similar taxes levied on the transfer of
the Leased Assets hereunder and all filing fees with respect to the transactions
hereunder shall be paid by Lessor.
4.9 Access to Records After Closing Date. Lessor and Lessee agree that so
-------------------------------------
long as the books and records retained by Lessor relating directly to the Leased
Assets, or the books and records delivered to Lessee hereunder, remain in
existence and are available, each party shall have the right to inspect and, at
its expense, to make copies of same at any time during business hours for any
proper purpose. Lessee will not destroy, without first having offered in writing
to deliver to Lessor any of the books and records delivered to Lessee hereunder
for a period of two years following the Effective Date. Each party agrees that
it will make available to the other party, and to any
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<PAGE>
accountants or attorneys or tax agents authorized by such other party, at the
expense of the party requesting the same, any such records or information needed
in connection with any tax, accounting, litigation or similar matters.
4.10 Notices. Any notice, request, instruction or other documents to be
-------
given hereunder by either party hereto to the other shall be given in writing,
delivered personally or mailed by registered or certified mail, postage paid:
(a) If to Lessor, addressed to: Mr. Robert Couch
Collateral Mortgage, Ltd.
1900 Crestwood Boulevard
Birmingham, Al 35210
With a copy to: Lizabeth R. Nichols, Esquire
(b) If to Lessee, addressed to: Ms. Cheryl Stone
New South Federal Savings Bank
1900 Crestwood Boulevard
Birmingham, AL 35210
With a copy to: Lizabeth R. Nichols, Esquire
4.12 Counterparts and Headings. This Agreement may be executed in one or
-------------------------
more counterparts, each of which shall be deemed to be an original instrument,
but all of which together shall constitute but one instrument. Any headings used
in this Agreement are for convenience only, and only the text of this Agreement
shall be binding upon the parties.
4.13 Parties In Interest. This Agreement is made solely for the benefit of
-------------------
Lessee, and Lessor, and no other person, partnership, trust association or
corporation shall acquire or have any right under or by virtue of this
Agreement. This Agreement shall be binding on the parties hereto and their
respective successors and assigns.
4.14 Entire Agreement. This Agreement, including the Schedules hereto,
----------------
constitutes the entire agreement among the parties with respect to the subject
matter hereof and, except as otherwise specifically provided herein, supersedes
all prior agreements and understandings of the parties in connection therewith.
No covenant or condition not expressed in this Agreement shall affect or be
effective to interpret, change or restrict this Agreement. The
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<PAGE>
provisions of this Agreement may not be changed, modified or amended except in
writing duly executed by each party hereto.
4.15 Partial invalidity. If any term, provision, covenant or condition of
------------------
this Agreement is held by any court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the provisions hereof shall continue in
full force and effect.
4.16 No Waiver. Any of the terms and conditions of this Agreement may be
---------
waived at any time and from time to time, in writing, by whichever party hereto
is entitled to the benefit of such terms or conditions. The failure of a party
to insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon adherence to that term or any other.
4.17 Choice of Law. This Agreement shall be governed by and construed
-------------
according to the laws of the State of Alabama.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed this
Agreement.
Lessor - Collateral Mortgage, Ltd.
BY:
-------------------------------------------
Its:
-------------------------------------
Lessee - New South Federal Savings Bank
BY:
-------------------------------------------
Its:
-------------------------------------
<PAGE>
EXHIBIT 10.3
UNITED STATES LEAGUE OF SAVINGS INSTITUTIONS 8/85
(Illustrative Agreement)
WHOLE LOAN SALE AND SERVICING AGREEMENT
THIS SALE AND SERVICING AGREEMENT (the "Agreement") is made in the state of
ALABAMA between COLLATERAL MORTGAGE, LTD. (the "Seller") and NEW SOUTH FEDERAL
SAVINGS BANK (the "Buyer") for mutual considerations herein evidenced.
This Agreement governs the sale and transfer by the Seller to the Buyer of
mortgage loans ("loan" or "loans") secured by real estate, all as identified in
"Addendum A" attached to this Agreement, and the servicing and other incidents
thereof. Under this Agreement, from time to time the Seller may offer to sell
and the Buyer may agree to buy additional loans. Each loan sold hereunder shall
be subject to the warranties, representations and agreements made by the Seller
herein. Such warranties and representations are made for the benefit of the
Buyer and its successors and designees.
<PAGE>
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ARTICLE I
DEFINITIONS
Section 1.01. "Guaranteed Loan" means a loan that is guaranteed, including
a guarantee to repurchase, in whole or in part, or as to which a commitment to
guarantee has been made under the provisions, as time to time amended, of: (a)
the Servicemen's Readjustment Act of 1944, or Chapter 37 of Title 38, United
States Code; (b) Section 221 or 222 of the Foreign Assistance Act of 1961; (c)
the Small Business Act; and (d) the Rural Development Act of 1972.
Section 1.02. "Insured Loan" means a loan which is insured, in whole or in
part, or as to which a commitment for any such insurance has been made under the
provisions, as time to time amended, of the National Housing Act of 1934, or the
Servicemen's Readjustment Act of 1944, or Chapter 37 of Title 3B, United States
Code. Such term also means an education loan which is insured by the U.S.
Commissioner of Education under Part B of Title IV of the Higher Education Act
of 1965 ("Higher Education Act") as now or hereafter amended, or which is
insured by a state which has pledged its full faith and credit to such
insurance, or which is insured by a state, or nonprofit private institution or
organization with which the U.S. Commissioner of Education has a guaranty
agreement under Subsection (c) of Section 428 of the Higher Education Act.
<PAGE>
-3-
Section 1.03. "Insured Institution" includes a federal savings and loan
association, a savings bank, a building and loan, savings and loan, or homestead
association, or a cooperative bank, whose accounts are insured by the Federal
Savings and Loans Insurance Corporation ("FSLIC"), and a state or national bank
or a savings bank whose accounts are insured by the Federal Deposit Insurance
Corporation ("FDIC").
Section 1.04. "Loan" and "Loans" include mortgage loans, and security
deeds, trust deeds, and deeds of trust relating to mortgage loans.
Section 1.05. "Loans Debtor" and "Loan Debtors" mean mortgagors, trustors
of trust deeds and deeds of trust, and the grantors of any security deeds
relating to mortgage loans.
Section 1.06. "Servicer" means the Seller, or the person or firm
designated by Seller to be responsible for doing the actual servicing and
administration of the loans sold under this Agreement.
<PAGE>
-4-
ARTICLE II
GENERAL WARRANTIES AND REPRESENTATIONS
Section 2.01. Seller's Ownership of Loans Sold and Compliance with
Applicable Law. (a) Seller's Ownership. The Seller hereby represents and
warrants that it is the sole owner of each loan to be sold under this Agreement
and has the authority to sell, transfer, and assign such loans on the terms
herein set forth; and there has been no assignment, sale or hypothecation
thereof by Seller, except the usual hypothecation of the papers in connection
with Seller's normal banking transactions in the conduct of its business.
(b) Compliance with Applicable Law. The Seller further represents and
warrants that as to each loan sold, all appliance federal and state laws, rules
and regulations, as from time to time amended, have been complied with,
including but not by way of limitation: applicable usury limitations, the
applicable laws and regulations governing lending and the FSLIC insurance of
accounts, the Real Estate Settlement Procedures Act, the Equal Credit
Opportunity Act, the Flood Disaster Protection Act, the Trust-in-Landing Act of
1968, the Depositary Institutions Deregulation and Monetary Control Act of 1980,
the Garn-St Germain Depositary Institutions Act of 1982, and all applicable
regulations issued pursuant thereto; and that all conditions within the control
of Seller and Servicer as to the validity of the applicable insurance or
guaranty as required by the National Housing Act of 1934, as
<PAGE>
-5-
amended, and the rules and regulations thereunder, or as required by the
Servicemen's Readjustment Act of 1944, and the rules and regulations thereunder,
or by the mortgage insurance companies or other insurers, have been properly
satisfied, and said insurance or guaranty is valid and enforceable.
Section 2.02. Seller's Duties. (a) Perfection of Title, and Insurance
Maintenance. Seller agrees to do all acts necessary to perfect title to the
loans sold under this Agreement in Buyer; and to be responsible at no expense to
Buyer for seeing to it that at all times while this Agreement is in force,
policies of fidelity, fire, and extended coverage, theft, forgery, and errors
and omissions insurance are maintained, and shall furnish proof of such
insurance coverage upon demand by Buyer. Such policies shall be in reasonable
amounts satisfactory from time to time to Buyer and with acceptable standard
coverages indemnifying Buyer against loss satisfactory to Buyer; each hazard
insurance policy shall comply with the specifications as set forth in this
Agreement.
(b) Deliver of Documentation. Seller shall sell, assign, and deliver to
Buyer with respect to the purchase of each loan sold the following documents,
all subject to the approval of Buyer and its legal counsel as to proper form and
execution:
(1) Mortgage note properly endorsed by Seller in accordance with
applicable law and regulations, and if an FHA, or a private mortgage insurance
<PAGE>
-6-
company-insured mortgage, duly endorsed by the Federal Housing Commissioner or
the private mortgage insurance company, and if a VA mortgage, accompanied by
the Loan Guaranty Certificate;
(2) Mortgage, accompanied by those documents and instruments necessary to
record the perfect ownership thereof in Buyer, including separate assignments of
rents, if any;
(3) One or more written appraisal reports, prepared in conformity with
[Federal Home Loan Bank Board Memorandum R 41c] and signed, prior to the
approval of the loan debtor's application, by a person or persons duly appointed
and qualified as appraiser or appraisers by the Seller's board of directors and
who has no interest, direct or indirect, in the security property or any loan on
the security thereof and who does not receive compensation which is affected by
the approval or declining of the loan. Such appraisal shall disclose the market
value of the security offered by the loan debtor and contain sufficient
information and data concerning the appraised security property to substantiate
its market value. In the case of an insured loan or a guaranteed loan, a
certification of the valuation assigned to the real estate security by the
appraiser accepted by the insuring or guaranteeing agency and furnished to the
Seller by such agency;
(4) Mortgage title insurance policy, exceptions subject to approval of
Buyer's legal counsel, and proper assignment thereof, if required, in the event
a mortgage assignment is being placed on record;
(5) Survey of premises identifying the security property by address and
legal description, this being required only if the title policy contains an
<PAGE>
-7-
exception as to boundary and building line restrictions or as to anything else
that may be determined by a survey of the premises;
(6) If an FHA mortgage application, the commitment, amortization schedule,
notice of transfer and all required documents of a similar nature; if a VA
mortgage, all such required documents of a similar nature;
(7) Hazard insurance policies meeting the specifications as contained in
this Agreement;
(8) Statement showing unpaid principal balance on loan, amount of periodic
installments and date to which interest is paid;
(9) Certified copy of the Seller's resolution authorizing sale of the
loan;
(10) On a loan secured by a junior lien, documentation sufficient to
indicate that the total liens on the security property do not exceed applicable
loan-to-value ratio requirements;
(11) Records as required by the applicable FSLIC insurance regulations;
(12) Appropriate evidence indicating that the loan debtor has received the
disclosure materials as required by applicable law and regulations; and
(13) Seller-attorney's mortgage lien opinion, or paid-up title insurance
policy issued by a Seller and Servicer-approved title company in an amount at
least equal to the outstanding principal balance of the loan, or other
documentary evidence customarily used in the jurisdiction in which the security
property is located, affirming the quality and validity of Seller's lien
securing the loan, provided however certain documentary evidence that is not
required by applicable law, rules and regulations is excepted from the above
requirement.
<PAGE>
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(c) Reinspection of Security Property. Seller shall require Servicer to
reinspect the Security property on any loan sold hereunder which becomes sixty
(60) or more days delinquent.
Section 2.03. Other Warranties and Representations. (a) Warranties as to
Each Loan Sold. Seller represents and warrants as to each loan offered for sale
under this Agreement that:
(1) The applicable loan documents have been duly executed by the loan
debtor, acknowledged and recorded; and the loan is valid and complies with all
applicable lending laws and regulations;
(2) The loan debtor has duly executed appropriate evidence indicating that
the loan debtor has received the disclosure materials as required by applicable
law and regulations;
(3) The full original principal amount of the loan has been advanced to
the loan debtor, either by direct payment, or by payment made on the loan
debtor's request or approval; the unpaid principal balance is as stated; all
costs, fees and expenses incurred in making, closing and recording the loan have
been paid; no part of the security property has been released from the lien of
the loan; the terms of the loan have in no way been changed or modified; and the
loan is current and not in default;
(4) Each loan which Seller represents to be insured by a private mortgage
insurance company, or to be insured or guaranteed as defined in ARTICLE I of
this Agreement, is so insured or guaranteed;
<PAGE>
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(5) There is in force a paid-up title insurance policy on the loan or
other documentary evidence affirming the quality and validity of Seller's lien
securing the loan, meeting the specifications of ARTICLE II, Section 2.02(b)(13)
of this Agreement;
(6) The assignment, if any, of the loan from the Seller to Buyer is valid
and sufficient;
(7) All documents submitted are genuine, and all other representations as
to each loan sold are true and correct and meet the requirements and
specifications of all parts of this Agreement; and
(8) There is in force such flood insurance policy as is required under the
Flood Disaster Protection Act of 1973, as amended, and implementing and other
regulations; and
(9) The improvements on the premises securing each loan are kept insured
by hazard insurance policies issued by a company acceptable to Buyer: (1) in an
amount at least equal to the outstanding principal of the loan, or the full
insurable value of the improvements, whichever is less, (ii) of a type
substantially in the form of and at least as protective as the fire and extended
coverage contained in the "New York" loss mortgage clause (also known as
"standard" or "union" loss mortgage clause) which provides that the Seller's
hazard insurance is not invalidated by acts of the loan debtor, and (iii)
containing suitable provisions for payment on all present and future loans on
the security property in order of precedence.
(b) Without Recourse Statement. Seller further represents and warrants
that there is in its possession a signed opinion by its attorney seating whether
the terms of this Agreement provide a sale without recourse.
<PAGE>
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ARTICLE III
ADMINISTRATION AND SERVICING OF THE LOAN
Section 3.01. Identification of Servicer. The Servicer of the loan or
loans sold pursuant to this Agreement is COLLATERAL MORTGAGE, LTD. Seller agrees
that Servicer will not be changed without Buyer's consent, and in the event of
any such change, Seller's warranties herein as to the servicing of loans shall
continue in effect.
Section 3.02. Servicer's and Loan Debtor's Compliance with Law. The Seller
hereby represents and warrants that Servicer will comply with, and that Servicer
will use its best efforts to cause each loan debtor to comply with, all
applicable state and federal laws, rules and regulations, or requirements of the
private mortgage insurance companies, including those requiring the giving of
notices. Where applicable, Seller warrants that Servicer will comply with: (a)
the National Housing Act of 1934, as from time to time amended, or with the
Servicemen's Readjustment Act of 1944, as amended, and with all applicable rules
and regulations issued thereunder, and (b) the requirements of private mortgage
insurance companies, including the giving of all notices and the submitting of
all claims required to be given or submitted to the Federal Housing
Administration, the Veterans Administration, or to the private mortgage
insurance company to the end that the full benefit of either the Federal Housing
Administration insurance, the guaranty of the United
<PAGE>
-11-
States of America, or the private mortgage insurance will inure to Buyer. Seller
warrants that Servicer will forward copies of all such notices or claims to
Buyer if requested by Buyer.
Section 3.03. Collection, Remittance and Accounting Warranties. Until the
principal and interest of each loan sold hereunder is paid in full, Seller
warrants that Servicer shall:
(a) Proceed diligently to collect all payments due under the terms of each
loan as they become due;
(b) Keep a complete, accurate and separate account of and properly apply
all sums collected by it from the loan debtor on account of each loan sold
hereunder for: principal and interest, taxes, assessments and other public
charges, hazard insurance premiums and FHA insurance or mortgage insurance
premiums. Upon request, furnish Buyer with evidence acceptable to Buyer of all
expenditures for taxes, assessments and other public charges, hazard insurance
premiums and FHA insurance or mortgage insurance premiums;
(c) Deposit all funds received in behalf of the loans sold under this
Agreement in a segregated trust or custodial demand deposit account in an
insured institution designated by Buyer. Such account shall be held by the
Servicer as trustee or custodian which shall maintain detailed records to show
the respective interests of each individual loan debtor in the account. Each
such account shall be established and maintained in a manner which complies with
the applicable rules and regulations of the FDIC or FSLIC;
<PAGE>
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(d) From the funds so deposited: (1) pay promptly to the proper parties
when and if due FHA insurance premiums, mortgage insurance premiums, taxes,
special assessments, ground rents, and premiums on hazard insurance policies,
and (2) on or before the 10th of each month deliver to Buyer all amounts of
principal and interest collected under the loan and in the event that such
collected funds are not received by Buyer on such date, Seller shall be subject
to a late charge of 4% of the amount of such collected funds not received and
such charge shall be payable on demand by Buyer; and
(e) Submit to Buyer at least annually an accounting of the balances in
each trust or custodial account, together with a certificate that all
disbursements were made for proper purposes, and that all payments required to
be made hereunder have been made, with exceptions, if any.
Section 3.04. Loan and Other Prepayments. Seller warrants that Servicer
will not accept any prepayment of mortgage principal on any loan sold hereunder
except as authorized by applicable law and regulations, and provided by the
terms of the applicable mortgage instrument. In the event that a total
prepayment is made on any loan sold hereunder, the Seller warrants that Servicer
will segregate and deliver within 10 working days thereof to Buyer the amount of
principal prepaid and collected,and the maximum amount of prepayment penalty
authorized and collected under the terms of the applicable mortgage instrument
and in accordance with applicable law, rules and regulations as from time to
time amended. If Buyer does not receive within the period specified above such
collected prepayment and any prepayment
<PAGE>
-13-
penalty, Seller shall be subject to a late charge of 1% of such prepayment and
any prepayment penalty not received; and such late charge shall be payable on
demand by Buyer. Funds received on the account of the loan debtor for the
purpose of paying taxes, assessments, insurance premiums, or other similar
purpose will be retained and disbursed by the Servicer.
Section 3.05. Loan Debtor's Failure to Perform. Seller warrants that in the
event any loan debtor fails to make a payment to said Servicer required to be
made under the terms of the applicable loan that Servicer will notify Buyer of
such fact within thirty (30) days after the payment shall have become due and
payable; and Servicer will use due diligence to ascertain, and forthwith will
notify Buyer of the failure of any loan debtor to perform any other obligation
under the applicable loan, and also of any of the following which might come to
the attention of the Servicer:
(a) The vacating of or any change in the occupancy of any premises
securing a loan sold under this Agreement;
(b) The sale or transfer of any such premises;
(c) The death, bankruptcy, insolvency or other disability of any loan
debtor which might impair ability to repay the loan;
(d) Any loss or damage to any such premises, in which event, in addition
to notifying Buyer, Seller shall see to it that the insurance companies
concerned are promptly notified by Servicer; and
(e) Any lack of repair or any other deterioration or waste suffered or
committed in respect to the premises securing the loan.
<PAGE>
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It is understood, however, that no notice need be given to the Buyer of any
facts other than those of which Seller or Servicer shall have actual notice, and
those of which Servicer would, except for its negligence, have had notice.
Section 3.06. Foreclosure or Other Acquisition of Security Property. Seller
warrants that Servicer will upon the request and under the direction of Buyer
assist in: (a) the foreclosure or other acquisition of the property securing a
loan sold hereunder, (b) the transfer of such property to the FHA or VA where
appropriate, and (c) the collection of any applicable mortgage insurance; and
pending completion of these steps, protect such property from waste and
vandalism. At the option of Buyer, Buyer may assign such mortgage to the
Servicer which will then conduct all such proceedings in its own name, promptly
thereafter assigning or conveying to the Buyer any title, equity, or other
property or right acquired by such proceedings. Seller warrants that Servicer
will have title to the property conveyed in the name designated by Buyer. Buyer
agrees to reimburse Servicer for its reasonable out-of-pocket expenses so
incurred under this section, including attorney's fees. In the case of voluntary
deed in lieu of foreclosure, and purchase by Buyer, or for its account. Seller
warrants that Servicer will protect the security property while so owned. Seller
warrants that Servicer will manage, operate, improve, rent and sell such real
estate. All these operations shall be on terms and as determined and directed by
Buyer from time to time. Upon the sale of such security property, on terms as
specified by Buyer, if payments are deferred
<PAGE>
-15-
and payable under a loan contract. Seller warrants that Servicer will service
such loan until completely liquidated, upon the terms provided for the
servicing of loans herein.
Section 3.07. Custody of Insurance Policies. Seller warrants that Servicer
shall hold for Buyer's account such insurance policies and renewals, as required
by this Agreement, and if directed by Buyer, to deliver such policies to Buyer.
Section 3.08. Servicer's Furnishing of Financial Condition Statement. Upon
Buyer's request, Seller warrants that Servicer shall furnish a detailed
statement of its financial condition, and shall give to the Buyer or its
authorized representative an opportunity at any time during normal business
hours to examine Servicer's books and records. Seller warrants that Servicer
shall cause a certified public accountant employed by it to provide Buyer, not
later than ninety (90) days after the close of Servicer's fiscal year, with a
certified statement of Servicer's financial condition as of the close of its
fiscal year.
Section 3.09. Records Maintenance. Seller warrants that Servicer will keep
records satisfactory to Buyer pertaining to each loan sold hereunder, and
<PAGE>
-16-
such records shall be the property of Buyer and upon termination of this
Agreement shall be delivered to Buyer.
Section 3.10. Other Servicer Duties. Until the principal and interest of
each loan sold hereunder is paid in full, Seller warrants that Servicer shall
perform such other customary duties, furnish such reports and execute such other
documents in connection with its duties hereunder as Buyer from time to time
reasonably may require.
Section 3.11. Servicer's Fees. Servicer shall retain as full compensation
for all services performed hereunder the earned portion of the servicing fee as
agree to by Buyer in the applicable commitment to purchase a specific loan or a
block of loans. The Servicer also shall retain any late charges collected from
the loan debtor pursuant to the terms of the loan, or any other HUD or VA
allowable fees. Generally, such compensation shall be earned, computed and
payable as of the time interest in each individual loan is paid to Buyer,
except that compensation represented by late charges, if any, shall be earned
and computed only upon loans on which payment of interest actually occurs. No
additional compensation shall be payable to Servicer provided that: (a) in the
event of the termination of this Agreement pursuant to ARTICLE V, Section
5.01(d) of this Agreement, Servicer may receive such additional compensation as
is evidenced by cash commitment to purchase made by the Buyer; (b) the
compensation of Servicer for work done under ARTICLE III.
<PAGE>
-17-
Section 3.06 of this Agreement shall be the customary compensation in its market
for such services; and (c) in the event Buyer sells all or any part of its
interest in the loans covered by this Agreement to a third party or parties,
including the sale of participation ownership interests therein (whether such
resales are by Buyer or Buyer's successors or assignees), then an additional
service fee of 1/12 of 1/10 of 1% per month shall be payable by each such
subsequent buyer thereof, and such fee shall be deducted from each monthly
remittance to each such subsequent buyer.
Section 3.12. Other Warranties and representations. Seller warrants their
Servicer will not waive, modify, release or consent to postponement on the part
of the loan debtor of any term or provision of the loan contract without the
written consent of Buyer.
ARTICLE IV
SALE OF LOAN OR PARTICIPATION INTERESTS TO THIRD PARTIES
In the event Buyer sells all or any part of its interests in loans covered
by this Agreement to a third party or parties, including the sale of
participation ownership interests therein, such third parties shall succeed to
all of the rights of Buyer hereunder for the portion purchased and this
Agreement shall remain in full force and effect. In such event, Seller
<PAGE>
-18-
warrants that Servicer will remit all principal and interest installments
collected under the loans directly to such third party or parties by or before
the 10th of each month, after deduction of the service fee as provided in this
Agreement. The obligation to make direct remittances and to execute and deliver
all appropriate notices required by this Agreement to such third party or
parties shall arise upon thirty-days' (30) written notice of such assignment
delivered by such subsequent buyers to Servicer.
ARTICLE V
TERMINATION OF THIS AGREEMENT
Section 5.01. Loans Being Serviced. The Buyer may, by delivering notice
to Seller, terminate this Agreement as to loans being serviced if:
(a) Seller, in the sole opinion of the Buyer, fails to perform its
obligations hereunder;
(b) Seller or Servicer becomes insolvent or bankrupt or is placed under
conservatorship or receivership;
(c) Seller assigns or attempts to assign its rights and obligations
hereunder, without written consent of Buyer; and
(d) In any event and without cause, upon delivering thirty-days' (30)
written notice and payment to Seller of a sum equal to 1% of the aggregate
principal amounts then outstanding of all the loans subject to this Agreement.
<PAGE>
-19-
Section 5.02. Future Acceptance of Loans. This Agreement may be
terminated as to the future acceptance of loans by either party at any time upon
delivering thirty-days' (30) written notice of termination to the other party,
but such termination shall not in any respect change or modify the obligation of
Seller with respect to the servicing of loans already accepted, and Seller shall
continue to be responsible for the servicing of such loans unless Buyer shall
set to terminate this Agreement in accordance with the provisions contained
herein.
Section 5.03. Seller's Duties. Upon termination of this Agreement, Seller
warrants that Servicer will account for and turn over to Buyer all funds
collected under each loan sold hereunder, less only the compensation then due
Servicer, and deliver to Buyer all records and documents that it may have in its
possession relating to each such loan.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.01. Repurchase of Loans. Seller, upon Buyer's request, agrees
to repurchase any loan covered by this Agreement within 18 months after date of
Buyer's remittance if any misstatement of material fact, intentional or
otherwise, is disclosed by actual inspection by Buyer or its representative, or
otherwise, for an amount equal to such loan's then unpaid
<PAGE>
-20-
principal, plus accrued interest and costs incurred by Buyer for action taken,
but this provision shall not apply to FHA-insured or VA-guaranteed mortgages.
This provision shall also not apply to private mortgage insurance
company-insured loans, unless any claim hereunder is denied by the insurance
company because of any such misstatement of material fact. In the case of
insured or guaranteed loan, if the FHA insurance, the VA guaranty, or the
insurance of a private mortgage insurance company with respect to any of the
loans sold hereunder lapses as a result of Seller's or Servicer's act or
omission, Seller upon Buyer's request shall promptly repurchase such loans. Such
repurchase shall be for an amount equal to such loan's then unpaid principal,
plus accrued interest and costs incurred by Buyer for action taken.
Section 6.02. "Doing Business" Registration and Fees. On the request of
Buyer, Seller shall arrange for appropriate registration and payment of any fee
which might be required under the laws of the state where the security property
its located, in connection with doing business by Buyer in such state. Seller's
cost is to be reimbursed by Buyer upon submission of a statement.
Section 6.03. Appointment of Trustee. It is agreed by Buyer and Seller that
the appointment of any trustees under any trust deeds or deeds of trust shall be
subject to the approval of Buyer.
<PAGE>
-21-
Section 6.04. Effect of ARTICLE and Section Headings. The ARTICLE and
Section headings herein are for convenience only and shall not affect the
construction of this Agreement.
Section 6.05. Document Contains Entire Agreement. This document contains
the entire agreement between the parties hereto and cannot be modified in any
respect except by an agreement in writing. The invalidity of any portion of this
Agreement shall in no way affect the balance thereof. This Agreement shall
remain in effect until Buyer's interests in all of the loans sold hereunder,
including the underlying security, are liquidated completely.
Section 6.06. (See back)
IN WITNESS HEREOF, each party has caused its corporate seal to be affixed hereto
and this instrument to be signed in its corporate name on its behalf by its
proper officials duly authorized.
This 31st day of December, 1986.
COLLATERAL MORTGAGE, LTD., SELLER
--------------------------
BY Charles Wall
------------------------------
VICE PRESIDENT
/s/ Darlene Moore
------------------------------
SECRETARY
<PAGE>
-22-
NEW SOUTH FEDERAL SAVINGS BANK, BUYER
------------------------------
BY William Stigler
----------------------------
EXECUTIVE VICE PRESIDENT
Sharon S. Cooke
----------------------------
ASSISTANT SECRETARY
Section 6.06. Loans Previously Serviced by Collateral Investment Company It
is hereby acknowledged and accepted that the servicing of all whole loans
previously serviced by Collateral Investment Company for the benefit of New
South Federal Savings Bank is hereby transferred to Collateral Mortgage, Ltd.
and the servicing of those loans by Collateral Mortgage, Ltd. for New South
Federal Savings Bank shall be performed under the terms of this Agreement. The
servicing fee on said loans shall be a rate of 3/8's of 1% per annum payable in
accordance with Section 3.11.
<PAGE>
(Illustrative Loan Identification Schedule)
ADDENDUM A Page _______of ________ Pages
LOAN IDENTIFICATION SCHEDULE
Name of Seller _______________________ Date of Schedule __________
Name of Mortgagee, Total Number of
if not Seller _______________________ Loans on All Pages _______
Name of Servicer,
if not Seller _______________________
Type of Loans: [_] Adjustable 1st Mortgage Indicate, if applicable:
[_] Adjustable Junior Mortgage [_] FHA
[_] Fixed-Rate 1st Mortgage [_] VA
[_] Fixed-Rate Junior Mortgage [_] Private Insurance
<TABLE>
<CAPTION>
=======================================================================================
Seller's Date of Date of Mortgage Recordation Servicing
Loan No. Name of Loan Debtor Mortgage Recordation Document No. Fee Basis
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 10.4
LOAN/MORTGAGE-SECURITIES MASTER PARTICIPATION AGREEMENT
I.
THIS AGREEMENT is made in the State of Alabama between COLLATERAL MORTGAGE,
LTD., herein called the "Seller," and NEW SOUTH FEDERAL SAVINGS BANK, herein
called the "Buyer," for mutual considerations herein evidenced.
II.
This Agreement, under which the Seller hereby agrees to sell and Buyer
hereby agrees to buy from Seller an undivided participating ownership of the
loans and mortgage-backed securities hereinafter and from time to time called
"loans," identified in the Participation Certificate issued pursuant hereto from
time to time in the form attached hereto as "Exhibit A," the percentage of the
principal amount of loans sold, the identification of the loans, the price, and
the interest to be paid to the Buyer all as stated in the Participation
Certificates, shall govern the sale and transfer by Seller to Buyer of such
participating interests in such loans, and the Seller's responsibilities for
servicing and other incidents of the resulting participation ownerships thereof,
and the representations and warranties made by Seller herein are made for the
benefit of the Buyer and are intended to be binding upon Seller whether or not
it services the loans itself.
III.
Seller hereby represents and warrants that all loans described by any
Participation Certificate issued under this Agreement are owned by it, having
been made or acquired by it pursuant to and consistent with applicable law and
regulations including, but not by way of limitation, the Truth-in-Lending Act of
1968 and the regulations issued pursuant thereto; that Seller is authorized to
sell such participation interests; that such participating interests are
eligible under this Agreement for purchase; that Seller has in its possession
all instruments representing each such loan, and it agrees upon request, to
deliver a copy of same to Buyer. Seller further represents and warrants that
each loan is current as to scheduled periodic payments; that no such loan is
pledged as collateral for any loan or other purpose in excess of any
participation interest being retained by Seller; and that all representations as
to each such loan are true and correct, including the amount due, as of the date
of such Participation Certificate. Notwithstanding any provision contained in
the Agreement, however, it is agreed that the sale by Seller to Buyer of a
participating interest in any loan pursuant to this Agreement shall be without
recourse.
1
<PAGE>
IV.
Buyer represents that each such participation interest acquired shall be
acquired for its own account and not with a view to the distribution thereof.
Participation interests in loans subject to this Agreement shall be transferable
only upon the books and records of the Seller, or its designee, and no
participation interest in any loan subject to this Agreement shall be sold in an
amount which represents less than 10% interest in the outstanding balance of
such loan. After each sale and transfer of a participating interest in a loan
pursuant to this Agreement, the interest owned by Buyer, any retained interest
owned by Seller, and any other participating interest in the same loan shall be
ratably concurrent and none shall have any priority over the other and Seller,
thereafter, will continue to hold legal title to such loan as trustee for the
owner or owners of the respective participation interest therein. It is further
agreed that Seller, as trustee, shall not assign its responsibilities under this
Agreement nor transfer legal title to such loans except in accordance with
Clause XV hereof.
V.
Seller agrees to be responsible for seeing to it that all of the
appropriate notices and all other acts necessary to perfect title in Buyer as to
the ownership of the respective participation interest in said loans are given
or done and for preserving all rights in said loans and administering them in
all respects consistent with law and regulations and that the same are serviced
in a manner consistent with good practices and shall be responsible for
reporting and remitting to Buyer on or before the 10th of each month interest on
the daily outstanding balance of Buyer's investment for the previous month at an
interest rate of 8.50% per annum. Seller shall also remit to the Buyer within
10 days of receipt, Sellers prorata share of any prepayment in full of a loan
participation sold under this Agreement. Seller is obligated to pay said
interest to Buyer regardless of whether interest has been collected by Seller on
the underlying loan(s). The interest rate due to the Buyer under this Agreement
may be changed at any time and from time to time at the option of the Buyer,
upon 15 days written notice by the Buyer to the Seller. Any such change shall
not be retroactive. Principal collections shall be reconciled annually as of
June 30th of each year. On or prior to August 1 of each year, Seller shall pay
to Buyer an amount sufficient to reduce Buyer's investment to a maximum of 90%
of the aggregate unpaid principal balance of all loans under this
2
<PAGE>
Agreement as of the reconciliation date. Buyer's participation amount is never
to exceed 100% of the aggregate principal balance of the underlying loans.
Should this ever occur, Seller will immediately remit to Buyer funds sufficient
to reduce Buyer's investment to a level below 100% of such aggregate principal
balance. Seller shall have the option (but not the obligation) to repurchase
any and all loans on which participations have been sold under this Agreement at
any time and for whatever reason. Any such repurchase shall be for the
outstanding participation balance. Seller is to receive for its fee, including
interest on any participation interest it retains in said loans and fees for the
servicing of said loans, the remainder of the interest not payable to the Buyer,
plus any default or late charges, prepayment charges and other amounts payable
by the Borrowers, provided that if less than the entire participation interest
represented by the attached Participation Certificate is resold, or if all such
interest is resold to more than one buyer, then an additional service fee of
Twenty Dollars ($20.00) per month shall be payable by each such subsequent buyer
thereof, and such fees shall be deducted by Seller from each monthly remittance
to each subsequent buyer. In the event of default in the payment of principal
or interest by a loan debtor on any loan hereunder, then as to such loan,
remittances of principal or interest to participation owners hereunder required
by this Agreement shall still be required. In the event of such default,
Seller, at its option, but without obligation to do so, may repurchase each
outstanding participation interest hereunder in such loan from each owner
thereof on the basis of said owner's pro rata share of the then outstanding
balance.
VI.
In the event of the inability of the Seller to collect any of said loans
after exercising reasonable efforts to do so, Seller shall be responsible for
giving prompt notice to all participation owners hereunder. All participation
owners hereunder shall share ratably in the income and expense incurred pursuant
to this clause, including all attorneys' fees and other similar expenses, and
Buyer agrees to pay promptly its portion of any such expenses deemed by the
Seller to be appropriate and any subsequent buyers of any participation
interest represented by the attached Participation Certificate shall also be
subject to this requirement. Such amounts which are proper to be capitalized
shall be allocated to and be treated as part of the specific mortgages or
properties affected.
3
<PAGE>
VII.
Seller represents that in undertaking responsibility for performance of
the services specified herein as being the responsibility of the Seller, it will
exercise the same degree of care that Seller exercises with respect to the
servicing and administration of loans for Seller's own account.
Seller shall be responsible for performing all regular functions
normally considered to be a proper incident to servicing loans sold in the
secondary mortgage market including, but not limited to, the reporting of
interest paid on the underlying loans according to Federal laws and regulations.
VIII.
It is agreed that Seller and Buyer are not partners or joint venturers,
and that Seller is not to act as agent for the Buyer, but is to act in all
matters hereunder for the Buyer as an independent contractor, but also as a
trustee with fiduciary duties to administer the loans hereunder. It is agreed
that Seller has the exclusive right to decide how such loans shall be serviced
and what to do and how to do it, when to accelerate the entire balance due on
any loan for any reason permissible.
IX.
Seller, as trustee, shall be responsible for maintaining or requiring
the maintenance of a complete set of books and records as to all such loans in
which Buyer has acquired a participation interest under the terms of this
Agreement, including but not limited to, a record of each receipt and each
disbursement, and in addition to being responsible for seeing to it that the
customary monthly reports and remittances are furnished each owner of a
participation interest hereunder, the Seller shall cause to be made any
reasonable special report requested by any such owner. It is agreed that Seller
shall hold in trust the loan instruments, and the buyer shall have the right at
any reasonable time during normal business hours to examine any and all books,
records and documents relating to any loan in which it has a participating
interest or relating to any of the matters covered by this Agreement.
X.
While Seller acknowledges that the interest on its participation shall
be the amounts provided for under the terms of this Participation Agreement and
that, in addition, it has agreed to be responsible for servicing the loans for
such consideration. Nevertheless, it is agreed that any necessary extraordinary
services
4
<PAGE>
which may be proper under this Agreement shall be contracted or done by Seller
at its customary cost for such services, provided such cost is reasonable, and
that Seller shall be responsible for the prompt billing of each participation
owner hereunder for its pro rata share of such expense and such owner shall be
required to pay promptly its pro rata share of such extraordinary expenses
incurred and billed under this Agreement.
XI.
It is agreed that Seller, at its discretion, either directly or through
a servicer, may make additional voluntary advances on loans in good standing for
any purpose pursuant to optional future advance clauses in such loans, and that
before the making of any such advance, Seller will offer to negotiate with Buyer
regarding the terms of Buyer's participation in the transaction, including the
interest to be paid to Buyer with respect to such additional amount advanced and
the interest to be received thereon by Buyer, and if no agreement is reached
within ten (10) days of Seller's offer to negotiate regarding the terms of the
transaction, including the rate to be paid to the Buyer of any such additional
advances, Seller may nevertheless make such advance and Buyer need not
participate therein. In the case of every advance, a notation shall be made in
the books and records required under Clause IX identifying and describing each
advance and Buyer's participation or nonparticipation therein, and a copy
thereof promptly shall be furnished to Buyer.
XII.
Pursuant to negotiations, Seller will submit from time to time, at its
option, participating interests with the Buyer, and supply Buyer with any
information requested with respect to same. When the parties come to an
agreement, a Participation Certificate in the form attached hereto as Exhibit A
shall be completely filled out and executed by both parties and delivered, and
Buyer shall thereupon furnish its check for its participating ownership in the
principal amount, as shown by such Participation Certificate.
XIII.
If, from time to time, any of said loans are endorsed, guaranteed,
insured or the obligations thereunder are further secured by other collateral,
then it is agreed that Seller will and the Seller is authorized to act for the
participants with respect to such matters in the interest of the participants,
as their interest may appear, provided that in the event any of said loans are
insured or guaranteed by a governmental agency, the Seller will be the mortgagee
of record in relation to
5
<PAGE>
the contract of insurance or guaranty, and the insuror or guarantor shall have
no obligation to recognize or deal with any other party except the approved
mortgagee of record with respect to the rights, benefits and obligations of the
mortgagee under the contract of insurance or guaranty. Seller is authorized to
release collateral security other than the real property described in the
security instrument, to agree to substitution of personal liability, and to
release persons secondarily liable.
Seller shall have the right, but not the obligation to issue
mortgage-backed securities of any type secured by whole loan participations sold
to Seller under this Agreement. In the event of such securitization, Seller, at
time of issuance of the respective securities shall either repurchase the
outstanding participation interests or substitute a like participation interest
in the mortgage-backed security issued. The choice of whether to repurchase or
substitute shall be the option of the Seller.
XIV.
It is understood and agreed that either the Seller or Buyer may,
without consent of the other, pledge, hypothecate, or transfer its respective
ownership interests in loans participations sold under this Agreement to any
lender, including specifically the Federal Home Loan Bank, for the purpose of
securing financing or advances to it. This clause, however, shall not be
constructed in derogation of the right and authority granted Seller under
Clauses VI and VIII hereof to satisfy the whole of such loan, or to execute
releases under appropriate circumstances, and if required, Buyer will join
therein. In the event, however, of the insolvency or bankruptcy of Seller, or an
assignment for the benefit of creditors, or the appointment of any public
authority of any person in charge of it or its assets, or in the event of the
involuntary sale of said loans or advances, it is agreed that the person having
the greatest ownership in the loans as reflected on Seller's books and records
shall automatically succeed to all rights and responsibilities which Seller may
have regarding the servicing of said loans and advances, and have an option to
exercise all of the powers hereinabove granted to Seller, and have the option to
designate any person or firm, at its discretion, to exercise such powers in a
manner consistent with the respective participation interests of all owners
hereunder as such interest may appear, and if no one person has a greater
participation interest in said loans than any other person, then such successor
shall be such owner of a participation interest in the loans as may be
designated by
6
<PAGE>
agreement of the persons whose aggregate participation interests in said loans
exceed 50%, or in the event no such agreement is reached within thirty (30) days
from the date of any of the above-described causes of Seller's incapacity, then
the participation owner designated by the Federal Home Loan Bank of the District
in which the Seller is located shall succeed to all such servicing rights and
responsibilities. In such event, said loans and advances and all records thereof
shall be delivered to the successor of the Seller or its designee, as the case
may be, consistent with necessary or proper assignments, transfer and documents
of authority. The pro rata shares of each party in interest, including Seller,
shall be paid to each party or its legal representative entitled to receive any
party's share as hereinabove provided in Clause V.
XV.
With reference to Buyer's purchase of any loans or participation interests
in such loans, this is to certify that on the closing of these loans, Seller
properly and fully complied with all disclosures required by Regulation Z and
the Federal Truth-in-Lending Act and the Equal Credit Opportunity Act, as and if
applicable.
Seller further hereby agrees to indemnify Buyer and hold it harmless from
any loss or expense which it might sustain, including but not limited to
attorneys' fees and all other costs of defending or settling any lawsuits
resulting from failure on the part of the Seller, or on the part of any
attorney, or other persons representing Seller, to comply properly with the
requirements of Regulation Z, Federal Truth-in-Lending Act, and the Equal Credit
Opportunity Act.
XVI.
Transactions conducted under this Agreement may be treated by the Buyer as
purchases of participations in a pool(s) of loans with documentation
requirements in accordance with Section 571.13 of the Rules and Regulations for
FSLIC - Insured Institutions. Seller has the right to reflect transactions
conducted under this Agreement on its financial records in any fashion so long
as none of the terms of this Agreement are violated.
Seller agrees to provide the following documentation, warranties, reports
and access with regard to any and all participations in loans and
mortgage-backed securities purchased by the Buyer under this Agreement:
(1) Access to all loan documentation is to be provided by the Seller under
request and without charge to the Federal Home Loan Bank Board, the Federal
Savings and Loan Insurance Corporation, or their examiners or Supervisory
7
<PAGE>
Agents, and upon request and subject only to reasonable charges incurred in
providing such access for Buyer and any other FSLIC insured institution
investing in the loan(s);
(2) The Seller hereby warrants as to each loan to or for the benefit of the
Buyer and any other FSLIC insured institution investing in the loan(s) that
as of the date participation interests in the loan(s) are first issued:
(i) No loan is 30 or more days delinquent;
(ii) Each loan meets the requirements for investment by the Buyer and
any other FSLIC insured institution;
(iii) There are no delinquent tax or assessment liens or mechanics'
liens on any collateral for the loans and the collateral is free
of substantial damage and in good repair, and
(iv) Each loan complies with all applicable state and Federal laws;
and
(3) The Seller agrees, upon request, to provide Buyer and any other FSLIC
insured institution investing in the loan(s) a monthly report of loan
delinquencies separately indicating the number and aggregate principal
amount of loan(s) delinquent one month and two or more months, the book
value of any collateral acquired through foreclosure, deed in lieu of
foreclosure or other exercise of its security interest in the collateral,
and the aggregate dollar amount of loan(s), if any, described in Paragraph
561.15(d) of Subchapter D, Title 12, CFR.
XVII.
In the event of default by the Seller in any of the terms of this
Agreement, Buyer shall have all rights under law including, but not limited to,
collection of reasonable attorneys fees and the right to cancel this Agreement
or to succeed to the rights of the Seller as outlined in Section XIV as if an
insolvency of the Seller had occurred.
XVIII.
This Agreement shall be governed under the law of Alabama.
XIX.
This document contains the entire Agreement between the parties hereto and
cannot be modified in any respect except by an agreement in writing. The
invalidity of any portion of this Agreement shall in no way affect the balance
thereof. This Agreement shall remain in effect until the loans referred to are
liquidated completely.
8
<PAGE>
IN WITNESS WHEREOF, each party has caused its seal to be affixed hereto and
this instrument to be signed in its name on its behalf by its proper officials
duly authorized on this the 30th day of March, 1988.
COLLATERAL MORTGAGE, LTD.
By /s/ Charles W. Wall
---------------------------------
Charles W. Wall
Its Vice President
NEW SOUTH FEDERAL SAVINGS BANK
By /s/ William S. Stigler
---------------------------------
William S. Stigler
Its Executive Vice President
9
<PAGE>
EXHIBIT 10.5
COMMERCIAL LEASE
THIS INDENTURE made this 20TH day of April, 1993 between COLLATERAL
MORTGAGE, LTD., Lessor and NEW SOUTH FEDERAL SAVINGS BANK, CONSUMER LOAN
SERVICING Lessee;
WITNESSETH
That the Lessor, for and in consideration of the covenants and agreements
hereinafter contained to be kept and performed by the Lessee, has leased and
demised and does hereby lease and demise to the Lessee the following described
premises with the appurtenances in the City of Irondale, Alabama.
OFFICE SPACE IN THE BUILDING LOCATED AT 2000 CRESTWOOD BOULEVARD,
IRONDALE, ALABAMA.
Lessor acknowledges receipt of a security deposit of $ -0-, to secure
Lessee's obligations hereunder. Should Lessee perform as agreed, the security
deposit shall be refunded at the termination of the lease term after the
premises are vacated.
The Lessee agrees to pay each month as rent for the demised premises to
the Lessor or its duly authorized agent at the office of the agent the sum of
Nineteen Hundred Fifty Four and 17/100 ($1,954.17) Dollars per month, beginning
April 1, 1993 and ending March 31, 1994, which sum shall be payable in advance
on the first day of each month during the rental period under this lease, or
sooner if accelerated under any subsequent provisions hereof. Lessee agrees that
a service and bookkeeping charge of $97.71 shall become due and payable each and
every month that the rent has not been received in the office of the Lessor or
its agent by the 10th of the month.
The rental period herein agreed upon, which is the term for which rent
shall be paid as above stipulated, is 1 year, beginning April 1, 1993, and
ending March 31, 1994 and from year to year thereafter, provided, however, that
either the Lessor or the Lessee may terminate this lease on the 31st day of
March, 1994 or on the 31st day of March of any year thereafter by either party
giving the other party at least sixty (60) days written notice before the 1st
day of April of the year in which it is desired to terminate the lease of its
intention to so terminate. Should premises be completed and turned over to
Lessee either prior to, or after April 1, 1993 then in that event rent for such
factional month shall be prorated, and this lease term shall commence on the
first day of the next calendar month. All notices herein provided for shall be
delivered by hand or sent by mail, if by the Lessor to the Lessee at the demised
premises, and if by the Lessee to the Lessor at the office of the Lessor's
agent.
The parties hereto further agree that:
1. USE OF PREMISES.
The demised premises are to be used by the Lessee for general office
purposes in connection with its business and for no other purpose.
2. DEFAULT OF LESSEE.
If, after ten (10) days' written notice from the Lessor to the Lessee,
default shall continue in payment of rent or if after thirty days' written
notice from the Lessor to the Lessee default shall continue in any of the other
covenants and agreements herein contained to be kept by the Lessee, its
successors and assigns, it shall be lawful for the said Lessor to declare said
term ended and to re-enter into the said premises, or any part thereof, either
with or without process of law and to expel, remove and put out the said lessee
or any other person or persons occupying, in or upon the same.
3. ASSIGNMENT OR SUBLETTING.
The Lessee will not allow said premises to be used for any purpose that
will increase the rate of insurance thereon, nor for any purpose other than the
hereinabove specified, and will not sublet said premises or any part thereof, or
assign said Lease without the written assent of the Lessor, provided, however,
that the Lessee may sublet said premises to any bonafide subsidiary of the
Lessee, or the bonafide parentowner of the Lessee, or to any other subsidiary of
or corporation controlled by such parentowner, without such written consent of
the Lessor; said consent will not be unreasonably withheld. Upon any assignment,
the Lessee and its assignee shall continue liable jointly and severally for the
payment of rent and performance of all other obligations of the Lessee
hereunder. The Lessor will not lease or sell any part of the premises in which
the space herein demised is located for an occupancy which shall increase the
rate of insurance applicable to the property of the Lessee, and will not permit
any act or thing on said premises which shall increase such insurance rate.
<PAGE>
4. REPAIRS.
The Lessee at the expiration of the term hereof or any renewal thereof
will surrender the said premises in as good order and condition as when entered
upon by it, damage by strikes, riots, fire, flood, incendiaries, acts of God, or
of the public enemy, the elements, ordinary wear, tear and deterioration and
other causes beyond the Lessee's control excepted. The Lessor agrees at its own
expense to make repairs necessitated by ordinary wear, tear and deterioration,
structural defects, fire or other unavoidable casualty and to make changes
required to conform with any applicable laws, ordinances, orders or regulations
of any municipal, county, state or other public authorities in effect at the
beginning of said term. The Lessor likewise agrees at its own expense to make
changes required by any such laws, ordinances, orders or regulations which may
thereafter become effective and may be applicable generally to buildings of the
character of the building(s) containing the demised premises. The Lessor agrees
that upon its failure to make any repairs which it has agreed to make, within
thirty days after the notice of necessity therefore, the Lessee may make the
same and deduct the reasonable cost thereof from rent subsequently accruing. All
claims of the Lessor against the Lessee respecting the condition of the demised
premises shall be deemed to be waived unless presented in writing within thirty
days after expiration of termination of this lease.
5. ALTERATIONS BY LESSEE.
The Lessee may make from time to time such changes, additions,
alterations and improvements, with written assent from Lessor, on the demised
premises as will, in the judgment of said Lessee, better adapt the same to the
purpose of its business. All fixtures added and improvements made in and to such
premises by the Lessee shall be at its own expense and shall remain the property
of the Lessee, and upon the expiration of the term of this lease or any renewal
thereof may be removed from said premises by the Lessee, except where such
removal would cause substantial damage to the demised premises.
6. DAMAGE OR DESTRUCTION BY FIRE, ETC.
If the building(s) containing the demised premises shall be destroyed by
fire or other casualty, or shall be so damaged that the Lessor shall decide not
to rebuild, this lease shall immediately terminate and all advance payments of
rent covering periods subsequent thereto shall be promptly refunded to the
Lessee. If said building(s) shall be partially damaged by fire or other casualty
rendering the demised premises or any portion thereof untenantable or
substantially impairing the means of access thereto, the Lessor shall make all
necessary repairs with reasonable speed; and meanwhile the rent or a just
proportion thereof, according to the nature and extent of the damage, shall
abate, and any excess rent prepaid shall be refunded.
7. INSURANCE AND TAXES.
The Lessor shall pay all taxes and special assessments, payable during
the term of this lease, levied against the building(s) and grounds included in
or containing the demised premises. The Lessor shall also carry the insurance on
said building(s); and Lessee shall not be liable for damages or loss to the
demised premises or any other property of the Lessor located on or near the
demised premises caused by fire or other hazards included in a standard fire
insurance policy with extended coverage, whether or not due to negligence of the
Lessee.
8. PARKING.
The Lessor reserves the right to designate certain spaces for the
parking of automobiles of Lessee and Lessee's employees in the areas provided by
Lessor for that purpose.
9. UTILITIES OTHER SERVICES.
The Lessor will so long as lessor is not in default under and any of the
covenants of this lease, without further charge to the Lessee, at the proper
seasons and during reasonable business hours on every secular day, furnish heat,
lights, air-conditioning, and window coverings for all windows for the leased
premises, and will furnish water closets and wash basins with water, and will
also furnish usual and customary janitor service, subject however, to strikes,
accidents, breakdowns and conditions beyond the control of the Lessor; and upon
such happenings, the Lessor will not be liable for failure to furnish any such
service, air-conditioning, heat, lights, and water; and no claim shall be made
by the Lessee nor shall the Lessor be liable for any damage which may occur on
account of any defect in said building or premises, or from rain, wind, or
other causes.
10. SIGNS.
No signs of any character shall be erected on the premises without
written assent of the Lessor.
11. SPECIAL.
Lessor to furnish utilities and janitorial service with the exception of
telephone service.
2
<PAGE>
PEACEABLE AND QUIET POSSESSION
The Lessor hereby covenants that it has a good right to lease said premises
for the term hereby granted and that the Lessee, upon paying the rent herein
stipulated and performing and observing the covenants by it to be kept and
performed as herein provided, shall have the peaceable and quiet possession of
said premises during the term hereof.
This agreement shall be binding upon and inure to the benefit of the heirs,
administrators, executors, successors and assigns of the respective parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day
and year first above written.
Witness: Lessee: NEW SOUTH FEDERAL SAVINGS BANK
/s/ Leta Gaulden By: /s/ M.S. Thomas
- --------------------------- -----------------------------------
Witness: Lessor: COLLATERAL MORTGAGE, LTD.
/s/ Leta Gaulden By: /s/ T. H. McLaughlin, Jr.
- --------------------------- -----------------------------------
T.H. McLaughlin, Jr.
Vice President
<PAGE>
EXHIBIT 10.6
COMMERCIAL LEASE
THIS INDENTURE made this 1ST day of January 1998 between COLLATERAL
MORTGAGE, LTD., Lessor NEW SOUTH FEDERAL SAVINGS BANK Lessee:
That the Lessor, for and in consideration of the covenants and
agreements hereinafter contained to be kept and performed by the Lessee, has
leased and demised and does hereby lease and demise to be the Lessee the
following described premises with the appurtenances in the City of Irondale,
Alabama.
OFFICE SPACE IN THE BUILDING LOCATED AT 2000 CRESTWOOD BOULEVARD,
IRONDALE, ALABAMA
Lessor acknowledges receipt of a security deposit of $ -0-, to
secure Lessee's obligations hereunder. Should Lessee perform as agreed, the
security deposit shall be refunded at the termination of the lease term after
the premises are vacated.
The Lessee agrees to pay each month as rent for the demised premises to
the Lessor or its duly authorized agent at the office of the agent the sum of
Five Thousand Nine Hundred Seventy-two and 09/100 Dollars ($5,972.09) per month
beginning January 1, 1998 and ending December 31, 1998, which sum shall be
payable in advance on the first day of each month during the rental period under
this lease, or sooner if accelerated under any subsequent provisions hereof.
Lessee agrees that a service and bookkeeping charge of $298.61 shall become due
and payable each and every month that the rent has not been received in the
office of the Lessor or its agent by the 10th of the month.
The rental period herein agreed upon, which is the term for which rent
shall be paid as above stipulated, is 12 months beginning January 1, 1998 and
ending December 31, 1998 provided, however, that either the Lessor or the Lessee
may terminate this lease by either party giving the other party at least sixty
(60) days written notice to cancel the lease. All notices herein provided for
shall be delivered by hand or sent by mail, if by the Lessor to the Lessee at
the demised premises, and if by the Lessee to the Lessor at the office of the
Lessor's agent.
The parties hereto further agree that:
1. USE OF PREMISES.
The demised premises are to be used by the Lessee for general
office purposes in connection with its business and for no other purpose.
2. DEFAULT OF LESSEE.
If, after ten (10) days' written notice from the Lessor to the
Lessee, default shall continue in payment of rent or if after thirty days'
written notice from the Lessor to the Lessee default shall continue in any of
the other covenants and agreements herein contained to be kept by the Lessee,
its successors and assigns, it shall be lawful for the said Lessor to declare
said term ended and to re-enter into the said premises, or any part thereof,
either with or without process of law and to expel, remove and put out the said
Lessee or any other person or persons occupying, in or upon the same.
3. ASSIGNMENT OR SUBLETTING.
The Lessee will not allow said premises to be used for any
purpose that will increase the rate of insurance thereon, nor for any purpose
other than the hereinabove specified, and will not sublet said premises or any
part thereof, or assign said Lease without the written assent of the Lessor,
provided, however, that the Lessee may sublet said premises to any bonafide
subsidiary of the Lessee, or the bonafide parentowner of the Lessee, or to any
other subsidiary of or corporation controlled by such parentowner, without such
written consent of the Lessor; said consent will not be unreasonably withheld.
Upon any assignment, the Lessee and its assignee shall continue liable jointly
and severally for the payment of rent and performance of all other obligations
of the Lessee hereunder. The Lessor will not lease or sell any part of the
premises in which the space herein demised is located for an occupancy which
shall increase the rate of insurance applicable to the property of the Lessee,
and will not permit any act or thing on said premises which shall increase such
insurance rate.
<PAGE>
4. REPAIRS.
The Lessee at the expiration of the term hereof or any renewal thereof
will surrender the said premises in as good order and condition as when entered
upon by it, damage by strikes, riots, fire, flood, incendiaries, acts of God, or
of the public enemy, the elements, ordinary wear, tear and deterioration and
other causes beyond the Lessee's control excepted. The Lessor agrees at its own
expense to make repairs necessitated by ordinary wear, tear and deterioration,
structural defects, fire or other unavoidable casualty and to make changes
required to conform with any applicable laws, ordinances, orders or regulations
of any municipal, county, state or other public authorities in effect at the
beginning of said term. The Lessor likewise agrees at its own expense to make
changes required by any such laws, ordinances, orders or regulations which may
thereafter become effective and may be applicable generally to buildings of the
character of the building(s) containing the demised premises. The Lessor agrees
that upon its failure to make any repairs which it has agreed to make, within
thirty days after the notice of necessity therefore, the Lessee may make the
same and deduct the reasonable cost thereof from rent subsequently accruing. All
claims of the Lessor against the Lessee respecting the condition of the demised
premises shall be deemed to be waived unless presented in writing within thirty
days after expiration of termination of this lease.
5. ALTERATIONS BY LESSEE.
The Lessee may make from time to time such changes, additions,
alterations and improvements, with written assent from Lessor, on the demised
premises as will, in the judgment of said Lessee, better adapt the same to the
purpose of its business. All fixtures added and improvements made in and to such
premises by the Lessee shall be at its own expense and shall remain the property
of the Lessee, and upon the expiration of the term of this lease or any renewal
thereof may be removed from said premises by the Lessee, except where such
removal would cause substantial damage to the demised premises.
6. DAMAGE OR DESTRUCTION BY FIRE, ETC.
If the building(s) containing the demised premises shall be destroyed by
fire or other casualty, or shall be so damaged that the Lessor shall decide not
to rebuild, this lease shall immediately terminate and all advance payments of
rent covering periods subsequent thereto shall be promptly refunded to the
Lessee. If said building(s) shall be partially damaged by fire or other casualty
rendering the demised premises or any portion thereof untenantable or
substantially impairing the means of access thereto, the Lessor shall make all
necessary repairs with reasonable speed; and meanwhile the rent or a just
proportion thereof, according to the nature and extent of the damage, shall
abate, and any excess rent prepaid shall be refunded.
7. INSURANCE AND TAXES.
The Lessor shall pay all taxes and special assessments, payable during
the term of this lease, levied against the building(s) and grounds included in
or containing the demised premises. The Lessor shall also carry the insurance on
said building(s); and Lessee shall not be liable for damages or loss to the
demised premises or any other property of the Lessor located on or near the
demised premises caused by fire or other hazards included in a standard fire
insurance policy with extended coverage, whether or not due to negligence of the
Lessee.
8. PARKING.
The Lessor reserves the right to designate certain spaces for the
parking of automobiles of Lessee and Lessee's employees in the areas provided by
Lessor for that purpose.
9. UTILITIES OTHER SERVICES.
The Lessor will so long as lessor is not in default under and any of the
covenants of this lease, without further charge to the Lessee, at the proper
seasons and during reasonable business hours on every secular day, furnish heat,
lights, air-conditioning, and window coverings for all windows for the leased
premises, and will furnish water closets and wash basins with water, and will
also furnish usual and customary janitor service, subject however, to strikes,
accidents, breakdowns and conditions beyond the control of the Lessor; and upon
such happenings, the Lessor will not be liable for failure to furnish any such
service, air-conditioning, heat, lights, and water; and no claim shall be made
by the Lessee nor shall the Lessor be liable for any damage which may occur on
account of any defect in said building or premises, or from rain, wind, or
other causes.
10. SIGNS.
No signs of any character shall be erected on the premises without
written assent of the Lessor.
2
<PAGE>
11. SPECIAL
Lessor to furnish utilities and janitorial service with the exception of
telephone service.
PEACEABLE AND QUIET POSSESSION
The Lessor hereby covenants that it has good right to lease said
premises for the term hereby granted and that the Lessee, upon paying the rent
herein stipulated and performing and observing the covenants by it to be kept
and performed as herein provided, shall have the peaceable and quiet possession
of said premises during the term hereof.
The agreement shall be binding upon and inure to the benefit of the
heirs, administrators, executors, successors and assigns of the respective
parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the
day and year first above written.
Witness: Lessee: NEW SOUTH FEDERAL SAVINGS BANK
/s/ Leta L. Gaulden By: /s/ Robert J. Davis, Jr.
- ------------------- ----------------------------------
Robert J. Davis, Jr.
Vice President
Date: 1/2/98
--------
Witness: Lessor: COLLATERAL MORTGAGE, LTD.
/s/ Leta L. Gaulden By: /s/ T.H. McLaughlin, Jr.
- ------------------- ----------------------------------
T.H. McLaughlin, Jr.
Vice President
Date: 1/2/98
--------
<PAGE>
EXHIBIT 10.7
AGREEMENT FOR ADMINISTRATIVE SERVICES
This AGREEMENT FOR ADMINISTRATIVE SERVICES is made and entered into
between and among Collateral Mortgage, Ltd., an Alabama Limited Partnership with
its principal place of business at 1900 Crestwood Boulevard, Irondale, Alabama,
and New South Federal Savings Bank, a Federally Chartered Savings Bank with its
principal place of business at 2000 Crestwood Boulevard, Irondale, Alabama,
Collat, Inc., a corporation incorporated under the laws of the State of Alabama,
Collateral Investment Corp., a corporation incorporated under the laws of the
State of Delaware, Southwide Life Insurance Corp., a corporation incorporated
under the laws of the State of Alabama, Triad Guaranty Insurance Corporation, a
corporation incorporated under the laws of the State of Illinois, and Collateral
Agency, Inc., a corporation incorporated under the laws of the State of Alabama;
and,
WHEREAS, Collateral Mortgage, Ltd. makes available certain
administrative and other services for all of the aforementioned business
entities; and,
WHEREAS, the managements of the business concerns set forth above have
determined that it is desirable and in the best interest of each said business
entity to enter into a contractual agreement with Collateral Mortgage, Ltd. for
administrative services subject to the terms and conditions hereinbelow set
forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and for other good and valuable considerations moving from and
to each of the parties, it is agreed by and between the parties as follows:
ARTICLE I
All administrative services to be performed under this Agreement shall
be for an initial term of twelve (12) months, beginning on January 1, 1991 and
shall automatically renew on each anniversary for a like period under the terms
and conditions hereof, unless any party hereto extends written notice at least
sixty (60) days prior to the end of any term of its intent not to renew this
Agreement for another term.
ARTICLE II
Costs of Administrative services not otherwise specifically provided for
by separate agreements between Collateral Mortgage, Ltd. and the other parties
to this agreement which are provided by one business entity to another business
entity shall be shared as follows:
<PAGE>
a. Only reasonable, customary and usual charges for services rendered by
one entity for the benefit of another entity may be shared under this
Agreement.
b. Only actual costs (or reasonable estimates thereof) may be shared
among entities under this Agreement.
c. Only costs for services actually rendered by one entity to another
entity may be shared under this Agreement.
d. When costs cannot be definitively determined, reasonable estimates of
such costs may be determined on the basis of generally accepted
accounting principles.
No part of this Agreement is intended to transfer substantial control of
any business entity to another entity. No part of this Agreement is intended to
provide for remuneration from one entity in addition to the compensation by way
of salary to management or other personnel received directly from another
entity.
ARTICLE III
This Agreement for Administrative Services may be amended from time to
time by the parties.
IN WITNESS WHEREOF, the parties hereto have hereunto signed, sealed and
acknowledged this AGREEMENT FOR ADMINISTRATIVE SERVICES effective the 1st day of
January, 1991.
ATTEST: COLLATERAL MORTGAGE, LTD.
/s/ Darlene Moore By /s/ David W. Whitehurst
- ----------------- ------------------------
Secretary Title Vice President and Controller
-----------------------------
COLLAT, INC.
/s/ Darlene Moore By /s/ Charles T. Wall
- ----------------- -------------------
Secretary Title Vice President
--------------
COLLATERAL AGENCY, INC.
/s/ Darlene Moore By /s/ David W. Whitehurst
- ----------------- ------------------------
Secretary Title Vice President and Controller
-----------------------------
<PAGE>
ATTEST: NEW SOUTH FEDERAL SAVINGS BANK
/s/ Pam Bishop By /s/ David W. Whitehurst
- -------------- ------------------------
Asst. Secretary Title Vice President and Controller
-----------------------------
SOUTHWIDE LIFE INSURANCE CORP.
/s/ Darlene Moore By /s/ David W. Whitehurst
- ----------------- ------------------------
Secretary Title Vice President and Controller
-----------------------------
TRIAD GUARANTY INSURANCE CORPORATION
/s/ Darlene Moore By /s/ David W. Whitehurst
- ----------------- ------------------------
Asst. Secretary Title Vice President
--------------
COLLATERAL INVESTMENT CORP.
/s/ Darlene Moore By /s/ David W. Whitehurst
- ----------------- ------------------------
Secretary Title Vice President and
Assistant Secretary
-------------------
<PAGE>
EXHIBIT 10.8
REAL ESTATE PURCHASE AGREEMENT
------------------------------
THIS REAL ESTATE PURCHASE AGREEMENT (hereinafter referred to as this
"Agreement") is made and entered into as of the 6th day of June, 1997, by and
between COLLATERAL AGENCY, INC., an Alabama corporation, its successors or
assigns, (hereinafter referred to as the "Purchaser"), and NEW SOUTH FEDERAL
SAVINGS BANK, a federal savings bank (hereinafter referred to as the "Seller").
In consideration of the mutual warranties, covenants and obligations
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which the parties hereby acknowledge, the Purchaser
and the Seller agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Subject to the terms and conditions of
------------------------------
this Agreement, the Seller agrees to sell and the Purchaser agrees to purchase
that certain real estate described on Exhibit A of this Agreement, together with
all improvements located on the real estate, if any, and to assign all leases to
which said real estate is subject, including without limitation those leases
described on Exhibit B hereto, and all easements, rights of way and
appurtenances belonging or appertaining to the real estate but subject to the
exceptions described therein which for all purposes hereunder shall constitute
Permitted Exceptions (collectively, the "Property").
2. PURCHASE PRICE AND EARNEST MONEY. The purchase price for the Property
--------------------------------
shall equal ONE MILLION ONE HUNDRED TWENTY THOUSAND and NO/100 Dollars
($1,120,000.00) (the "Purchase Price"). On the Closing Date (as defined in
Section 14 of this Agreement), the Purchaser shall pay the Purchase price to the
Seller in cash by a cashier's check or by the wire transfer of immediately
available federal funds, subject to the credits and adjustments described below.
The Purchaser shall deposit One Thousand and No/100 Dollars ($1,000.00) (the
"Earnest Money") with the Seller upon its execution of this Agreement. The
Purchase Price, less deductions for the Earnest Money, credits and prorations,
shall be paid at Closing in cash or by cashiers check, except that any
indebtedness which shall be satisfied at Closing rather than assumed by
Purchaser shall be paid directly to the appropriate lender out of the Purchase
Price proceeds. (The closing of the sale contemplated by this Agreement shall be
referred to herein as the "Closing").
3. EARNEST MONEY ESCROW AGENT. Purchaser hereby authorizes Seller to hold
--------------------------
the Earnest Money in trust for Purchaser and Seller pending the fulfillment of
this Agreement. In the event both Purchaser and Seller claim the Earnest Money,
the Seller may interplead the disputed portion of the Earnest Money in court.
4. EFFECTIVE DATE. The "Effective Date" of this Agreement shall be the
--------------
date of execution and delivery thereof by the last party to execute this
Agreement.
<PAGE>
5. TITLE COMMITMENT. Within five (5) days after the Effective Date, the
----------------
Purchaser shall obtain, at the Seller's cost and expense, a commitment for Title
Insurance (the "Title Commitment") for an ALTA Form B Owner's Policy of Title
Insurance (the "Title Policy") from Surety Land Title, Inc. or such other title
company satisfactory to the Purchaser (the "Title Company") dated after the
Effective Date, proposing to insure the Purchaser, and committing to insure the
Property in the amount of the Purchaser Price. It is a condition precedent to
Purchaser's obligation to consummate this sale that the Title Commitment shall
insure Purchaser that Seller owns marketable, insurable and record fee simple
title to the Property free and clear of all liens and encumbrances except the
current year's ad valorem taxes. The Title Commitment shall show all matters
affecting title to the Property, including all exceptions, easements,
restrictions, rights-of-way, covenants, reservations, encumbrances and other
conditions affecting the Property which will appear in the Title Policy.
6. TITLE OBJECTIONS. Within five (5) days after the Purchaser's receipt
----------------
of the Title Commitment, the Purchaser shall give notice to the Seller of any
matters contained in the Title Commitment to which the Purchaser objects. Any
matters which the Title Company identifies as conditions to the issuance of the
Title Policy shall automatically constitute objections by the Purchaser. Any
matters in the Title Commitment to which the purchaser does not object shall
constitute "Permitted Exceptions."
7. SURVEY. Intentionally omitted.
------
8. SURVEY OBJECTIONS. Intentionally omitted.
-----------------
9. CURING OBJECTIONS. The Seller shall have five (5) days after its
-----------------
receipt of the notice specified in Section 6 of this Agreement to use its good
faith efforts to cure the objections to the satisfaction of the Purchaser. If
the Seller gives the Purchaser notice that the Seller cannot cure the objections
or if the Seller fails to cure the objections within 30 days, the Purchaser
shall have the right (a) to extend the Seller's period for curing the
objections, (b) to waive any one or more of the objections and proceed to
closing, or (c) to terminate this Agreement and receive back all of the Earnest
Money, plus interest, if any.
10. INVESTIGATIONS. From the Effective Date until the closing or the
--------------
termination of this Agreement, the Purchaser and its representatives shall have
the right to enter upon the Property to conduct investigations, including soil
tests; engineering, planning and feasibility studies; environmental inspections.
The Purchaser, in the conduct of its investigation, shall not interfere
unreasonably with any existing operations on the Property or on the adjacent
property. The Purchaser shall indemnify and hold the Seller harmless from any
injury or damage to any person or property caused by the Purchaser's agents or
employees performing any investigation pursuant to the terms of this Section 10.
Should this transaction not close for any reason, Purchaser will deliver to
Seller such copies of studies, reports and investigations as are acquired by it
under this Agreement.
2
<PAGE>
11. DUE DILIGENCE PERIOD. The Purchaser shall have a period of fifteen
--------------------
(15) days after the Effective Date (the "Due Diligence Period") to determine the
suitability of the Property for the Purchaser's intended. If the Purchaser, in
its sole discretion, elects not to proceed with the purchase of the Property,
the Purchaser shall give the Seller notice of termination or before the
expiration of the Due Diligence Period.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER. The Seller
-------------------------------------------------------
represents, warrants and covenants to the Purchaser as follows:
(a) TITLE. Seller has, or will acquire, good, marketable, insurable and
-----
record fee simple title to the Property free and clear of all liens,
rights of possession and encumbrances, except as set forth on the
Title Commitment;
(b) PROCEEDINGS. The Seller has received no written notice of (1) any
-----------
proposed public improvements or condemnations which may result in
special assessments or in any reduction in the usefulness of the
Property or (2) any plans or requirements for the alteration or
correction of any existing conditions of the Property;
(c) OTHER LAWS. The Seller has received no written notice of the violation
----------
of any other applicable law, ordinance, regulation or rule relating to
the Property;
(d) HAZARDOUS MATERIALS. To the best of Seller's knowledge, there are no
-------------------
hazardous waste or toxic materials, asbestos or environmental
pollutants on the Property, nor has the Property been contaminated by
any such materials, nor, to Seller's knowledge, are any such materials
located on adjacent properties, whether or not owned by Seller, nor
are there any materials which would cause Purchaser to expend any
money to remove any said materials or pollutants under any federal,
state and/or local laws and/or ordinances;
(e) POSSESSION. Seller will deliver possession to Purchaser at Closing
----------
free and clear from the rights of others, except any leases disclosed
to the Purchaser on Exhibit B hereto;
(f) FOREIGN PERSON. Seller is not a foreign person within the meaning of
--------------
Sections 7701(a)(1) and 7701(a)(5) of the Internal Revenue Code;
(g) TAX ASSESSMENT. The Property is presently assessed at "fair market"
--------------
value and is not subject to any so called "roll back" taxes and will
not be subject to such "roll back" taxes because of Purchaser's
contemplated use of the Property; and
(h) ZONING. The Property is currently zoned to permit office uses.
------
3
<PAGE>
The representations and warranties contained in this Section 12 shall
survive closing and the delivery of the deed.
13. CONDITIONS TO CLOSING. Unless waived by Purchaser, all of the
---------------------
Purchaser's liabilities and obligations to purchase the Property shall depend on
the satisfaction of the conditions set forth below.
(a) TITLE TO PROPERTY. On or before the Closing Date, Seller shall be
-----------------
vested with good and marketable fee simple title to the Property subject to
Permitted Exceptions as provided herein.
(b) GOVERNMENTAL AUTHORIZATIONS. On or before the Closing Date, the
---------------------------
Purchaser shall have obtained from all governmental authorities all
applicable authorizations, permits, variances and sanctions, including
(without limitation) construction, architecture, health, access (including
adequate ingress and egress to public thoroughfares and curb and median
cuts), parking and signage (including free-standing signs and building
signs of the type, style and size) for its intended use without the
imposition of conditions unsatisfactory to the Purchaser. In addition, the
Purchaser shall have obtained from Seller, prior to closing, the Seller's
approval of all building and signage plans associated with the Property.
(c) CONDITION OF THE PROPERTY. On or before the expiration of the Due
-------------------------
Diligence Period, the Purchaser shall have determined the suitability of
the soil or ground of the Property and that the Purchaser can lay out and
construct upon the Property all proposed improvements at costs and in a
manner satisfactory to the Purchaser.
(d) ENVIRONMENTAL STUDY. On or before the expiration of the Due Diligence
-------------------
Period, the Purchaser shall have the option to obtain a Phase One
environmental risk assessment report on the Property, giving no evidence of
hazardous waste, regulated materials, or environmental contamination of any
kind regarding the Property which could result in economic hardship or
monetary loss.
(e) UTILITIES. On or before the expiration of the Due Diligence Period,
---------
the Purchaser shall have determined the availability of adequate public
utilities to the Property.
If the foregoing conditions are not met, the Purchaser shall have the right
either to waive applicable conditions or terminate this Agreement upon notice to
the Seller. In that event, the Purchaser shall receive back all of the Earnest
Money (plus interest, if any).
14. CLOSING DATE. The closing shall take place at the office of the
------------
Purchaser's attorney on a date specified by the Purchaser within five (5) days
after the expiration of the Due Diligence Period. The parties shall cause the
preparation of the documentation for the closing sufficiently in advance to
allow for the execution of all closing documents by the authorized
representatives
4
<PAGE>
of the parties prior to the Closing Date. Neither party shall have the
obligation to have an authorized representative physically present at the
closing.
15. CLOSING DOCUMENTS. The Seller shall deliver the following documents
-----------------
on the Closing Date:
(a) WARRANTY DEED. The Seller shall deliver a statutory warranty deed,
-------------
executed and acknowledged by the Seller and conveying to the Purchaser good
and marketable title to the Property, free and clear of all restrictions,
easements, liens, encroachments, and encumbrances except the Permitted
Exceptions.
(b) TITLE POLICY. The Seller shall furnish, at the Seller's sole cost and
------------
expense, an ALTA Form B Owner's Policy of Title Insurance issued by the
Title Company issuing the Commitment. The amount of title insurance shall
equal the Purchase Price (plus any additional amount purchased by the
Purchaser) and the title policy shall guarantee the Purchaser's title to
the Property as good and marketable, subject only to (1) the Permitted
Exceptions, (2) taxes for the current year and subsequent years, (3)
unrecorded governmental rights and regulations, including (without
limitation) building and zoning ordinances, and (4) shortages in area.
(c) AFFIDAVITS. On the Closing Date, the Seller shall deliver to the
----------
Purchaser and the Title Company, if requested, one or more affidavits that
(1) the Seller is not a "foreign person" as defined by the Internal Revenue
Code of 1986, as amended, (2) no outstanding materialman's or mechanic's
lien rights exist regarding the Property, and (3) the Seller has paid all
utility charges, if any, regarding the Property.
16. CLOSING COSTS. The Seller and the Purchaser shall allocate and
-------------
prorate all closing costs as follows:
(a) TAXES AND RENTS. The Seller and the Purchaser shall prorate all
---------------
taxes, assessments and rents to the Closing Date; provided, however,
to the extent the Property is subject to any so called "roll back"
taxes, the Seller shall pay all such taxes levied for prior years. If
the Closing Attorney cannot determine the current year's taxes as of
the Closing Date, the Seller and the Purchaser shall base the
proration on the previous year's taxes, with an adjustment between the
Seller and the Purchaser when the current year's taxes become known.
The obligations of this Section 16(a) shall survive the closing of
this transaction and the delivery of the deed.
(b) FEES AND COSTS. The Seller shall pay any and all charges of the
--------------
Title Company, except as provided above. The Purchaser and the Seller
shall pay their respective attorney's fees.
5
<PAGE>
(c) OTHER COSTS. The Purchaser shall pay all costs for recording the
-----------
warranty deed.
17. POSSESSION. On the Closing Date, the Seller shall deliver exclusive
----------
possession of the Property to the Purchaser coincident with the closing, free,
clear and discharged of possession or use and the right of possession or use by
any and all individuals and entities, and released of any and all dower, curtesy
and homestead rights.
18. COMMISSIONS. Each party represents and warrants to the other that no
-----------
real estate or other brokerage commissions or fees are due in connection with
the sale contemplated by this Agreement as a result of any action of either
party. Each party hereby indemnifies and shall hold harmless the other for any
costs or liability resulting from said party's contact with any real estate
broker.
19. PURCHASER'S REMEDIES. If the Seller breaches this Agreement, the
--------------------
Purchaser's remedies shall consist of the termination of this Agreement and,
thereafter, the receipt of an immediate refund of the Earnest Money (plus
interest, if any) or, in the Purchaser's sole discretion, specific performance
of this Agreement.
20. SELLER'S REMEDIES. In the event (i) all of Seller's representations
-----------------
and warranties are true as herein provided, (ii) all of the covenants and
obligations which are required to be performed by Seller in this Agreement are
fully performed, (iii) all of the contingencies and conditions precedent to
Purchaser's obligation to close the transaction contemplated hereby are
fulfilled to Purchaser's sole satisfaction, and (iv) performance of this
Agreement is tendered by Seller and Purchaser fails or refuses to consummate the
sale through no fault of Seller, Seller shall have the right to receive the
Earnest Money as full, final and complete liquidated damages for the breach of
this Agreement, such sum to be retained by Seller in the amount of damages that
both Seller and Purchaser presume that Seller would sustain by reason of any
default by Purchaser, since Seller and Purchaser both recognize that the actual
damages sustained by Seller would be difficult, impractical or impossible to
determine.
21. WAIVER. The failure of a party to insist in any one or more instances
------
on the performance of any terms or conditions of this Agreement shall not
operate as a waiver of any future performance of that term or condition.
22. GOVERNING LAW. Notwithstanding the place where the parties execute
-------------
this Agreement, the internal laws of Alabama shall govern the construction of
the terms and the application of the provisions of this Agreement.
23. ENTIRE AGREEMENT. This Agreement shall be construed and interpreted
----------------
in accordance with the laws of the State of Alabama. This Agreement may not be
modified or amended except by an agreement in writing signed by Seller and
Purchaser. Each person executing this Agreement warrants and represents that he
is fully authorized to do so by the party
6
<PAGE>
in whose behalf he has signed. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties. Multiple
counterparts of this Agreement may be executed by the parties hereto and each
such executed counterpart shall have the full force and effect of an original
executed instrument.
24. HEADINGS. The headings used in this Agreement appear strictly for the
--------
parties' convenience in identifying the provisions of this Agreement and shall
not affect the construction or interpretation of the provision of this
Agreement.
25. BINDING EFFECT. This Agreement binds and inures to the benefit of the
--------------
parties and their respective successors, legal representatives, heirs and
permitted assigns.
26. AMENDMENTS. No amendments to this Agreement shall become effective or
----------
binding on the parties, unless agreed to in writing by all of the parties.
27. CONSTRUCTION. The parties acknowledge that the parties and their
------------
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any exhibits or amendments hereto.
28. TIME. Time constitutes an essential part of each and every part of
----
this Agreement.
29. ADDITIONAL PROVISIONS. This contract represents the entire Agreement
---------------------
between the parties. All statements and representations heretofore made are of
no effect whatever and cannot be relied upon, unless set forth in this contract.
IN WITNESS WHEREOF, the parties hereto have hereunto signed and sealed this
instrument on the day and year first above written.
SELLER:
NEW SOUTH FEDERAL SAVINGS BANK
Date: June 6, 1997 By: /s/ Robert J. Davis, Jr.
------------- -----------------------------
Robert J. Davis, Jr.
Its Vice President
7
<PAGE>
PURCHASER:
COLLATERAL AGENCY, INC.
Date: June 6, 1997 By: T.H. Mclaughlin, Jr.
-------------- ------------------------
T.H. Mclaughlin, Jr.
Its Vice President
-----------------------
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
I, the undersigned, a Notary Public in and for said County, in said State,
hereby certify that Robert J. Davis, Jr., whose name as Vice President of New
South Federal Savings Bank, a corporation, is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day, that
being informed of the contents thereof, (s)he, as such officer and with full
authority, executed the same voluntarily for and as the act of said corporation.
Given under my hand and official seal, this the 6th day of June, 1997.
/s/ Roberta W. Whittington
----------------------------
Notary Public
My Commission Expires: 2-11-2001
------------
8
<PAGE>
STATE OF ALABAMA )
COUNTRY OF JEFFERSON )
I, the undersigned, a Notary Public in and for said Country, in said
State, hereby certify that T.H. McLaughlin, Jr., whose name as Vice President
of Collateral Agency, Inc., a corporation, is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day, that
being informed of the contents thereof, he, as such officer and with full
authority, executed the same voluntarily for and as the act of said corporation.
Given under my hand and official seal, this the 6th day of June, 1997.
/s/ Roberta W. Whittington
-------------------------------
Notary Public
My Commission Expires: 2-11-2001
---------
9
<PAGE>
EXHIBIT 10.9
LOAN SALE AGREEMENT
THIS LOAN SALE AGREEMENT ("Agreement") is entered into this 25th day of
November, 1997 (the "Effective Date"), by and between NEW SOUTH FEDERAL SAVINGS
BANK ("PURCHASER") and COLLATERAL INVESTMENT CORP., a Delaware Corporation
("SELLER").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, PURCHASER, having conducted its own review of certain loans now
wishes to purchase the Loans from Seller;
WHEREAS, SELLER wishes to sell certain Loans to Purchase; and
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained and for other good and valuable consideration, SELLER and
PURCHASER agree as follows:
ARTICLE I
---------
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
indicated:
1.1 Advances shall mean any and all payments made by SELLER for taxes,
--------
insurance and other items in connection with any of the Mortgaged Property.
1.2 Assignment of Leases, Rents and Profits means, with respect to any
---------------------------------------
Mortgaged Property, any assignment of leases, rents and profits or similar
agreement executed by the Mortgagor, (and whether a separate agreement or part
of the Mortgage) assigning to the Mortgagee all of the income, rents and profits
derived from the ownership, operation, leasing or disposition of all or a
portion of such Mortgaged Property, in the form which was duly executed,
acknowledged and delivered, as amended, modified, renewed or extended through
the date hereof and from time to time hereafter.
1.3 Bill of Sale and Assignment means the document to be delivered to
---------------------------
PURCHASER on the Closing Date in the form attached hereto as Exhibit "A".
1.4 Business Day means any day on which PURCHASER is open for business
------------
other than a Saturday, a Sunday or a federal holiday.
1.5 Claim means any claim, demand or legal proceeding.
-----
1
<PAGE>
1.6 Closing means the delivery of the closing Documents, the sale of the
-------
Loans and the payment of the Purchase Price .
1.7 Closing Date means November 25, 1997, or such other date as PURCHASER
------------
and SELLER mutually agree upon.
1.8 Closing Documents means all documents that under the terms of this
-----------------
Agreement are required to be delivered by SELLER or PURCHASER at the Closing.
1.9 Collateral File means, with respect to a Loan, any of the following
---------------
documents which are in the possession of SELLER:
(i) the original or a signed copy of the Note, endorsed by SELLER,
without recourse, representation or warranty, express or implied, in blank or to
the order of PURCHASER, in substantially the same form as that attached hereto
as Exhibit "B"; provided, however, if the original Note has been lost, a Lost
Note Affidavit with respect to the Note in the form attached hereto as Exhibit
"C" will be provided by SELLER to PURCHASER.
(ii) the original Mortgage or a copy of the Mortgage, and any
intervening assignments thereof, in each case with evidence or recording
indicated thereon;
(iii) originals or copies of any related Assignments of Leases,
Rents and Profits and security agreements, and intervening assignments of each
such document or instrument, and any related UCC Financing Statement;
(iv) an original Bill of Sale and Assignment, executed by SELLER to
the order of PURCHASER of the Loan in substantially the same form as that
attached hereto as Exhibit "A";
(v) originals or signed copies of any assumption, modification,
extension and substitution agreements in those instances where the terms or
provisions of the Mortgage or Note have been modified or the Mortgage or Note
has been assumed; and
(vi) to the extent that they exist, the originals or certificates of
a lender's title insurance policy issued as of the date of the origination of
the Note.
1.10 Credit File means with respect to each Loan sold pursuant to this
-----------
Agreement, any documents, other than the Collateral File.
1.11 Loan means an obligation evidenced by a Note and includes all right,
----
title and interest of SELLER in and to a Loan listed on the Loan Schedule
attached as Exhibit D. The term "Loan Interest", and therefore, the sale of the
Loans pursuant to this Agreement, shall exclude any and all retained Claims.
2
<PAGE>
1.12 Loan Documents shall mean all documents delivered in connection with
--------------
and evidencing the Loan, as amended from time to time, including the Mortgage.
1.13 Loan File shall be a collective reference to the Credit File and the
---------
Collateral File for a Loan.
1.14 Loan Schedule means the document to be delivered to PURCHASER as an
-------------
exhibit to the Bill of Sale and Assignment on the Closing Date in the form
attached hereto as Exhibit "D".
1.15 Mortgage means, with respect to a Loan, the mortgages, deeds of trust
--------
or other instruments (including, without limitation, any related Assignment of
Leases, Rents and Profits, security agreements and related financing statements
included in the Collateral File) purporting to create a continuing mortgage lien
and, in some cases, a continuing security interest on real or personal property
securing the Note, as from time to time amended, modified, renewed or extended.
1.16 Mortgaged Property means the property securing a Note.
------------------
1.17 Mortgagee means, with respect to a Mortgage as of any date of
---------
determination, the holder of the related Note as of such date.
1.18 Mortgagor means the current obligor on a Note.
---------
1.19 Note means the original or a copy of an executed note evidencing the
----
indebtedness of Mortgagor under a Loan, together with any rider, addendum,
extension, renewal or amendment thereof.
1.20 Principal Balance means the unpaid principal balance of a Loan as
-----------------
stated on the books and records of SELLER as of the Closing Date, as set forth
on the Loan Schedule.
1.21 UCC Financing Statement means a financing statement executed and filed
-----------------------
pursuant to the Uniform Commercial Code, as in effect in the relevant
jurisdiction.
ARTICLE II
----------
PURCHASE AND SALE OF THE LOANS
SELLER agrees to sell, and PURCHASER agrees to purchase, the Loans listed
on Exhibit D pursuant to and subject to the terms of this Agreement.
3
<PAGE>
ARTICLE III
-----------
CLOSING AND DELIVERY OF THE LOAN
3.1 Payment of Purchase Price.
--------------------------
(a) Payment for the Loans shall be made on the Closing Date no later
than 3:00 p.m. (C.S.T.). PURCHASER shall pay, in immediately available funds,
to SELLER or its designees, by cashiers check or wire transfer to the account
specified by SELLER, the Loan Purchase Price equal to $996,972.90.
(b) All payments by Mortgagor of principal or interest, including
prepayments of principal not yet due, and reimbursement of Advances in
connection with the Loans received by SELLER and credited to the Loans on the
books and records of SELLER prior to the Closing Date shall be the property of
SELLER. All other payments made on such Loan Interests by Mortgagor shall be
the property of PURCHASER, and SELLER shall take all actions necessary to
transfer, endorse and deliver to PURCHASER any such other payments received by
SELLER prior to, on or after the Closing Date; provided, however, those payments
-------- -------
which are received by SELLER and credited on the books and records of SELLER
prior to the Closing Date and which constitute full and complete payment of the
Loans and any amounts due, collected or to be collected by SELLER in connection
therewith shall remain the property of SELLER and SELLER shall be entitled to
retain same.
(c) Simultaneous with the transfer of funds representing the Loan
Purchase Price, SELLER shall transfer to PURCHASER any funds held in escrow for
taxes and insurance in connection with the Mortgaged Property, less an amount
equal to SELLER's portion of all unreimbursed Advances, if any, made by SELLER.
3.2 Conveyance of the Loans; Bill of Sale.
-------------------------------------
(a) On the Closing Date, against payment of the Loan Purchase Price,
SELLER shall absolutely sell, transfer, assign, set-over and convey to
PURCHASER, without recourse and without representation or warranty, express or
implied (except to the extent of the specific representations and warranties of
SELLER set forth herein) its right, title and interest in and to the Loans.
(b) On the Closing Date, upon SELLER's receipt of the Loan Purchase
Price, SELLER shall deliver to PURCHASER a Bill of Sale and Assignment, in the
form of Exhibit "A" hereto, executed by an authorized representative of SELLER,
which Bill of Sale and Assignment shall evidence the conveyance described in the
preceding paragraph.
(c) PURCHASER shall be solely responsible for recording the assignment
of the Mortgage to PURCHASER from SELLER and obtaining any necessary title or
insurance
4
<PAGE>
endorsements as its own expense. PURCHASER shall also be solely responsible for
recording all intervening assignments, if any, at its own expense.
3.3 Delivery of the Loan Files. SELLER shall deliver the Loan Files to
--------------------------
PURCHASER on the Closing Date at the location designated by SELLER. Conveyance
of the Loan Files to PURCHASER shall be deemed to occur at such time as SELLER
has received payment of the Loan Purchase Price. From and after such conveyance
of the Loan Files to PURCHASER, SELLER shall have no responsibility therefor,
and risk of loss or damage with respect to such Loan Files shall inure to
PURCHASER. Any expenses incurred with respect to the delivery of the Loan Files
to PURCHASER shall be borne by PURCHASER.
3.4 Pending Legal Proceedings. In the event a Loan is, as of the Closing
-------------------------
Date, subject of litigation, bankruptcy or foreclosure, PURCHASER agrees that it
shall, to the extent applicable, at its own cost, within thirty (30) days after
the Closing Date, (i) notify the Clerk of the Court, any foreclosing trustee and
all counsel of record in each proceeding of the transfer of such Loan from
SELLER to PURCHASER, (ii) file pleadings to relieve SELLER's counsel of record
from further responsibility in such litigation (unless said counsel has agreed,
with SELLER's written consent, to represent PURCHASER in such proceedings at
PURCHASER's expense), and (iii) remove SELLER as a party in such action and
substitute PURCHASER as the real party-in-interest, and change the caption
thereof accordingly.
3.5 Collection/Contingent Fees. To the extent that a Loan transferred
--------------------------
and sold hereunder is subject to any pending collection and/or contingent fee
agreement by which any entity or person is entitled to payment based on the
amount of judgment obtained and/or collected, then the transfer of such Loan
shall be made subject to the rights of any such entity or person and PURCHASER
does hereby agree to assume, and shall be deemed to have assumed, the collection
and/or contingent fee agreement and shall be bound by the terms thereof to the
same extent as if PURCHASER had independently contracted for such services.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 General Representations and Warranties of SELLER. SELLER hereby
------------------------------------------------
represents and warrants that:
(a) SELLER has taken all necessary action to authorize its execution,
delivery and performance of this Agreement and has the power and authority to
execute, deliver and perform this Agreement and all the transactions
contemplated hereby, including, but not limited to the authority to sell, assign
and transfer the Loans in accordance with this Agreement, and assuming due
authorization, execution and delivery by the other party hereto, this Agreement
and all the obligations of SELLER hereunder are the legal, valid and binding
obligations of SELLER,
5
<PAGE>
enforceable in accordance with the terms of this Agreement, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally;
(b) The execution and delivery of this Agreement and the performance
of its obligations hereunder by SELLER will not conflict with any provisions of
any law or regulation to which SELLER is subject or conflicts with or result in
a breach of or constitutes a default under any of the terms, conditions or
provisions of any agreement or instrument to which SELLER is a party or by which
it is bound or any order or decree applicable to SELLER or result in the
creation or imposition of any lien on any of its assets or property which would
materially and adversely affect the ability of SELLER to carry out the terms of
this Agreement; and SELLER has obtained any consent, approval, authorization or
order of any court or governmental agency or body required for the execution,
delivery and performance by SELLER of this Agreement; and
(c) There is no action, suit or proceeding pending against SELLER in
any court or by or before any other governmental agency or instrumentality which
would materially affect the ability of SELLER to carry out the transactions
contemplated by this Agreement.
4.2 SELLER's Representations and Warranties as to the Loans. SELLER
-------------------------------------------------------
represents and warrants that, as to the Loans sold hereunder, as of the Closing
Date that except as may be disclosed in or discoverable from the Loan Files
SELLER has full right and authority to sell and assign the Loans.
4.3 Limitations on SELLER's Warranties. Except as specifically set forth
----------------------------------
herein, PURCHASER acknowledges and agrees that SELLER has not made, does not
make and specifically disclaims any representations, warranties, promises,
covenants, agreements or guaranties of any kind or character whatsoever, whether
express or implied, oral or written, past, present or future, of, as to,
concerning or with respect to (a) marketability, value, the nature, quality or
condition of the mortgaged property or the Loans including, without limitation,
the notes, the mortgages, and the other documentation contained in the Loan
Files (b) the income to be derived from the Loans or the Mortgaged Property, (c)
the suitability of the Mortgaged Property or the Loans and the documentation
therefore for any and all activities and uses which PURCHASER may intend, (d)
the validity, priority or perfection of the Mortgages, (e) the state of title,
priority of liens, zoning, tax consequences, physical condition, utility
capacity or commitment for utility capacity, operating history or projections,
valuations, governmental approvals or governmental regulations, compliance with
specifications, location, use, quality, description, durability, or as to the
quality of material or workmanship with respect to or pertaining in any manner
to the Mortgaged Property and all structures and improvements located on the
Mortgaged Property, (f) the compliance by holder or any predecessor to holder
with any and all applicable federal, state or local laws and all rules,
regulations or ordinances promulgated pursuant thereto, pertaining to or in any
manner related to the loans or the Mortgaged Property and all structures and
improvements located on the Mortgaged Property, (g) the compliance of the Loans
with any state or federal usury laws and regulations applicable thereto, (h) the
accuracy
6
<PAGE>
or completeness of any information, date, statements, amounts or sources of
information contained in the Loan Files, the notes or other loan documents, or
(i) any other matter with respect to the Loans or the Mortgaged Property, and
specifically, that SELLER has not made, does not make and specifically disclaims
any representation regarding environmental matters relating to the Mortgaged
Property, interest rate adjustments, or delinquency and payment histories.
PURCHASER further acknowledges and agrees that any information provided or to be
provided with respect to the Loans and the Mortgaged Property was obtained from
a variety of sources and that SELLER has not made any independent investigation
or verification of such information and makes no representations or warranties
as to the accuracy or completeness of such information.
Without limiting the foregoing, SELLER does not make nor has it made any
representation or warranty regarding the presence or absence of any hazardous
substances (as hereinafter defined), on, under or about the Mortgaged Property
or the compliance or non-compliance of the Mortgaged Property with the
comprehensive environmental response, compensation and liability act, the
superfund amendment and reauthorization act, the resource conservation recovery
act, the federal water pollution control act, the federal environmental
pesticides act, the clear water act, the clean air act, any environmental law,
statute or regulation of the State of Texas, any so called federal, state or
local "superfund" or "superlien" statute, or any other statutes, law, ordinance,
code, rule, regulation, order or decree regulating, relating to or imposing
liability (including strict liability) or standards of conduct concerning any
hazardous substances (collectively, the "hazardous substances laws"). For
purposes of this Agreement, the term "hazardous substances" shall mean and
include those elements or compounds which are contained on the list of hazardous
substances adopted by the united states environmental protection agency and the
list of toxic pollutants designated by congress or the environmental protection
agency or under any hazardous substance laws.
4.4 Notice of Breach of SELLER's Representations and Warranties. Upon
-----------------------------------------------------------
discovery by PURCHASER of a material breach of any of the representations or
warranties set forth herein, which adversely affects the value of a Loan,
PURCHASER shall give prompt written notice of such breach to SELLER.
4.5 Remedies for SELLER's Breach after Closing.
------------------------------------------
(a) In the event that after Closing, SELLER receives notice of, a
material breach of a representation or warranty made pursuant to this Agreement
and such breach materially and adversely affects the value of a Loan owned by
PURCHASER, SELLER, within 60 days of its receipt of such notice shall, at its
election, either (i) cure such breach in all material respects, or (ii)
repurchase the Loan.
(b) If SELLER elects or is required to repurchase the Loan, SELLER
shall repurchase such Loan at a repurchase price to be determined by the parties
hereto. In connection with any repurchase of a Loan Interest hereunder, and as a
condition to the payment by SELLER
7
<PAGE>
of the repurchase price, PURCHASER shall tender to SELLER all portions of the
Loan File with respect to the Loan previously delivered to PURCHASER, and each
document that constitutes a part of the Loan File which was endorsed or assigned
to PURCHASER shall be endorsed and assigned to SELLER.
4.6 Sole Remedies. The provisions set forth in this Agreement are
-------------
PURCHASER's only remedies for breaches of the representations and warranties of
SELLER made pursuant to this Agreement. Following the discovery by SELLER or
the receipt by SELLER of notice of a breach and, as applicable, the cure of the
breach, or the repurchase of the Loan that is the subject of such notice, as
provided for herein, no claim shall be brought by PURCHASER against SELLER, its
agents, legal representatives, employees, contractors, officers, directors,
attorneys, successors and assigns on the basis of a breach of any of the
representations or warranties made by SELLER.
ARTICLE V
---------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
PURCHASER hereby represents, warrants and covenants, as of the date hereof
and as of the Closing date that:
(a) Independent Evaluation. PURCHASER is a sophisticated investor,
----------------------
has knowledge and experience in financial and business matters that enable it to
evaluate the merits and risks of the transactions contemplated by this
Agreement, and its decision to purchase the Loans are based upon PURCHASER's own
independent evaluation of information deemed relevant to PURCHASER, and of
information made available by SELLER or SELLER's personnel, agents,
representatives or independent contractors, and PURCHASER's independent
evaluation and review of the Loans, Loan Files, Mortgages, Mortgaged Property
and related information which PURCHASER acknowledges and agrees were made
available to it and which it was given the opportunity to inspect to its
complete satisfaction. PURCHASER has relied solely on its own investigation and
it has not relied upon any oral or written information provided by SELLER or its
personnel, agents, representatives or independent contractors and acknowledges
that no employee, agent, representative or independent contractor of SELLER has
been authorized to make, and that PURCHASER has not relied upon, any statements
other than those specifically contained in this Agreement. PURCHASER agrees and
represents that the information made available to it is adequate and sufficient
basis on which to determine whether to purchase the Loan Interest. PURCHASER
has made such independent investigations as it deems to be warranted into the
nature, validity, enforceability, collectability, and value of the Loan
Interests, and all other facts it deems material to its purchase and is entering
into this transaction solely on the basis of that investigation and Purchaser's
own judgment.
8
<PAGE>
(c) Authorization. PURCHASER is duly and legally authorized to enter
-------------
into this Agreement and has complied with all laws, rules, regulations, charter
provisions and by-laws to which it may be subject and that the undersigned
representative is authorized to act on behalf of and bind PURCHASER to the terms
of this Agreement.
(d) Binding Obligations. Assuming due authorization, execution and
-------------------
delivery by each party hereto, this Agreement and all obligations of PURCHASER,
are enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditor's rights generally.
(e) No Breach or Default. The execution and delivery of this
--------------------
Agreement and the performance of its obligations hereunder by PURCHASER will not
conflict with any provision of any law or regulation to which PURCHASER is
subject or conflict with, or result in a breach of, or constitute a default
under any of the terms, conditions or provisions of any agreement or instrument
to which PURCHASER is a party or by which it is bound or any order or decree
applicable to PURCHASER.
(g) LOANS SOLD AS IS. PURCHASER ACKNOWLEDGES AND AGREES THAT SELLER
----------------
HAS NOT AND DOES NOT REPRESENT, WARRANT OR COVENANT THE NATURE, ACCURACY,
COMPLETENESS, ENFORCEABILITY OR VALIDITY OF ANY OF THE LOAN DOCUMENTS. ALL
DOCUMENTATION, INFORMATION, ANALYSIS AND/OR CORRESPONDENCE, IF ANY, WHICH IS OR
MAY BE SOLD, TRANSFERRED, ASSIGNED AND CONVEYED TO PURCHASER WITH RESPECT TO THE
LOANS IS SOLD, TRANSFERRED, ASSIGNED AND CONVEYED TO PURCHASER ON AN "AS IS,
WHERE IS" BASIS.
(h) Economic Risk. The transactions contemplated by this Agreement do
-------------
not involve, nor are they intended in any way to constitute, the sale of a
"security" or "securities" within the meaning of any applicable securities laws,
and none of the representations, warranties or agreements of PURCHASER shall
create any inference that the transactions involve any "security" or
"securities".
(i) Status of PURCHASER. PURCHASER represents, warrants and certifies
-------------------
to SELLER that it is (i) a financial institution, (ii) an institutional
PURCHASER including a sophisticated PURCHASER that is in the business of buying
or originating loans or interests in loan of the type being purchased or that
otherwise deals in such loans or interests in loans in the ordinary course of
PURCHASER's business, or (iii) an entity that is defined as an accredited
investor under the federal securities laws.
(j) Insured Loan. If a Loan or Mortgage transferred pursuant to this
------------
Agreement is insured or guaranteed by any insurer or guarantor, including,
without limitations, the United States Department of Housing and Urban
Development or any other department or agency of any governmental unit, federal,
state or local, or private mortgage insurer, and such
9
<PAGE>
insurance or guaranty is not being specifically terminated by SELLER, PURCHASER
represents that PURCHASER has been approved by such agency, insurer or guarantor
and is an approved lender or mortgagee, as appropriate, if such approval is
required. PURCHASER agrees to assume all of SELLER's obligations, if any, under
the contract of insurance with respect to the period after the Closing Date.
PURCHASER and SELLER agree to cooperate as necessary to complete forms required
by the insuring party to effect or complete the transfer to PURCHASER.
(r) Brokerage Fees. In the event PURCHASER has dealt with a broker in
--------------
connection with the purchase of the Loans, PURCHASER hereby agrees to indemnify
and hold SELLER harmless from all claims, actions, damages, costs and expenses,
and all liability whatsoever, including reasonable attorneys' fees, which may
arise from any claim by or through PURCHASER for any brokerage fees, commissions
or finder's fees in connection with the Loans..
ARTICLE VI
-----------
ENVIRONMENTAL RISKS AND OTHER COLLATERAL ASSESSMENTS
PURCHASER expressly understands, acknowledges and agrees that there
may be violations of environmental laws (as defined below) or other
environmental issues and/or risks with respect to the Mortgaged Property
(together with all buildings, structures and improvements situated thereon that
may or may not be visible or apparent and which may or may not be above or below
the surface thereof) described in the Mortgage or otherwise securing the payment
of the Loan Interests. A copy of a written report may or may not have been
included in the Loan Files evidencing the results of an environmental assessment
performed on SELLER's behalf or on behalf of a prior owner of a Loan, or
Mortgaged Property for the purpose of assessing the environmental issues
concerning the Mortgaged Property ("Environmental Assessment Report"). PURCHASER
-------------------------------
understands and acknowledges that: (i) any Environmental Assessment Report that
may be in the Loan Files or is otherwise provided or made available by SELLER,
or by its employees, agents, contractors and representatives, is being provided
expressly without (and with an express disclaimer of any) representations or
warranties as to the qualifications or expertise of the author thereof, or the
completeness or accuracy of the facts, presumptions and conclusions contained
therein, and PURCHASER shall not rely on same in evaluating or closing the
transaction contemplated hereby, and (ii) PURCHASER assumes the risk that any
Environmental Assessment Report that may have existed but which was not provided
by SELLER, or its employees, agents, contractors and representatives to
PURCHASER, may have had a direct or indirect affect upon the actual and/or
PURCHASER's perceived valuation, risks or the assessment thereof and/or hazards
associated with or related to the Mortgaged Property. "Environmental Laws"
------------------
includes the Resource Conservation and Recovery Act (42 U.S.C. 6901, et. seq.),
--------
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. (S)(S) 7401 et. seq.), the Emergency Planning and Community Right to
--------
Know Act (42
10
<PAGE>
U.S.C. (S)(S) 1101 et. seq.), the Clean Air Act (42 U.S.C. (S)(S) 7401 et.
-------- ---
seq.), the Clean Water Act (33 U.S.C. (S)(S) 1251 et. seq.), the Toxic
--------
Substances Control Act (15 U.S.C. (S)(S) 2601 et. seq.), the Hazardous
--------
Materials Transportation Act (49 U.S.C. (S)(S) 180 et. seq.), the Occupational
--------
Safety and Health Act (29 U.S.C. (S)(S) 651 et. seq.), the Federal Insecticide,
--------
Fungicide and Rodenticide Act (7 U.S.C. (S)(S) 136 et. seq.), and the Safe
--------
Drinking Water Act (42 U.S.C. (S)(S) 3001 et. seq.), as any of the same may be
--------
amended from time to time, and all regulations, orders, rules, procedures,
guidelines and the like promulgated pursuant thereto, and any other state or
local laws, regulations, orders, rules, procedures, guidelines and the like
dealing with environmental matters., regardless of whether such laws and/or
regulations are in existence at the time this Agreement is executed.
ARTICLE VII
-----------
FILES AND RECORDS
7.1 Conformity to Law. PURCHASER agrees to abide by all applicable
-----------------
state and federal laws rules and regulations regarding the handling and
maintenance of all documents and records relating to the Loans purchased
hereunder including, but not limited to, the length of time such documents and
records are to be retained.
ARTICLE VIII
------------
MISCELLANEOUS
8.1 Notices. Unless otherwise provided for herein, all notices and
-------
other communications required or permitted hereunder shall be in writing
(including a writing delivered by facsimile transmission) and shall be deemed to
have been duly given (a) when delivered, if sent by registered or certified mail
(return receipt requested), (b) when delivered, if delivered personally or by
facsimile or (c) on the second following Business Day, if sent by overnight mail
or overnight courier, in each case to the parties at the following addresses (or
at such other addresses as shall be specified by like notice):
If to SELLER: Collateral Investment Corp.
1812 University Blvd.
Tuscaloosa, Alabama 35401
Attention: David W. Whitehurst
If to PURCHASER: New South Federal Savings Bank
1900 Crestwood Boulevard
Birmingham, Alabama 35210
Attention: Robert M. Couch
11
<PAGE>
8.2 Subsequent Documentation. PURCHASER further agrees,
------------------------
acknowledges, confirms and understands that in the event that PURCHASER requests
SELLER to execute and deliver assignments or other documents in addition to
those assignments or other documents initially prepared and provided by SELLER
as one of the Closing Documents, PURCHASER shall furnish SELLER with copies of
the proposed additional assignments or other documents for review, analysis,
approval or amendment by SELLER in its sole discretion. The responsibility for
all costs, fees and expenses of preparing, executing and delivering any such
additional assignments or such other documents as well as SELLER's attorneys'
fees in connection with a review of such additional assignments or other
documents shall be the sole responsibility of PURCHASER. PURCHASER shall also
be responsible for and shall pay the costs, fees, taxes and expenses of the
filing and recording of the originals of such additional assignments or other
documentation.
8.3 Notice of Claims or Litigation. PURCHASER shall promptly notify
------------------------------
SELLER of any claim, threatened claim, or litigation filed by a Mortgagor (or by
any other obligor of all or any portion of a Loan, or any other party) against
SELLER which arises from or relates to any of the Loans purchased hereunder.
8.4 Severability. Each part of this Agreement is intended to be
------------
severable. If any term, covenant, condition or provision hereof is unlawful,
invalid, or unenforceable for any reason whatsoever, and such illegality,
invalidity, or unenforceability does not affect the remaining parts of this
Agreement, then all such remaining parts hereof shall be valid and enforceable
and have full force and effect as if the invalid or unenforceable part had not
been included.
8.5 Rights Cumulative; Waivers. The rights of each of the parties
--------------------------
under this Agreement are cumulative and may be exercised as often as such party
considers appropriate. The rights of each of the parties hereunder shall not be
capable of being waived or varied otherwise than by an express waiver or
variation in writing. Any failure to exercise or any delay in exercising any of
such rights shall not operate as a waiver or variation of that or any other such
right. Any defective or partial exercise of any of such rights shall not
preclude any other or further exercise of that or any other such right. No act
or course of conduct or negotiation on the part of any party shall in any way
preclude such party from exercising any such right or constitute a suspension or
any variation of any such right.
8.6 Assignment. This Agreement and the terms, covenants, conditions,
----------
provisions, obligations, undertakings, rights and benefits hereof, including the
Addenda, Exhibits and Schedules hereto, shall be binding upon, and shall inure
to the benefit of, the undersigned parties and their respective heirs,
executors, administrators, representatives, successors, and assigns. PURCHASER
shall have the right, at any time after the Closing, to assign its rights under
this Agreement.
8.7 Construction. Unless the context otherwise requires, singular
------------
nouns and pronouns, when used herein, shall be deemed to include the plural of
such noun or pronoun and pronouns of one gender shall be deemed to include the
equivalent pronoun of the other gender.
12
<PAGE>
8.8 Headings. The headings of the Articles and Sections contained in
--------
this Agreement are inserted for convenience only and shall not affect he meaning
or interpretation of this Agreement or any provision hereof.
8.9 Prior Understandings. This Agreement supersedes any and all
--------------------
prior discussions and agreements between SELLER and PURCHASER with respect to
the purchase of the Loans and other matters contained herein, and this Agreement
contains the sole and entire understanding between the parties hereto with
respect to the transactions contemplated herein.
8.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute one and the same instrument, and
either party hereto may execute this Agreement by signing any such counterpart.
8.12 Survival. Each and every covenant hereinabove made by PURCHASER
--------
or SELLER shall survive the Closing.
8.13 Governing Law. This agreement shall be construed, and the
-------------
rights and obligations of seller and purchaser hereunder determined, in
accordance with federal statutory or common law ("federal law"). Insofar as
there may be no applicable rule or precedent under federal law and insofar as to
do so would not frustrate the purposes of the financial institutions reform,
recovery and enforcement act of 1989 or any provision of this agreement, the
local law of the State of Texas shall be deemed reflective of federal law. The
parties agree that any legal actions between purchaser and seller regarding the
purchase of the loan interests hereunder shall be originated in the united
states district court in and for the State of Texas, northern district, Dallas
division, subject to any rights of removal seller may have, and purchaser hereby
consents to the jurisdiction of said court in connection with any action or
proceeding initiated concerning this agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PURCHASER:
By:
------------------------------------
Title:
---------------------------------
Date:
----------------------------------
SELLER:
By:
------------------------------------
13
<PAGE>
Title:
---------------------------------
Date:
----------------------------------
14
<PAGE>
EXHIBIT A
---------
FORM OF BILL OF SALE AND ASSIGNMENT
COLLATERAL INVESTMENT CORP. ("SELLER") hereby absolutely sells, transfers,
assigns, sets-over and conveys to NEW SOUTH FEDERAL SAVINGS BANK ("PURCHASER"):
(a) all of SELLER's right, title and interest in and to the Loans
hereafter described in Exhibit "D" (the "Loan Interests").
(b) all principal, interest or other proceeds of any kind with respect
to the Loan Interests (including but not limited to proceeds derived from
the conversion, voluntary or involuntary, of the Loan Interests into cash
or other liquidated property, including, without limitation, insurance
proceeds and condemnation awards), but excluding payment and reimbursements
for advances received on or before the effective date hereof, being the
date last below shown.
Capitalized terms not defined herein shall have the meaning given the same
in the Agreement.
EXCEPT AS SPECIFICALLY SET FORTH IN THE AGREEMENT PURCHASER ACKNOWLEDGES
AND AGREES THAT SELLER HAS NOT MADE, DOES NOT MAKE, AND SPECIFICALLY DISCLAIMS
ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES
OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR
WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A)
MARKETABILITY, VALUE, THE NATURE, QUALITY OR CONDITION OF THE MORTGAGED
PROPERTY, A LOAN, OR A LOAN INTEREST, INCLUDING, WITHOUT LIMITATION, A NOTE, A
MORTGAGE, AND THE OTHER DOCUMENTATION CONTAINED IN A LOAN FILE (B) THE INCOME TO
BE DERIVED FROM A LOAN, A LOAN INTEREST OR THE MORTGAGED PROPERTY, (C) THE
SUITABILITY OF THE MORTGAGED PROPERTY OR A LOAN OR A LOAN INTEREST AND THE
DOCUMENTATION THEREFOR FOR ANY AND ALL ACTIVITIES AND USES WHICH PURCHASER MAY
INTEND, (D) THE VALIDITY, PRIORITY OR PERFECTION OF A MORTGAGED, (E) THE STATE
OF TITLE, PRIORITY OF LIENS, ZONING, TAX CONSEQUENCES, PHYSICAL CONDITION,
UTILITY CAPACITY OR COMMITMENT FOR UTILITY CAPACITY, OPERATING HISTORY OR
PROJECTIONS, VALUATIONS, GOVERNMENTAL APPROVALS OR GOVERNMENTAL REGULATIONS,
COMPLIANCE WITH SPECIFICATIONS, LOCATION, USE, QUALITY, DESCRIPTION, DURABILITY,
OR AS TO THE QUALITY OF MATERIAL OR WORKMANSHIP WITH RESPECT TO OR PERTAINING IN
ANY MANNER TO THE MORTGAGED PROPERTY AND ALL
15
<PAGE>
STRUCTURES AND IMPROVEMENTS LOCATED ON THE MORTGAGED PROPERTY, (F) THE
COMPLIANCE BY HOLDER OR ANY PREDECESSOR TO HOLDER WITH ANY AND ALL APPLICABLE
FEDERAL, STATE OR LOCAL LAWS AND ALL RULES, REGULATIONS OR ORDINANCES
PROMULGATED PURSUANT THERETO, PERTAINING TO OR IN ANY MANNER RELATED TO A LOAN,
A LOAN INTEREST OR THE MORTGAGED PROPERTY AND ALL STRUCTURES AND IMPROVEMENTS
LOCATED ON THE MORTGAGED PROPERTY, (G) THE COMPLIANCE OF A LOAN, A LOAN INTEREST
AND THE DOCUMENTATION THEREFOR WITH ANY STATE OR FEDERAL USURY LAWS AND
REGULATIONS APPLICABLE THERETO, (H) THE ACCURACY OR COMPLETENESS OF ANY
INFORMATION, DATE, STATEMENTS, AMOUNTS OR SOURCES OF INFORMATION CONTAINED IN A
LOAN FILE, IN A NOTE OR OTHER LOAN DOCUMENTS, OR (1) ANY OTHER MATTER WITH
RESPECT TO A LOAN INTEREST OR A LOAN OR THE MORTGAGED PROPERTY, AND
SPECIFICALLY, THAT SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS
ANY REPRESENTATION REGARDING ENVIRONMENTAL MATTERS RELATING TO THE MORTGAGED
PROPERTY, INTEREST RATE ADJUSTMENTS, OR DELINQUENCY AND PAYMENT HISTORIES.
PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT WITH RESPECT TO EACH LOAN
INTEREST TO BE SOLD HEREUNDER, PURCHASER HAVING BEEN GIVEN THE OPPORTUNITY TO
INSPECT A, A LOAN, THE LOAN FILE, AND THE MORTGAGED PROPERTY, PURCHASER IS
RELYING SOLELY ON ITS OWN INVESTIGATION THEREOF. PURCHASER FURTHER ACKNOWLEDGES
AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO A
LOAN INTEREST, A LOAN AND THE MORTGAGED PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS OR WARRANTIES AS
TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT CERTAIN INTERNAL MEMORANDA, INTERNAL DOCUMENTATION
AND INTERNAL CORRESPONDENCE OF SELLER, ITS INDEPENDENT CONTRACTORS AND/OR ITS
LOAN SERVICING AND MANAGEMENT AGENTS, AND MEMORANDA, DOCUMENTATION AND
CORRESPONDENCE BETWEEN SELLER, AND ITS INDEPENDENT CONTRACTORS, AND/OR ITS LOAN
SERVICING AND MANAGEMENT AGENTS HAVE BEEN REMOVED FROM THE LOAN FILES WHICH
SELLER, IN ITS SOLE AND ABSOLUTE DISCRETION, DEEMED NECESSARY OR ADVISABLE.
PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT SUCH MEMORANDA AND CORRESPONDENCE
WHICH SELLER REMOVED FROM THE LOAN FILES, IF DISCLOSED TO PURCHASER, COULD HAVE
AN IMPACT UPON AND AFFECT, AMONG OTHER THINGS, THE DECISION OF PURCHASER TO
PURCHASE THE LOAN INTERESTS, ON THE ACTUAL OR PERCEIVED VALUE OF THE LOAN
INTERESTS, AND THE ULTIMATE RECOVERY ON THE LOAN INTERESTS. EXCEPT AS
SPECIFICALLY SET FORTH HEREIN, PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THE SALE OF THE LOAN INTERESTS AS PROVIDED FOR
16
<PAGE>
HEREIN IS MADE WITHOUT WARRANTY ON AN "AS IS", "WHERE IS" CONDITION AND BASIS,
"WITH ALL FAULTS".
THIS BILL OF SALE AND ASSIGNMENT SHALL BE CONSTRUED, AND THE RIGHTS
AND OBLIGATIONS OF SELLER AND PURCHASER HEREUNDER DETERMINED, IN ACCORDANCE WITH
FEDERAL STATUTORY OR COMMON LAW ("FEDERAL LAW"). INSOFAR AS THERE MAY BE NO
APPLICABLE RULE OR PRECEDENT UNDER FEDERAL LAW AND INSOFAR AS TO DO SO WOULD NOT
FRUSTRATE THE PURPOSES OF THE FINANCIAL INSTITUTIONS REFORM, RECOVERY AND
ENFORCEMENT ACT OF 1989 OR ANY PROVISION OF THIS AGREEMENT, THE LOCAL LAW OF THE
STATE OF TEXAS SHALL BE DEEMED REFLECTIVE OF FEDERAL LAW. BETWEEN PURCHASER AND
SELLER REGARDING THE PURCHASE OF THE LOANS.
DATED: , 19 .
----------------------- -----
PURCHASER:
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
SELLER:
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
17
<PAGE>
STATE OF ALABAMA )
)
COUNTY OF ________________ )
This instrument was acknowledged before me on the _______ day of
_______________, 19____, by ______________________________, of
______________________________, on behalf of __________________________________.
------------------------------------
Notary Public
STATE OF ALABAMA )
)
COUNTY OF ________________ )
This instrument was acknowledged before me on the _____ day of
________________, 19____, by ________________________ of
___________________________, on behalf of ___________________________________.
------------------------------------
Notary Public
18
<PAGE>
EXHIBIT B
---------
FORM OF ENDORSEMENT
Pay to the Order of ___________________________, Without Recourse,
Representation or Warranty, of any Type, Kind or Nature, Express, Implied or
Created at Law.
By:
---------------------------------
------------------------------------
19
<PAGE>
EXHIBIT C
---------
FORM OF LOST NOTE AFFIDAVIT
BEFORE ME, the undersigned notary, personally appeared, who being duly
cautioned and sworn deposes and sayeth as follows:
1. That he is the Attorney-in-Fact for Collateral Investment Corp.
("CIC").
2. At the time of transfer to New South Federal Savings Bank ("New
South"), CIC was the owner of an interest in that certain loan or obligation
evidenced by the Note identified as follows:
Loan Number:
-----------------------------
Date of Note:
-----------------------------
Maker:
-----------------------------
Original Principal Amount:
-----------------------------
Date of Mortgage:
-----------------------------
Recording Information: Vol. ______, Page ______,
Clerk File No. _______,
Deed of Trust Records of _________ County,
Texas
3. That the original Note evidencing the loan was duly executed and
delivered by the marker(s) thereof, but has been lost or misplaced, the
obligation it represents has not been paid, canceled, or forgiven, and the Note
has not been assigned, transferred, pledged or hypothecated.
4. That CIC has heretofore assigned to New South all of its right, title
and interest in the Note, and CIC will not assert or claim any interest in the
Note adverse to New South, its assignees or transferees.
FURTHER AFFIANT SAYETH NOT.
STATE OF ALABAMA )
COUNTY OF __________ )
The foregoing affidavit was sworn and subscribed before me on the ______
day of December, 1997, by David W. Whitehurst, Attorney-in-Fact for CIC.
-----------------------------
Notary Public
20
<PAGE>
EXHIBIT D
---------
<TABLE>
<CAPTION>
ACCRUED
INVESTOR INTEREST
LOAN PRINCIPAL PRINCIPAL DUE % NET THRU PER
NUMBER BALANCE BALANCE DATE OWNED YIELD 11/24/97 DIEM
- ------ ------- ------- ---- ----- ----- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
30218004 $ 152,793.30 $152,472.43 12/01/1997 99.79% 9.75% $ 991.07 $41.29
30218024 $ 118,421.33 $117,817.38 12/01/1997 99.49% 9.50% $ 746.18 $31.09
30218025 $ 380,300.08 $268,111.56 12/01/1997 70.50% 9.375% $ 1,675.70 $69.82
30218026 $ 334,810.30 $246,252.98 12/01/1997 73.55% 9.29% $ 1,525.13 $63.55
30218027 $ 208,521.11 $205,768.63 12/01/1997 98.68% 11.75% $ 1,611.85 $67.16
$1,194,846.12 $990,422.98 $ 6,549.93
Total Safemate outstanding principal balance as of 11/24/97 $990,422.98
Accrued Interest due 11/24/97 $ 6,549.93
TOTAL PAYOFF $996,972.90
</TABLE>
21
<PAGE>
EXHIBIT 12.1
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth for the respective periods the ratios of
the Company's consolidated earnings to fixed charges.
<TABLE>
<CAPTION>
NEW SOUTH FEDERAL
SAVINGS BANK NEW SOUTH BANCSHARES, INC.
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30,(1) DECEMBER 31,(1)
------------------ --------------------------
1993 1994 1995 1996 1997
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits............ 4.69x 2.23x 1.65x 1.50x 1.87x
Including interest on deposits............ 1.31 1.23 1.15 1.12 1.18
- --------
(1) New South changed its fiscal year end from September 30 to December 31 in November of 1994
(upon the formation of the Company). Amounts shown for 1993 and 1994 relate to New South
only. Amounts for 1995 and thereafter relate to the Company on a consolidated basis.
Data for the Company as of December 31, 1994 did not differ significantly from the
corresponding data for New South as of September 30, 1994 presented above.
</TABLE>
The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes and fixed charges by fixed charges. Fixed
charges represent all interest expense (ratios are presented both excluding and
including interest on deposits). Interest expense (other than on deposits)
includes interest on federal funds purchased and securities sold under
agreements to repurchase, Federal Home Loan Bank advances, and other borrowed
funds.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG L.L.P.
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 17, 1998, in the Registration Statement (Form S-1
No. 333-xxxxx) and related Prospectus of New South Bancshares, Inc. for the
registration of 3,450,000 shares of New South Capital Trust 1 ___% Preferred
Securities (liquidation amount $10.000 per preferred security) fully and
unconditionally guaranteed by New South Bancshares, Inc.
/s/ ERNST & YOUNG L.L.P.
------------------------------
Birmingham, Alabama
May 12, 1998
<PAGE>
EXHIBIT 25.1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM T-1
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) ___________
____________________
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
____________________
NEW SOUTH BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 63-1132716
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.)
CRESTWOOD BOULEVARD
BIRMINGHAM, ALABAMA 35210
(Address, including zip code of
Principal executive offices)
$______ PREFERRED SECURITIES OF NEW SOUTH CAPITAL TRUST I
SUBORDINATED DEFERRABLE INTEREST DEBENTURE OF NEW SOUTH BANCSHARES, INC.
GUARANTEE OF NEW SOUTH BANCSHARES, INC. OF CERTAIN OBLIGATIONS UNDER THE
PREFERRED SECURITIES
(Title of the indenture securities)
<PAGE>
ITEM 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
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers Trust
Company dated August 7, 1990, Certificate of Amendment
of the Organization Certificate of Bankers Trust Company
dated June 21, 1995 - Incorporated herein by reference
to Exhibit 1 filed with Form T-1 Statement, Registration
No. 33-65171, Certificate of Amendment of the
Organization Certificate of Bankers Trust Company dated
March 20, 1996, incorporate by referenced to Exhibit 1
filed with Form T-1 Statement, Registration No. 333-
25843 and Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated June 19,
1997, copy attached.
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2 filed with
Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate
trust powers - Incorporated herein by reference to
Exhibit 2 filed with Form T-1 Statement, Registration
No. 33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, as amended on
November 18, 1997. Copy attached.
-2-
<PAGE>
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by Section
321(b) of the Act. - Incorporated herein by reference to
Exhibit 4 filed with Form T-1 Statement, Registration
No. 22-18864.
EXHIBIT 7 - The latest report of condition of Bankers Trust Company
dated as of December 31, 1997. Copy attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the trustee, Bankers Trust Company, 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 12th day of May, 1998.
BANKERS TRUST COMPANY
By: /s/ Sandra J. Shaffer
-------------------------------
Sandra J. Shaffer
Assistant Vice President
-4-
<PAGE>
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New York, DO
HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF AMENDMENT OF THE
ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION 8005 OF THE
BANKING LAW," dated June 19, 1997, providing for an increase in authorized
capital stock from $1,601,666,670 consisting of 100,166,667 shares with a par
value of $10 each designated as Common Stock and 600 shares with a par value of
$1,000,000 each designated as Series Preferred Stock to $2,001,666,670
consisting of 100,166,667 shares with a par value of $10 each designated as
Common Stock and 1,000 shares with a par value of $1,000,000 each designated as
Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 27th day of June in the Year of our Lord
------- ------
one thousand nine hundred and ninety-seven.
Manuel Kursky
------------------------------
Deputy Superintendent of Banks
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
_____________________________
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary of Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of march, 1903.
3. The organization certificate as heretofore amended is hereby amended to
increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Six Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into One
Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 600 shares with a par value of One Million Dollars ($1,000,000)
each designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred Million,
One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven (100,166,667)
shares with a par value of $10 each designated as Common Stock and 1000
shares with a par value of One Million Dollars ($1,000,000) each designated
as Series Preferred Stock."
<PAGE>
5. The foregoing amendment of the organization certificate was authorized by
unanimous written consent signed by the holder of all outstanding shares
entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this 19th day
of June, 1997.
/s/ James T. Byrne, Jr.
----------------------------
James T. Byrne, Jr.
Managing Director
/s/ Lea Lahtinen
----------------------------
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an Assistant
Secretary of Bankers Trust Company, the corporation described in the foregoing
certificate; that she has read the foregoing certificate and knows the contents
thereof, and that the statements herein contained are true.
/s/ Lea Lahtinen
-----------------------------
Lea Lahtinen
Sworn to before me this 19th day
of June, 1997.
Sandra L. West
- -----------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE>
BY-LAWS
NOVEMBER 18, 1997
BANKERS TRUST COMPANY
NEW YORK
<PAGE>
BY-LAWS
of
BANKERS TRUST COMPANY
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be held
at the office of the Company in the Borough of Manhattan, City of New York, on
the third Tuesday in January of each year, for the election of directors and
such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board
of Directors or any Committee thereof may participate in a meeting of the Board
of Directors or Committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting.
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who
<PAGE>
shall have attained age 72 shall be eligible to be elected or re-elected a
director. Such director may, however, remain a director of the Company until
the next annual meeting of the stockholders of Bankers Trust New York
Corporation (the Company's parent) so that such director's retirement will
coincide with the retirement date from Bankers Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board
of Directors may be filled by the affirmative vote of a majority of the
directors then in office, and the directors so elected shall hold office for the
balance of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive Officer or, in his absence, such
other director as the Board of Directors from time to time may designate shall
preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time
to time on the third Tuesday of the month. If the day appointed for holding
such regular meetings shall be a legal holiday, the regular meeting to be held
on such day shall be held on the next business day thereafter. Special meetings
of the Board of Directors may be called upon at least two day's notice whenever
it may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE>
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of not
less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more directors,
even though not members of the Executive Committee, may attend any meeting of
the Committee, and the member or members of the Committee present, even though
less than a quorum, may designate any one or more of such directors as a
substitute or substitutes for any absent member or members of the Committee, and
each such substitute or substitutes shall be counted for quorum, voting, and all
other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from time
to time fix a quorum for meetings of the Committee. Such Committee shall
conduct the annual directors' examinations of the Company as required by the New
York State Banking Law; shall review the reports of all examinations made of the
Company by public authorities and report thereon to the Board of Directors; and
shall report to the Board of Directors such other matters as it deems advisable
with respect to the Company, its various departments and the conduct of its
operations.
In the performance of its duties, the Audit Committee may employ or retain, from
time to time, expert assistants, independent of the officers or personnel of the
Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
Committee shall hold regular quarterly meetings and during the intervals thereof
shall meet at other times on call of the Chairman.
<PAGE>
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a
Chairman of the Board and a Chief Executive Officer; and shall also elect a
President, and may also elect a Senior Vice Chairman, one or more Vice Chairmen,
one or more Executive Vice Presidents, one or more Senior Managing Directors,
one or more Managing Directors, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, one or more General Managers, a
Secretary, a Controller, a Treasurer, a General Counsel, one or more Associate
General Counsels, a General Auditor, a General Credit Auditor, and one or more
Deputy Auditors, who need not be directors. The officers of the corporation may
also include such other officers or assistant officers as shall from time to
time be elected or appointed by the Board. The Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman, may from time to time appoint assistant officers.
All officers elected or appointed by the Board of Directors shall hold their
respective offices during the pleasure of the Board of Directors, and all
assistant officers shall hold office at the pleasure of the Board or the
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President, the Senior Vice Chairman or any Vice Chairman. The Board of
Directors may require any and all officers and employees to give security for
the faithful performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive Officer
of the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer by
law or by these By-Laws, or which usually attach or pertain to such office. The
other officers shall have, subject to the supervision and direction of the Board
of Directors or the Executive Committee or the Chairman of the Board or, the
Chief Executive Officer, the powers vested by law or by these By-Laws in them as
holders of their respective offices and, in addition, shall perform such other
duties as shall be assigned to them by the Board of Directors or the Executive
Committee or the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these By-
Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records
and premises of the Company and shall delegate such authority to his
subordinates. He shall have the duty to report to the Audit Committee on all
matters concerning the internal audit program and the adequacy of the system of
internal controls of the Company which he deems advisable or which the Audit
Committee may request. Additionally, the General
<PAGE>
Auditor shall have the duty of reporting independently of all officers of the
Company to the Audit Committee at least quarterly on any matters concerning the
internal audit program and the adequacy of the system of internal controls of
the Company that should be brought to the attention of the directors except
those matters responsibility for which has been vested in the General Credit
Auditor. Should the General Auditor deem any matter to be of special immediate
importance, he shall report thereon forthwith to the Audit Committee. The
General Auditor shall report to the Chief Financial Officer only for
administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
<PAGE>
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018
of the New York Banking Law, indemnify any person who is or was made, or
threatened to be made, a party to an action or proceeding, whether civil or
criminal, whether involving any actual or alleged breach of duty, neglect or
error, any accountability, or any actual or alleged misstatement, misleading
statement or other act or omission and whether brought or threatened in any
court or administrative or legislative body or agency, including an action by or
in the right of the Company to procure a judgment in its favor and an action by
or in the right of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the Company is servicing or
served in any capacity at the request of the Company by reason of the fact that
he, his testator or intestate, is or was a director or officer of the Company,
or is serving or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement, and costs, charges and expenses,
including attorneys' fees, or any appeal therein; provided, however, that no
indemnification shall be provided to any such person if a judgment or other
final adjudication adverse to the director or officer establishes that (i) his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, upon receipt of a written undertaking by or on behalf
of such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his acts were committed
in bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the Company, evidenced by
a written communication signed by the Chairman of the Board, the Chief Executive
Officer or the President, and (ii) only if and to the extent that, after making
such efforts as the Chairman of the Board, the Chief Executive Officer or the
President shall deem adequate
<PAGE>
in the circumstances, such person shall be unable to obtain indemnification from
such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or advancement
of expense pursuant to this Article V (i) is a contract right pursuant to which
the person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Company and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant is
not entitled to indemnification or to the reimbursement or advancement of
expenses, shall be a defense to the action or create a presumption that the
claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
<PAGE>
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE>
I, Kevin Weeks, Assistant Vice President of Bankers Trust Company, New York, New
York, hereby certify that the foregoing is a complete, true and correct copy of
the By-Laws of Bankers Trust Company, and that the same are in full force and
effect at this date.
Kevin Weeks
------------------------
ASSISTANT VICE PRESIDENT
DATED: 4/16/98
<PAGE>
Legal Title of Bank: Bankers Trust Company
Address: 130 Liberty Street
City, State ZIP: New York, NY 10006
FDIC Certificate No.: |0|0|6|2|3
Call Date: 12/31/97 ST-BK: 36-4840 FFIEC 031
Vendor ID: D CERT: 00623 Page RC-1
11
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED
SAVINGS BANKS FOR DECEMBER 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
+----------+
| C400 |
+-------------------------+
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin (1) .......................... | 0081 2,121,000|1.a.
b. Interest-bearing balances (2) ................................................... | 0071 4,770,000|1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) ...................... | 1754 0|2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)..................... | 1773 4,015,000|2.b.
3. Federal funds sold and securities purchased under agreements to resell................... | 1350 28,927,000|3.
4. Loans and lease financing receivables: | ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 17,692,000 | ////////////////// |4.a.
b. LESS: Allowance for loan and lease losses.....................RCFD 3123 659,000 | ////////////////// |4.b.
c. LESS: Allocated transfer risk reserve ........................RCFD 3128 0 | ////////////////// |4.c.
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) .............................. | 2125 17,033,000|4.d.
5. Trading Assets (from schedule RC-D) ................................................... | 3545 45,488,000|5.
6. Premises and fixed assets (including capitalized leases) ............................... | 2145 766,000|6.
7. Other real estate owned (from Schedule RC-M) ........................................... | 2150 188,000|7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) | 2130 58,000|8.
9. Customers' liability to this bank on acceptances outstanding ........................... | 2155 633,000|9.
10. Intangible assets (from Schedule RC-M) .................................................. | 2143 83,000|10.
11. Other assets (from Schedule RC-F) ....................................................... | 2160 5,957,000|11.
12. Total assets (sum of items 1 through 11) ................................................ | 2170 110,039,000|12.
---------------------------
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
Legal Title of Bank: Bankers Trust Company
Address: 130 Liberty Street
City, State Zip: New York, NY 10006
FDIC Certificate No.: |0|0|6|2|3
Call Date: 12/31/97 ST-BK: 36-4840 FFIEC 031
Vendor ID: D CERT: 00623 Page RC-2
12
<TABLE>
<CAPTION>
Schedule RC--Continued +---------------------------------------
Dollar Amounts in Thousands | //////// Bil Mil Thou |
- ------------------------------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C>
LIABILITIES | //////////////////////// |
13. Deposits: | //////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) | RCON 2200 24,608,000 |13.a.
(1) Noninterest-bearing(1) ...........RCON 6631 2,856,000.............. | /////////////////////// |13.a.(1)
(2) Interest-bearing .................RCON 6636 21,752,000.............. | /////////////////////// |13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E | /////////////////////// |
part II) | RCFN 2200 20,529,000 |13.b.
(1) Noninterest-bearing .............RCFN 6631 2,122,000 | /////////////////////// |13.b.(1)
(2) Interest-bearing ................RCFN 6636 18,407,000 | /////////////////////// |13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase | RCFD 2800 13,777,000 |14.
15. a. Demand notes issued to the U.S. Treasury ........................................ | RCON 2840 0 |15.a.
b. Trading liabilities (from Schedule RC-D)......................................... | RCFD 3548 24,968,000 |15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under |
capitalized leases): | /////////////////////// |
a. With a remaining maturity of one year or less ................................... | RCFD 2332 5,810,000 |16.a.
b. With a remaining maturity of more than one year through three years.............. | A547 4,702,000 |16.b.
c. With a remaining maturity of more than three years............................... | A548 1,750,000 |16.c.
17. Not Applicable. | //////////////////////// |17.
18. Bank's liability on acceptances executed and outstanding ........................... | RCFD 2920 633,000 |18.
19. Subordinated notes and debentures (2)............................................... | RCFD 3200 1,307,000 |19.
20. Other liabilities (from Schedule RC-G) ............................................. | RCFD 2930 5,961,000 |20.
21. Total liabilities (sum of items 13 through 20) ..................................... | RCFD 2948 104,045,000 |21.
22. Not Applicable | /////////////////////// |
| /////////////////////// |22.
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ...................................... | RCFD 3838 1,000,000 |23.
24. Common stock ....................................................................... | RCFD 3230 1,352,000 |24.
25. Surplus (exclude all surplus related to preferred stock) ........................... | RCFD 3839 540,000 |25.
26. a. Undivided profits and capital reserves .......................................... | RCFD 3632 3,526,000 |26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities .......... | RCFD 8434 (45,000)|26.b.
27. Cumulative foreign currency translation adjustments ................................ | RCFD 3284 (379,000)|27.
28. Total equity capital (sum of items 23 through 27) .................................. | RCFD 3210 5,994,000 |28.
29. Total liabilities and equity capital (sum of items 21 and 28)....................... | RCFD 3300 110,039,000 |29
| |
----------------------------------------
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best Number
describes the most comprehensive level of auditing work performed for the bank +------------------------------
by independent external auditors as of any date during 1996.................... | RCFD 6724 N/A |M.1
+-------------------------------
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and
savings deposits.
(2) Includes limited-life preferred stock and related surplus.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1997 AUDITED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<NAME> NEW SOUTH BANCSHARES INC
<CIK> 0001058991
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,943
<INT-BEARING-DEPOSITS> 200
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 232,705
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 727,854
<ALLOWANCE> (7,333)
<TOTAL-ASSETS> 992,065
<DEPOSITS> 695,365
<SHORT-TERM> 40,800
<LIABILITIES-OTHER> 203,586
<LONG-TERM> 0
0
0
<COMMON> 1,377
<OTHER-SE> 50,937
<TOTAL-LIABILITIES-AND-EQUITY> 992,065
<INTEREST-LOAN> 64,831
<INTEREST-INVEST> 10,660
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 75,491
<INTEREST-DEPOSIT> 37,732
<INTEREST-EXPENSE> 47,723
<INTEREST-INCOME-NET> 27,768
<LOAN-LOSSES> 2,954
<SECURITIES-GAINS> (645)
<EXPENSE-OTHER> 31,422
<INCOME-PRETAX> 8,706
<INCOME-PRE-EXTRAORDINARY> 4,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,716
<EPS-PRIMARY> 3.42
<EPS-DILUTED> 3.42
<YIELD-ACTUAL> 8.72
<LOANS-NON> 6,065
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,062
<LOANS-PROBLEM> 8,127
<ALLOWANCE-OPEN> 5,904
<CHARGE-OFFS> 2,200
<RECOVERIES> 675
<ALLOWANCE-CLOSE> 7,333
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,333
</TABLE>
