<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998
REGISTRATION NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SUPERIOR FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 6711 51-0379417
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION CODE
NUMBER)
---------------
5000 ROGERS AVENUE (501) 484-4305
FORT SMITH, ARKANSAS 72903 (TELEPHONE NO.)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
C. STANLEY BAILEY
CHIEF EXECUTIVE OFFICER
SUPERIOR FINANCIAL CORP.
5000 ROGERS AVENUE
FORT SMITH, ARKANSAS 72903
(501) 484-4305
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
WITH A COPY TO:
WILLARD H. HENSON
MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
ONE COMMERCE STREET, SUITE 305
MONTGOMERY, ALABAMA 36104
TELEPHONE: 334-834-5550
FACSIMILE: 334-265-4533
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE PER NOTE OR OFFERING REGISTRATION
REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.65% Senior Notes due
2003................... $60,000,000 100% $ 60,000,000 $17,700.00
- -----------------------------------------------------------------------------------
Common Stock, $.01 par
value per share........ 10,079,703 shares $10.00(2) $100,797,030 $29,735.12
- -----------------------------------------------------------------------------------
Total................... $160,797,030 $47,435.12
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY , 1998
PROSPECTUS
10,079,703 SHARES OF COMMON STOCK, PAR VALUE $0.01
$60,000,000 OF 8.65% SENIOR NOTES DUE APRIL 1, 2003
[LOGO]
SUPERIOR FINANCIAL CORP.
This Prospectus relates to the public offer and sale of up to 10,079,703
shares of common stock, par value $0.01 per share (the "Common Stock"), of
Superior Financial Corp. (the "Company") and up to $60 million of the Company's
8.65% Senior Notes due April 1, 2003 (the "Senior Notes"). All of such Common
Stock and the Senior Notes offered hereby are collectively referred to herein
as the "Superior Securities."
The Superior Securities were issued and sold in private placement
transactions (the "Private Placement") exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
to persons reasonably believed by the Company to be "qualified institutional
buyers" (as defined by Rule 144A under the Securities Act) or other "accredited
investors" (as defined in Rule 501(a) of Regulation D under the Securities
Act). In connection with the Private Placement, the Company executed and
delivered for the benefit of the holders of the Superior Securities a
Registration Rights Agreement dated April 1, 1998 (the "Registration Rights
Agreement"), providing for, among other things, the filing with the Securities
and Exchange Commission of the Registration Statement of which this Prospectus
forms a part. The Superior Securities offered hereby may be offered and sold
from time to time (the "Offering") by the holders named herein or, if required,
by holders named in an accompanying supplement (a "Prospectus Supplement") or
by their respective transferees, pledgees, donees, or their successors
(collectively, the "Selling Holders") pursuant to this Prospectus and a
Prospectus Supplement, if required.
The Superior Securities may be sold by the Selling Holders from time to time
directly to purchasers or through underwriters, dealers or agents. See "Plan of
Distribution." If required, the names of any such underwriters, dealers or
agents involved in the sale of the Superior Securities in respect of which this
Prospectus is being delivered and the applicable underwriter's discount,
dealer's purchaser price or agent's commission, if any, will be set forth in a
Prospectus Supplement.
The Selling Holders will receive all of the net proceeds from the sale of the
Superior Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the Superior Securities. The
Company is responsible for payment of all other expenses incident to the offer
and sale of the Superior Securities.
The Selling Holders and any underwriters, dealers or agents who participate
in the distribution of the Superior Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Superior Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" for a description of
indemnification arrangements.
Prior to this Offering, there has been no public market for the Superior
Securities. Although the Company intends to apply to have the Common Stock and
the Senior Notes listed on a national and/or regional securities exchange or
inter-dealer quotation service upon satisfaction of the applicable minimum
listing requirements, no assurance can be made as to when, if at all, the
Company will satisfy such listing requirements or if any such application will
ultimately be approved. Consequently, there is no assurance that an active
public trading market for either or both of the Common Stock or the Senior
Notes will develop or be sustained.
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THE SUPERIOR SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
SAVINGS ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY
GOVERNMENT AGENCY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements, including the accompanying Notes, appearing elsewhere
in this Prospectus. Prospective investors should carefully consider the
information set forth under the heading "Risk Factors" and should read this
Prospectus in light of the cautionary statement regarding forward-looking
information appearing before the heading "Risk Factors." A glossary of terms
applicable to the Indenture and the Senior Notes is set forth under
"Description of Senior Notes--Certain Definitions."
THE COMPANY
Superior Financial Corp. (the "Company") is a savings and loan holding
company organized under the laws of Delaware and headquartered in Fort Smith,
Arkansas. The Company was organized in 1997 as SFC Acquisition Corp. for the
purpose of acquiring Superior Federal Bank, F.S.B. (the "Bank"), a federally
chartered savings bank. The Company's acquisition of the issued and outstanding
capital stock of the Bank (the "Bank Capital Stock") from NationsBank, N.A.
("NationsBank") occurred on April 1, 1998 (the "Acquisition"). On April 1,
1998, the Company and Keefe, Bruyette & Woods, Inc. as Placement Agent,
completed the Private Placement of $97.5 million of Common Stock and $60.0
million of Senior Notes. The proceeds of the Private Placement were used
primarily to fund the Acquisition. In connection with the Private Placement,
the Company entered into the Registration Rights Agreement with the initial
purchasers of the Superior Securities and the Placement Agent, pursuant to
which, among other things, the Company agreed to file within 120 days a shelf
registration statement with the Securities and Exchange Commission (the
"Commission") providing for the offer and sale of the Superior Securities. The
Registration Statement of which this Prospectus forms a part has been filed in
satisfaction of such requirements. See "The Private Placement" and
"Registration Rights."
The Acquisition was financed through the Private Placement of $97.5 million
of Common Stock and $60.0 million of Senior Notes and the $20.0 million Loan.
The large debt component of the Acquisition financing has created a high degree
of leverage at the level of the Company (as opposed to the Bank). At June 30,
1998, the Company's leverage ratio was 2.6%. Furthermore, as a consequence of
the purchase method of accounting used in the Acquisition, there is a
significant non-cash amortization charge for goodwill which was created. This
charge reduces the Company's reported GAAP earnings by approximately $924,000
per quarter. In addition, the Senior Notes and the Loan have created a debt
service expense of approximately $1.93 million per quarter.
Since it is a holding company, the Company has no business operations of its
own and conducts business entirely through its subsidiaries. The Company's
principal subsidiary is the Bank. The Bank owns a subsidiary, SFS Corporation,
and a second-tier subsidiary, Southwest Protective Life Insurance Company,
which sells consumer loan credit life insurance to consumer loan borrowers of
the Bank.
The Bank was organized in 1934. The Bank is headquartered in Fort Smith,
Arkansas and operates through 59 branches in Arkansas and Oklahoma, with
concentration in the Little Rock and Fort Smith markets. At June 30, 1998, the
Company had consolidated assets of $1.3 billion, and shareholders' equity of
$99.1 million. At June 30, 1998, the Bank had deposits of $1.0 billion and
gross loans of $692 million.
The Company, through the Bank, provides a wide range of retail and small
business banking services including non-interest bearing and interest bearing
checking, savings and money market accounts, certificates of deposit, and
individual retirement accounts. In addition, the Company offers a full array of
real estate, consumer, small business, and commercial real estate loan
products. Other financial services include automated teller machines ("ATMs"),
credit related life and disability insurance, safety deposit boxes, and
telephone banking. The Company has been particularly effective in establishing
primary banking relationships by virtue of its Totally Free Checking strategy.
1
<PAGE>
It is the Company's goal to maximize long-term shareholder value through
year-to-year growth in loans, deposits, and non-interest revenue in a manner
consistent with safe, sound and prudent banking practices. To achieve this
goal, the Company's business strategy is to:
(a) embarking on a series of short term and intermediate term initiatives
designed to enhance suboptimal business practices of the Bank thereby
increasing revenue and enhancing operating efficiency;
(b) expanding the loan portfolio and transaction deposit accounts through
market share growth and selective de novo branching, specifically targeting
the account relocation expected to take place as a result of in market
merger-related customer dislocation;
(c) expanding the Bank's product offerings to encompass a wider range of
products and services which will be offered by a locally owned and operated
financial company with motivated employees;
(d) enhancing delivery systems options by offering expanded ATM,
telephone, and personal computer based banking services; and
(e) maintaining financial safety and soundness.
Certain of these short term initiatives have already been put into effect. In
May, 1998 the Bank entered into an agreement to sell 10 facilities in Oklahoma
and Arkansas. These branches were determined to be unprofitable, or not in
geographic or demographic locations deemed to fit the strategic direction of
the Bank. Additionally, several material outsourcing contracts have been
renegotiated at more favorable terms. The Bank is also analyzing the merits of
selling certain underutilized fixed assets and reallocating this capital into
higher earning assets.
The Company's growth strategy focuses on targeting customers displaced and
disenchanted as a result of industry consolidation in Superior's immediate and
contiguous markets. The ongoing consolidation in the financial services
industry is providing significant opportunity for local, community-oriented
financial institutions to capitalize on the resulting merger dislocation of
many customers. The Company is positioned to exploit this opportunity as a
newly independent organization. Furthermore, its reputation in its market for
strong service and its "totally free checking" product should help it to
cultivate these customers.
The Company plans to capture these customers where it currently has a
presence and through geographic expansion via de novo branching and
acquisitions. Selective branching in growth areas such as Little Rock, Conway,
and Ft. Smith by year end 1998 is planned. These locations will introduce a
branch design that emphasizes speed of service and convenience. A loan
production office is scheduled to open in the Tulsa market by mid-August.
The Company, as a registered savings and loan holding company, is subject to
examination and regulation by the Office of Thrift Supervision (the "OTS"). The
Bank, as a federally chartered savings bank, is subject to comprehensive
regulation and examination by the OTS, as its chartering authority and primary
regulator, and by the FDIC, which administers the Savings Association Insurance
Fund (the "SAIF"), which insures the Bank's deposits to the maximum extent
permitted by law. The Bank is a member of the Federal Home Loan Bank (the
"FHLB") of Dallas, which is one of the 12 regional banks which comprise the
FHLB System. The Company is further subject to regulations of the Board of
Governors of the Federal Reserve Board (the "Federal Reserve Board") governing
reserves required to be maintained against deposits and certain other matters.
The Company's executive offices are located at 5000 Rogers Avenue, Fort
Smith, Arkansas 72917-7012 and its main telephone number is (501) 484-4305.
2
<PAGE>
THE OFFERING
The Private Placement........... The Superior Securities issued to investors
in the Private Placement were sold by the
Company on April 1, 1998. An aggregate of
10,079,703 million shares of Common Stock
were sold to 146 purchasers and an aggregate
of $60.0 million of the Senior Notes were
sold to 11 purchasers. In connection
therewith, the Company executed and delivered
for the benefit of the holders of the
Superior Securities the Registration Rights
Agreement, providing for, among other things,
the filing of the Registration Statement of
which this Prospectus forms a part. See "The
Private Placement" and "Registration Rights."
Securities Offered.............. 10,079,703 shares of Common Stock and $60.0
million aggregate principal amount of Senior
Notes.
The Senior Notes................ See "Description of the Senior Notes."
Maturity Date................... April 1, 2003
Interest Payment Dates.......... Semi-annually on April 15 and October 15,
commencing October 15, 1998.
Ranking......................... The Senior Notes are general unsecured
obligations of the Company and will rank
senior to such other Indebtedness (as defined
in the Indenture dated April 1, 1998 by and
between the Company and The Bank of New York,
as Trustee (the "Indenture")) as the Company
may incur. Because the Company is the sole
shareholder of the Bank, the rights of
creditors of the Bank to payments from the
Bank are, in effect, senior to the rights of
the Company as a shareholder of the Bank, and
in effect, senior to the rights of holders of
Senior Notes, who will have no direct claim
against the Bank for payment.
Interest Reserve Account........ The Indenture pursuant to which the Senior
Notes are issued required the Company to
establish at the time of issuance of the
Senior Notes the Interest Reserve Account,
which is a segregated account containing a
sufficient amount of cash and other Permitted
Investments to pay the aggregate interest
payments scheduled to be made with respect to
the Senior Notes for the next two succeeding
Interest Payment Dates.
Sinking Fund.................... None
Mandatory or Optional Upon the occurrence of a Change of Control
Redemption...................... the Senior Notes not tendered in accordance
with the provisions set forth under "Change
of Control" shall be redeemable at the option
of the Company, in whole or in part, at any
time or from time to time, upon not less than
45 nor more than 60 days' prior notice mailed
by first-class mail to each holder's
registered address, at a redemption price
equal to the sum of (i) the principal amount
of the Senior Notes being redeemed plus
accrued
3
<PAGE>
interest thereon to the redemption date and
(ii) the Make-Whole Amount (as defined in the
Indenture), if any, with respect to such
Senior Notes (the "Redemption Price"). If
notice has been given as provided in the
Indenture and funds for the redemption of any
Senior Notes called for redemption shall have
been made available on the redemption date
referred to in such notice, such Senior Notes
will cease to bear interest on the date fixed
for such redemption specified in such notice
and the only right of the holders of the
Senior Notes will be to receive payment of
the Redemption Price.
Change of Control............... Upon a Change of Control (as defined in the
Indenture), holders of Senior Notes will have
the option to require the Company to
repurchase all outstanding Senior Notes at
101% of their principal amount, plus accrued
interest to the date of repurchase. There can
be no assurance that the Company will have
the funds available to repurchase the Senior
Notes in the event of a Change of Control.
Certain Additional Covenants.... The Indenture pursuant to which the Senior
Notes have been issued contains certain
additional covenants that prohibit, among
other things: (i) the incurrence of
Indebtedness by the Company, except for
certain Junior Indebtedness and Indebtedness
incurred under a Loan Agreement dated April
1, 1998 by and between the Company and
Colonial Bank and on such terms as were in
effect on the Issue Date and other Permitted
Indebtedness as defined in the Indenture;
(ii) the making of certain Restricted
Payments by the Company and its subsidiaries;
(iii) the incurrence of certain liens on the
Company's assets; (iv) the sale or other
transfer of capital stock of the Bank; and
(v) the Company's ability to enter into any
arrangement that would impose certain
restrictions on the ability of subsidiaries
of the Company to make dividend and other
payments of the Company. The Indenture also
restricts the Company's and the Bank's
ability to merge, consolidate or sell all or
substantially all of the assets of the
Company or the Bank.
Acceleration.................... The maturity of the Senior Notes may be
accelerated upon an Event of Default, as
defined in the Indenture. Such Events of
Default include, among other things,
continued default in payment of interest upon
any Senior Note for a period of 15 days,
continued breach of certain covenants or
warranties of the Indenture for a period of
30 days after notice of such default from the
holders of at least 25% of the outstanding
principal balance of the Senior Notes,
bankruptcy of the Company or the Bank,
default by the Company or a Subsidiary on any
Indebtedness in excess of 5% of the Company's
Consolidated Net Worth, which default has not
been cured within 30 days, the entry of a
final judgment in excess of 5% of the
Company's Consolidated Net Worth which
remains
4
<PAGE>
unsatisfied for a period of 60 days or the
continuing failure of either of the Banks to
comply with their Regulatory Capital
Requirements.
The Common Stock................ See "Description of Capital Stock."
Dividends....................... The payment of dividends on the Common Stock
will be at the discretion of the Board of
Directors of the Company. The Company does
not presently have a plan for paying
dividends and does not expect to pay any
dividends on the Common Stock before April 1,
1999. The Company's ability to pay dividends
will depend principally on the ability of the
Bank to pay dividends to the Company. For a
discussion of certain restrictions on the
ability of the Bank to pay dividends, see
"Regulation," "Description of Senior Notes"
and "Description of Capital Stock."
OTS regulations currently permit a "Tier I"
association such as the Bank to make capital
distributions without OTS approval during a
calendar year up to the higher of (i) 100% of
its net income to the date of such
distribution during the calendar year plus
the amount that would reduce by one-half its
surplus capital ratio, as defined, at the
beginning of the calendar year; or (ii) 75%
of its net income over the most recent four-
quarter period. See "Regulation--Regulation
of Federal Savings Institutions--Capital
Distribution Requirements."
Market for Superior Securities.. Since consummation of the Private Placement,
transactions in the Superior Securities have
been limited, and there is no established
market for the Superior Securities at this
time. Although the Company intends to apply
to have the Common Stock and the Senior Notes
listed on a national and/or regional
securities exchange or inter-dealer quotation
service upon satisfaction of the applicable
minimum listing requirements, no assurance
can be made when, if at all, the Company will
satisfy such listing requirements or if any
such application will ultimately be approved.
Accordingly, there can be no assurance that
an active public trading market for either
the Common Stock or the Senior Notes will
develop or be sustained. See "Dividends and
Market for Superior Securities."
Use of Proceeds................. The Selling Holders will receive all of the
proceeds from Superior Securities sold
pursuant to this Prospectus. See "Use of
Proceeds" for a discussion of the use of the
net proceeds from the Private Placement.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA--COMPANY
The following summary consolidated financial data of the Company is derived
from the Selected Consolidated Financial Data appearing elsewhere in this
Prospectus, and should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto and the information contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Superior Financial Corp. (the "Company") is a savings and loan holding
company. The Company was organized in 1997 as SFC Acquisition Corp. for the
purpose of acquiring Superior Federal Bank, F.S.B. (the "Bank"). On April 1,
1998, the Company completed a private placement offering and the proceeds were
used to acquire 100% of the common stock of the Bank. THIS TRANSACTION WAS
ACCOUNTED FOR USING THE PURCHASE METHOD OF ACCOUNTING FOR BUSINESS
COMBINATIONS, AND ACCORDINGLY, THE RESULTS OF OPERATIONS OF THE BANK WERE
CONSOLIDATED WITH THOSE OF THE COMPANY FROM APRIL 1, 1998, THE DATE OF THE
ACQUISITION. The assets and liabilities of the Bank were adjusted to fair value
at the purchase date, resulting in an excess cost over fair value of $76.4
million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998(10)
------------------ ----------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income............ $ 8,047 $ 8,047
Provision for loan losses....... 290 290
Net interest income after provi-
sion for loan losses........... 7,757 7,757
Noninterest income.............. 6,244 6,244
Noninterest expenses............ 9,376 9,376
Goodwill amortization........... 924 924
Income before taxes............. 3,700 3,700
Net income...................... 2,248 2,248
PER SHARE DATA:
Net income per share--Basic(1).. $ 0.22 $ 0.22
Net income per share--Dilut-
ed(2).......................... $ 0.21 $ 0.21
Cash earnings per share--Ba-
sic(3)......................... $ 0.31 $ 0.31
Cash earnings per share--Dilut-
ed(4).......................... $ 0.30 $ 0.30
Book value...................... $ 9.83 $ 9.83
Tangible book value............. $ 2.34 $ 2.34
Weighted average common shares
outstanding--Basic (in thou-
sands)......................... 10,080 10,080
Weighted average common shares
outstanding--Diluted (in thou-
sands)......................... 10,810 10,810
AVERAGE BALANCE SHEET DATA:
Total assets.................... $1,312,504 $1,295,992
Securities...................... 349,260 353,775
Loans........................... 689,263 690,900
Allowance for loan losses(5) ... 10,550 10,550
Goodwill........................ 73,484 66,833
Total deposits.................. 1,022,389 1,012,045
Debt:
Term loans...................... 20,000 20,000
Senior notes.................... 60,000 60,000
Total shareholders' equity...... 97,752 49,376
PERFORMANCE RATIOS(6):
Return on average assets........ 0.69% 0.69%
Return on average common equity. 9.20% 9.11%
Net interest margin............. 2.72% 2.72%
Efficiency ratio(7)............. 72.07% 72.07%
ASSET QUALITY RATIOS(5)(8):
Nonperforming assets to total
loans and other real estate.... 0.59% 0.59%
Net charge-offs (recoveries) to
average loans(6)............... 0.22% 0.22%
Allowance for loan losses to to-
tal loans...................... 1.50% 1.50%
Allowance for loan losses to
nonperforming loans(8)......... 302.00% 302.00%
CAPITAL RATIOS(5):
Tangible capital ratio(9)--Com-
pany........................... 1.75% 1.75%
Tangible capital ratio(9)--Bank. 7.32% 7.32%
Average shareholders' equity to
average total assets(9)--Compa-
ny............................. 7.45% 3.81%
Average shareholders' equity to
average total assets(9)--Bank.. 12.70% 12.70%
Core capital ratio(9)--Company.. 1.75% 1.75%
Core capital ratio(9)--Bank..... 7.32% 7.32%
Risk-based capital ratio(9)--
Company........................ 5.35% 5.35%
Risk-based capital ratio(9)--
Bank........................... 16.82% 16.82%
</TABLE>
6
<PAGE>
- --------
(1) Net income per share is based upon weighted average number of common
shares.
(2) Net income per share is based upon the weighted average number of common
shares and common share equivalents outstanding during the period.
(3) Cash earnings per share is net income plus goodwill amortization divided
by the weighted average number of common shares.
(4) Cash earnings per share is net income plus goodwill amortization divided
by the weighted average number of common shares and common share
equivalents outstanding during the period.
(5) At period end, except net charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(6) Interim period annualized.
(7) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(8) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more.
(9) Core capital, and risk-based capital ratios calculated at the Company and
Bank level.
(10) The only operations of the Company for the period January 1, 1998 through
March 31, 1998 were various expenses incurred related to the acquisition
of the Bank which are capitalizable under Accounting Principles Board
Opinion No. 16 ("APB No. 16"), Business Combinations. These amounts, which
include primarily legal fees and accounting fees as well as fees
associated with due diligence procedures, have been reported as deferred
acquisition costs and were included in the purchase accounting entries
recorded upon consummation of the acquisition.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA--BANK
The following summary consolidated financial data of the Bank is derived from
the Selected Consolidated Financial Data appearing elsewhere in this
Prospectus, and should be read in conjunction with the Consolidated Financial
Statements of the Bank and the Notes thereto and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED(4) DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income... $ 38,305 $ 36,676 $ 34,113 $ 33,217 $ 28,162
Provision for loan
losses............... 2,155 1,125 1,050 300 375
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses........ 36,150 35,551 33,063 32,917 27,787
Noninterest income.... 23,280 23,370 20,572 17,389 13,681
Noninterest expenses.. 39,316 46,362 36,527 33,641 27,019
---------- ---------- ---------- ---------- ----------
Income before taxes. 20,113 12,559 17,107 16,665 14,449
Net income............ 10,922 7,634 10,397 10,128 8,866
AVERAGE BALANCE SHEET
DATA:
Total assets.......... $1,291,295 $1,252,641 $1,272,514 $1,229,178 $1,027,212
Securities............ 410,876 480,728 578,879 668,610 639,761
Loans................. 684,379 652,172 589,020 460,313 278,806
Allowance for loan
losses(3)............ 4,886 5,003 4,841 4,770 4,825
Total deposits........ 995,237 1,041,920 1,064,880 1,007,654 889,656
Total shareholders'
equity............... 156,432 85,556 83,041 78,791 64,026
PERFORMANCE RATIOS:
Return on average
assets............... 0.85% 0.61% 0.82% 0.82% 0.86%
Return on average
common equity........ 6.98% 8.92% 12.52% 12.85% 13.85%
Net interest margin... 3.44% 3.15% 2.88% 2.89% 2.92%
Efficiency ratio(2)... 63.84% 77.21% 66.80% 66.48% 64.57%
ASSET QUALITY
RATIOS(1)(3):
Nonperforming assets
to total loan and
other real estate.... 0.82% 0.79% 0.73% 1.59% 2.14%
Net charge-offs
(recoveries) to
average loans........ 0.37% 0.15% 0.14% 0.11% 0.05%
Allowance for loan
losses to total
loans................ 0.67% 0.75% 0.77% 0.89% 1.24%
Allowance for loan
losses to
nonperforming
loans(3)............. 91% 107% 112% 59% 63%
CAPITAL RATIOS(1):
Tangible capital
ratio................ 7.40% 6.60% 5.97% 5.31% 5.11%
Average shareholders'
equity to average
total assets......... 12.11% 6.83% 6.53% 6.41% 6.23%
Core capital ratio.... 7.40% 6.60% 5.97% 5.31% 5.11%
Risk-based capital
ratio................ 15.69% 15.06% 14.86% 14.84% 16.65%
</TABLE>
- --------
(1) At period end, except net charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(2) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(3) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more.
(4) For 1997, the period presented is for January 7, 1997 to December 31, 1997.
8
<PAGE>
CAUTIONARY STATEMENTS FOR PURPOSES OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. When used in this Prospectus, the words "anticipate," "believe,"
"estimate," "expect" and similar expressions are generally intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others, the
following: regional and national economic and business conditions; industry
trends; competition; changes in levels of market interest rates; credit risks
of lending activities; changes in business strategy or development plans;
availability, terms and deployment of capital; availability of qualified
personnel; changes in, or the failure or inability to comply with, government
regulations; and other factors referenced in this Prospectus. These forward-
looking statements speak only as of the date of this Prospectus. The Company
expressly disclaims any obligation or undertaking to disseminate any updates
or revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
These and other factors could affect the Bank's (and therefore the Company's)
financial performance and could cause the Bank's (and therefore the Company's)
actual results for future periods to differ materially from those anticipated
or projected.
RISK FACTORS
Prospective investors should carefully review the following factors, as well
as the other information contained in this Prospectus, before deciding to make
an investment in the Superior Securities. The risks highlighted herein should
not be assumed to be the only factors that could affect the future performance
of the Bank and the Company.
SOURCE OF PAYMENTS ON THE SENIOR NOTES
The Company is a holding company with no business operations of its own. The
Company's only significant asset will be the Bank Capital Stock. Other than
any proceeds from the Offering retained by it or reserved in the Interest
Reserve Account, the Company's only source of cash to pay interest on and
principal of the Senior Notes will consist of distributions from the Bank.
There can be no assurance that the earnings of the Bank will be sufficient to
make distributions to the Company to enable it to pay interest on the Senior
Notes when due or principal of the Senior Notes at maturity or that such
distributions will be permitted by applicable federal banking laws and
regulations. Moreover, distributions from the Bank may not be sufficient to
pay the principal amount of the Senior Notes prior to maturity upon the
occurrence of an Event of Default (as defined in the Indenture) or to
repurchase the Senior Notes upon a Change of Control (as defined in the
Indenture). If there shall occur an Event of Default or a requirement for the
Company to repurchase the Senior Notes upon a Change of Control or, in the
event that earnings from the Bank are not sufficient to make distributions to
the Company to enable it to pay the principal amount of the Senior Notes at
maturity, the Company may be required to adopt one or more alternatives, such
as borrowing funds or selling its equity securities and/or the equity
securities or assets of the Bank. There can be no assurance that any of the
foregoing actions could be effected on satisfactory terms, that any of the
foregoing actions would enable the Company to pay the principal amount of the
Senior Notes or that any of such actions would be permitted by the terms of
the Indenture or applicable federal banking laws and regulations.
Federal banking laws and regulations, including the regulations of the OTS,
limit the Bank's ability to pay dividends and make other capital
distributions. OTS regulations currently permit a "Tier 1" association, such
as the Bank, to make capital distributions without OTS approval during a
calendar year up to the higher of (i) 100% of its net income to the date of
such distribution during the calendar year plus the amount that would reduce
by
9
<PAGE>
one-half its surplus capital ratio at the beginning of the calendar year; or
(ii) 75% of its net income over the most recent four quarters. See
"Regulation--Regulation of Federal Savings Institutions--Capital Distribution
Regulation." The Bank generally may not declare dividends or make any other
capital distribution to the Company if, after the payment of such dividend or
other distribution, the Bank would be undercapitalized. In addition, the Home
Owners' Loan Act ("HOLA") requires every savings institution subsidiary of a
savings and loan holding company to give the OTS at least 30-days advance
notice of any proposed dividends or capital distributions. The OTS may
prohibit any dividend or other capital distribution that it determines would
constitute an unsafe or unsound practice. There are also various statutory and
regulatory limitations on the extent to which the Bank can finance or
otherwise transfer funds to the Company or nonbanking subsidiaries of the
Company, whether in the form of loans, extensions of credit, investments or
asset purchases. The Director of the OTS may further restrict these
transactions in the interests of safety and soundness. See "Regulation--
Regulation of Federal Savings Institutions--Capital Distribution Regulation."
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
The Bank's allowance for losses in its loan portfolio amounted to $10.5
million or 1.50% of total loans at June 30, 1998. In determining the adequacy
of the Bank's allowance for loan losses in the future, the Company will
consider, among other things: (i) current and future economic conditions and
their anticipated impact on specific borrowers, (ii) the level of classified
and criticized assets and the risk factors associated with each such asset,
(iii) the level of past due and nonperforming assets, (iv) the level of the
allowance in relation to total loans and to historical and current loss levels
and (v) the growth and composition of the loan portfolio. If delinquency
levels increase as a result of adverse general economic conditions, or other
factors beyond the Company's control, the allowance for loan losses so
determined by the Company may not be adequate. In addition, there can be no
assurance that the Bank will not experience significant losses in its loan
portfolio which may require significant increases to the allowance for loan
losses in the future. Such increases may adversely affect the Bank's (and
therefore the Company's) results of operations and financial condition.
INTEREST RATE RISK
The Company's operating results depend to a large extent on its net interest
income, which is the difference between the interest income earned on interest
earning assets and the interest expense incurred in connection with its
interest bearing liabilities. Changes in the general level of interest rates
can affect the Company's net interest income by affecting the spread between
the Company's interest earning assets and interest bearing liabilities. This
may be due to the disparate maturities when repricing the Company's interest
earning assets and interest bearing liabilities. In addition to its effect on
the Company's interest rate spread, changes in the general level of interest
rates also affect, among other things, the ability of the Company to originate
loans, the value of the Company's interest earning assets and its ability to
realize gains from the sale of certain assets held for sale, the average life
of the Company's interest earning assets, the value of the Company's mortgage
servicing rights, and the Company's ability to obtain deposits in competition
with other available investment alternatives. Interest rates are highly
sensitive to many factors, including governmental monetary policies, domestic
and international economic and political conditions and other factors beyond
the control of the Company.
DEPENDENCE ON KEY PERSONNEL
The future success of the Company and the Bank depends in large part on the
services and efforts of its key personnel and the Company's ability to
attract, motivate and retain highly qualified employees. Competition for such
employees is intense and the process of locating key personnel with the
combination of skills and attributes required to execute the Company's
strategy is often lengthy. In particular, the Company will be highly dependent
on the management services of C. Stanley Bailey, who has been appointed as the
Chairman of the Board of Directors and Chief Executive Officer of the Company
and the Bank and other key executives each of whom is considered important to
the success of the Company. The loss of such personnel or other members of
senior management could have a material adverse effect on the Company and the
Bank. See "Management."
10
<PAGE>
DIVIDENDS
Payment of dividends on the Common Stock is at the discretion of the Board
of Directors of the Company, subject to applicable regulatory and other
restrictions imposed by law and subject to the terms of the indenture
governing the Senior Notes (the "Indenture"). For a description of such
restrictions, see "Regulation--Regulation of Federal Savings Institutions--
Capital Distribution Regulation," "Description of Senior Notes" and
"Description of Capital Stock." The Company does not presently have a plan for
payment of dividends on the Common Stock and does not expect to pay any
dividends on the Common Stock before April 1, 1999. The Company's ability to
pay dividends on the Common Stock will depend principally on the ability of
the Bank to pay dividends to the Company. The Bank's ability to pay such
dividends is limited by certain regulatory requirements. See "Regulation--
Regulation of Federal Savings Institutions--Capital Distribution Regulation."
ABSENCE OF PUBLIC MARKET
Prior to this Offering, there has been no public market for the Superior
Securities. Although the Company intends to apply to have the Common Stock and
the Senior Notes listed on a national and/or regional securities exchange or
inter-dealer quotation service upon satisfaction of the applicable minimum
listing requirements, no assurance can be made as to when, if at all, the
Company will satisfy such listing requirements or if any such application will
ultimately be approved. Consequently, there is no assurance that an active
public trading market for either or both of the Common Stock or the Senior
Notes will develop or be sustained.
ECONOMIC CONDITIONS
The success of the Company will be dependent to a certain extent upon
general economic conditions, particularly in the areas in which the Bank
conducts its business activities. Adverse changes in the economic conditions
of these areas may impair the ability of the Bank to collect loans and might
otherwise have an adverse effect on its business, including the demand for new
loans, the ability of customers to repay loans and the value of both the real
estate which secures its loans and its foreclosed assets.
COMPETITION
The Bank experiences substantial competition both in attracting and
retaining deposits and in making loans. Its most direct competition for
deposits historically has come from other thrift institutions, commercial
banks and credit unions doing business in its market areas. In addition, as
with all banking organizations, the Bank has experienced increasing
competition from nonbanking sources. For example, the Bank competes for funds
with full service and discount broker-dealers and with other investment
alternatives, such as mutual funds and corporate and governmental debt
securities. The Bank's competition for loans comes principally from other
thrift institutions, commercial banks, mortgage banking companies, consumer
finance companies, insurance companies and other institutional lenders. A
number of institutions with which the Bank competes for deposits and loans
have significantly greater assets, capital and other resources than the Bank.
In addition, many of the Company's competitors are not subject to the same
federal regulation that governs savings and loan holding companies such as the
Company and federally chartered and federally insured savings institutions
such as the Bank. As a result, many of the Company's competitors have
advantages over the Company in conducting certain businesses and providing
certain services.
REGULATION
Both the Company, as a savings and loan holding company, and the Bank, as a
federally chartered savings institution, are subject to significant
governmental supervision and regulation, which is intended primarily for the
protection of depositors and the federal deposit insurance funds. Statutes and
regulations affecting the Company and the Bank may be changed at any time, and
the interpretation of these statutes and regulations by regulatory authorities
and the courts also is subject to change. There can be no assurance that
future changes in
11
<PAGE>
applicable statutes and regulations or in their interpretation will not
adversely affect the business of the Company and the Bank. The Company is
subject to regulation and examination by the OTS, and the Bank is subject to
examination by the OTS and by the FDIC. There can be no assurance that the OTS
or the FDIC will not, as a result of such regulation and examination, impose
various requirements or regulatory sanctions upon the Company or the Bank, as
applicable. In addition to governmental supervision and regulation, each of
the Company and the Bank is subject to changes in federal and state laws,
including changes in tax laws, which could materially and adversely affect the
real estate industry, such as a repeal of the federal mortgage interest
deduction. See "Regulation."
On May 13, 1998, the United States House of Representatives passed a bill
denominated as the Financial Services Competitiveness Act of 1997 ("H.R. 10").
The United States Senate Committee on Banking, Housing and Urban Affairs held
hearings on H.R. 10 during June and July, 1998, during which the Chairman of
the Committee, Senator Alfonse M. D'Amato, indicated his intention to attempt
to enact the legislation during the current session of Congress, which is
expected to conclude during early October, 1998. As currently drafted, H.R. 10
does not directly affect the nature of the thrift charter; however, the
legislation would preclude commercial companies from acquiring thrift
charters. Under existing law, commercial companies are allowed to own thrift
institutions, and those companies presently holding thrift charters would be
permitted to retain the institutions they presently own. The prospective
limitation on commercial companies in H.R. 10 may have an impact on the value
of thrift institutions by limiting the number of potential purchasers.
YEAR 2000
Like most other financial institutions, the operations of the Bank are
particularly sensitive to potential problems arising from the inability of
many existing computer hardware and software systems and associated
applications to process accurately information relating to any two-digit "date
field" entries referring to the year 2000 and beyond. Many existing systems
are constructed to read such entries as referring to dates beginning with
"19," rather than "20." This set of issues is generally referred to as the
"Year 2000" problem. The Federal Financial Institutions Examination Council
(the "FFIEC"), through bank regulatory agencies including the OTS and the
FDIC, has issued mandatory compliance guidelines requiring financial
institutions to develop and implement plans for addressing Year 2000 issues
relevant to their operations. The Company and the Bank have developed a plan
as required under the guidelines. As of June 30, 1998, the Company has spent
$30,000 and expects to incur additional internal and third-party costs
totaling approximately $170,000 related to assessing the status of the
Company's systems, defining its strategy to bring all systems in to Year 2000
compliance, and implementing this strategy. These costs have been and will
continue to be expensed as incurred and are not expected to be material to the
Company's on-going operating costs.
The Company anticipates that all "mission critical" systems (as defined by
the FFIEC) will be Year 2000 compliant and fully tested within the schedule
set forth in the guidelines. However, the Company and the Bank depend upon
data processing and other services provided by third-party vendors. These
vendors have provided assurances that their systems will also be Year 2000
compliant by year-end 1999. Nevertheless, the Company could experience
material disruptions in its operations if the systems of such vendors are not
Year 2000 compliant as scheduled. The Company is unable to quantify at this
time the cost to the Company if such vendors fail to achieve Year 2000
compliance. Moreover, to the extent that the risks posed by the Year 2000
problem are pervasive in data processing and transmission and communications
services worldwide, the Company cannot predict with any certainty that its
operations will remain materially unaffected after January 1, 2000 or on dates
preceding this date at which time post January 1, 2000 dates become
significant within the Company's systems.
12
<PAGE>
THE COMPANY
The Company is a thrift holding company organized under the laws of Delaware
and headquartered in Ft. Smith, Arkansas. The Company was organized in 1997 as
SFC Acquisition Corp. for the purpose of acquiring the Bank, a federally
chartered thrift institution. The Bank was founded in 1934 in Fort Smith,
Arkansas. In 1992, the Bank was acquired by Boatmen's Bancshares, Inc.
("Boatmen's") for $27 million in a purchase transaction which created no
purchase accounting goodwill. In turn, Boatmen's was acquired by NationsBank
in 1997. The Bank has expanded through de novo growth and acquisitions to 59
branches concentrated in Ft. Smith, Little Rock, and eastern Oklahoma. At June
30, 1998 the Company had consolidated assets of $1.3 billion, and shareholders
equity of $99.1. At June 30, 1998, the Bank had deposits of $1.0 billion and
gross loans of $692 million.
As a wholly owned subsidiary of Boatmen's and then NationsBank, the
Company's operations were never fully integrated into the parent's
infrastructure and remained essentially autonomous. This arms-length
relationship with successive owners allowed for a stable management and
operating environment which produced strong financial performance unobstructed
by the customer disruptions often associated with multiple consolidations.
However, this relationship did not permit the Bank to capitalize fully upon
its strong brand recognition, excellent community reputation, significant
market share, and the stability of the region's economy.
The Acquisition was financed through the Private Placement of $97.5 million
of Common Stock and $60.0 million of Senior Notes and the $20.0 million Loan.
The large debt component of the Acquisition financing has created a high
degree of leverage at the level of the Company (as opposed to the Bank). At
June 30, 1998, The Company's leverage ratio was 2.6%. Furthermore, as a
consequence of the purchase method of accounting used in the Acquisition,
there is a significant non-cash amortization charge against for goodwill which
was created. This charge reduces the Company's reported GAAP earnings by
approximately $924,000 per quarter. In addition, the Senior Notes and the Loan
have created a debt service expense of approximately $1.93 million per
quarter.
It is the Company's goal to maximize shareholder value. The Company's
business strategy is based on a series of initiatives, both short and long
term, to achieve this goal. These initiatives are designed to unleash the
inherent strength of the franchise which has not been fully realized. These
various initiatives combine the following elements:
(a) embarking on a series of short term and intermediate term initiatives
designed to enhance suboptimal business practices of the Bank thereby
increasing revenue and enhancing operating efficiency
(b) expanding the loan portfolio and transaction deposit accounts through
market-share growth and selective de novo branching, specifically targeting
the account relocation expected to take place as a result of in market
merger-related customer dislocation;
(c) expanding the Bank's product offerings to encompass a wider range of
products and services which will be offered by a locally owned and operated
financial company with motivated employees;
(d) enhancing delivery systems options by offering expanded ATM,
telephone, and personal computer based banking services; and
(e) maintaining financial safety and soundness.
SHORT TERM INITIATIVES
The Bank was never fully integrated into the Boatmen's or NationsBank
infrastructure, and, therefore, certain inefficient banking practices existed
which were discovered by management during the Acquisition. As a result of
these findings, management began a campaign of near-term initiatives designed
to enhance revenue and improve operating efficiency. Many of these identified
near-term initiatives have already been completed, while others are underway.
A status report regarding specific short term initiatives is as follows:
13
<PAGE>
BRANCH RATIONALIZATION: In May, 1998, the Bank entered into agreements to
sell 10 facilities in Oklahoma and Arkansas. These branches were determined to
be either unprofitable, or not in geographic or demographic locations deemed
to fit the strategic direction of the Bank.
EXPENSE REDUCTION: Expense reductions relating to contract renewals and
renegotiations were completed in early 1998. Furthermore, unnecessary
NationsBank related inter-company expenses have been eliminated.
REVENUE ENHANCEMENTS: The opportunity to realize revenue enhancements
through the optimal use of free cash, Federal Home Loan Bank funding, and
reserve levels have already been addressed and is anticipated to contribute to
the Bank's reported income in the current and future years. Currently under
review is the potential to implement ATM surcharges and to begin assessing
fees to certain types of deposit products.
FIXED ASSET REALLOCATION: The Bank is currently exploring the possibility of
selling certain underutilized fixed assets and leasing back facilities which
more closely match the current and anticipated needs of the Bank. The
reallocation of funds freed up from such a transaction would be applied toward
the capitalization of earning assets.
GROWTH STRATEGY
The Company's growth strategy focuses on targeting customers displaced and
disenchanted as a result of industry consolidation in Superior's immediate and
contiguous markets. Management believes that the ongoing consolidation in the
financial services industry provides significant opportunities for local,
community-oriented financial institutions to capitalize on the resulting
merger dislocation of many customers. The Company is positioned to exploit
these opportunities as a newly independent organization. Furthermore, its
reputation in its market for strong service and its "totally free checking"
product should help it to cultivate these customers.
The Company plans to capture these customers where it currently has a
presence and through geographic expansion via de novo branching and
acquisitions. Selective branching in growth areas such as Little Rock, Conway,
and Ft. Smith by year end 1998 is planned. These locations will introduce a
branch design that emphasizes speed of service and convenience. A loan
production office is scheduled to open in the Tulsa market by mid-August.
FINANCIAL PRODUCTS AND SERVICES
The Company provides a wide range of retail and small business services
including non-interest bearing and interest bearing checking, savings and
money market accounts, certificates of deposit, and individual retirement
accounts. In addition, the Company offers an extensive array of real estate,
consumer, small business, and commercial real estate loan products. Other
financial services include automated teller machines, debit card, credit
related life and disability insurance, safety deposit boxes and telephone
banking.
The Company has been effective in establishing primary banking relationships
with lower to middle income market segments through the successful execution
of its Totally Free Checking programs. This has resulted in the Company having
over 160,000 checking customers with average non-interest revenue of
approximately $115 per account annually. Much of this success can be
attributed to the customer-oriented service environment created by the Bank's
personnel.
In the near to medium term management plans to effect certain initiatives
designed to improve the franchise through enhancing the menu of financial
products and services it offers. These initiatives will allow the Bank to
target additional customers as well as cross market to its existing, loyal
customer base. For example, management intends to introduce a comprehensive
sales training and a performance based incentive plan for all branch
personnel. Furthermore, the Company is currently establishing the means to
offer a full array of consumer investment and insurance products through a
dedicated, branch-based sales force. The addition of these services will make
it possible for the Company's customers to take care of essentially all of
their financial needs in one
14
<PAGE>
place. Moreover, crucial to the success of these related initiatives is the
addition of key leadership in the areas of mortgage and small business
lending. These additions, in concert with an expanded presence in metropolitan
markets, should position the Company to provide the locally approved lending
relationship desired by small business owners and individual consumers.
DELIVERY SYSTEMS
Management intends to enhance the Bank's existing delivery network through
various initiatives designed to make banking with the Company more attractive
to new and existing customers. Essential to the successful growth of the
Company is the recognition and fulfillment of its customers' desires to use a
variety of delivery channels to satisfy their financial needs. In this
context, the Company plans to add 11 new ATM locations by the end of 1998 to
its network of 49 ATMs. In addition, significant progress has been made in
establishing a telephone sales and service function that not only provides
routine customer information, but also allows customers to pay bills, transfer
money, order checks, and apply for a loan 24 hours a day, seven days a week.
The Company is providing similar capability to those customers who prefer to
use personal computers to transact banking business and manage their finances.
ASSET QUALITY
The successful implementation of the Company's business strategy requires an
emphasis on maintaining asset quality. The Board of Directors and senior
management regularly monitor asset quality with staff support provided by a
dedicated loan review function. In addition, lending units are supported by
credit scoring models and centralized review.
As of June 30, 1998 the Company has significantly enhanced its reserve for
loan losses to 1.50% of total loans. This level should provide an allowance
for loan losses which is more consistent with industry norms and the new
management's policies. In addition, the Company has adopted procedures to
achieve rapid resolution of non-performing loans and prompt and efficient
liquidation of real estate, automobiles and other forms of collateral. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--non-performing Assets").
FACILITIES
The Company currently offers a broad range of banking services through a
total of 59 branch offices located in central and northwestern Arkansas and
eastern Oklahoma as follows:
<TABLE>
<CAPTION>
NO. OF SQUARE
MARKET AREA LOCATIONS FOOTAGE
----------- --------- -------
<S> <C> <C>
Fayetteville/Springdale MSA............................. 4 10,831
Ft. Smith/Van Buren MSA................................. 7 127,230
Little Rock MSA......................................... 14 78,801
Hot Springs MSA......................................... 4 16,690
Eastern Oklahoma........................................ 16 62,017
North and Central Arkansas.............................. 14 43,862
</TABLE>
The Company owns 38 offices and leases the remaining 21 locations. The
leases have a range of terms and renewal options. Two of these facilities are
multi-story, multi-tenant offices. The Superior Tower located in Ft. Smith
consists of 95,000 square feet and is 63% occupied by the Company. The other
facility located in downtown Little Rock contains 45,000 square feet and is
53% occupied by the Company. The Company has entered into agreements to sell
facilities associated with 10 offices in Oklahoma and Arkansas.
Management plans to expand its network through the addition of four
locations in Little Rock, Conway, and Ft. Smith. Two of these offices will be
constructed on land currently owned by the Company.
15
<PAGE>
SUBSIDIARIES
The Company's principal subsidiary is the Bank. The Bank owns a subsidiary,
SFS Corporation, and a second-tier subsidiary, Southwest Protective Life
Insurance Company, which sells consumer loan credit life insurance to consumer
loan borrowers of the Bank.
COMPETITION
The banking industry in the Company's market area is highly competitive. In
addition to competing with commercial and savings banks and savings and loan
associations, the Company competes with credit unions, finance companies,
mortgage companies, brokerage and investment banking firms, asset-based non-
bank lenders, and other non-financial institutions. The Company has been able
to compete effectively through the use of its "totally free checking" program,
strong community reputation, and excellent customer service.
A substantial number of the banks operating in the Company's market area are
branches or subsidiaries of much larger regional or national banking
companies. While these organizations may have greater resources, Management
believes their customers are experiencing disruption in services as a result
of merger and consolidation activities. Management believes that this merger-
related dislocation creates significant opportunities for the locally based
institution which is committed to quality customer service, competitive fees
and interest rates, and active community involvement.
EMPLOYEES
As of June 30, 1998, the Company had 591 full-time employees, and 172 part-
time employees. None of the employees were represented by any union or similar
group, and the Company has not experienced any labor disputes arising from any
such organized labor group. The Company provides medical, hospitalization, and
group life insurance to eligible employees. In addition, the Company provides
a competitive 401(k) plan to which it contributes up to 3% of employee
salaries on a matching basis with customary vesting requirements.
16
<PAGE>
THE PRIVATE PLACEMENT
On December 3, 1997, the Company entered into a Stock Purchase Agreement
with the Bank and NB Holdings, Inc., a subsidiary of NationsBank (the
"Purchase Agreement"), which provided for the Company's purchase of the Bank
Capital Stock. In order to raise the funds necessary to complete the
Acquisition, the Company entered into agreements (each, a "Founder's
Agreement" and collectively, the "Founders' Agreements") with each of the
Placement Agent, Financial Stocks, Inc. (the "Lead Investor") and C. Stanley
Bailey, presently Chairman and Chief Executive Officer of the Company (each, a
"Founder" and collectively, the "Founders").
Pursuant to the Founder's Agreement between the Company and the Lead
Investor, the Lead Investor purchased 2,444,300 million shares of Common Stock
at a price of $9.60 per share, for an aggregate of $22.5 million. In addition,
the Lead Investor received 100,000 additional shares of Common Stock as
reimbursement for the funding of certain expenses incurred by the Company in
connection with the Acquisition. In consideration of the Lead Investor's
willingness to assume the risk that the Acquisition would not be consummated,
such shares were valued for this purpose at $5.00 per share.
Pursuant to the Founder's Agreement between the Company and the Placement
Agent, the Placement Agent purchased 552,083 shares of Common Stock at a price
of $9.60 per share, or an aggregate of $5.3 million. The agreement also
provided for the payment by the Company to the Placement Agent of (i) a
transaction fee equal to 1.5% of the aggregate purchase price paid in the
Acquisition, or approximately $2.4 million and (ii) placement agent fees
totaling $4.88 million as follows: 4% of the aggregate proceeds from the sale
of the Common Stock (less the amount purchased by the Founders), 3.5% of the
aggregate proceeds from the sale of the Senior Notes, and 1.5% of the
aggregate proceeds of the Loan (as defined below). In addition, the Placement
Agent received 100,000 additional shares of Common Stock as reimbursement for
the funding of certain expenses incurred by the Company in connection with the
Acquisition. In consideration of the Placement Agent's willingness to assume
the risk that the Acquisition might not be consummated, such shares were
valued for this purpose at $5.00 per share.
Pursuant to the Founder's Agreement between the Company and Mr. Bailey, Mr.
Bailey purchased 104,166 shares of common stock at a price of $9.60 per share,
for an aggregate of $1.0 million. Mr. Bailey's Founder's Agreement also
provided for the grant of certain options to acquire common stock. See
"Management-- Employment Agreements."
Prior to the completion of the Private Placement, the Company negotiated a
credit facility with Colonial Bank for the loan of $20.0 million (the "Loan").
The promissory note under the Loan is for a term of two years and bears
interest at a rate per annum equal to LIBOR plus one hundred seventy five
basis points (1.75%). The Loan is secured by the pledge of 460 shares of the
Bank Capital Stock, which is equal to 46% of the issued and outstanding Bank
Capital Stock. The Loan closed on April 1, 1998, the date the Private
Placement and the Acquisition were completed.
On April 1, 1998, the Company and Keefe, Bruyette & Woods, Inc. as Placement
Agent, completed the sale of $97.5 million of Common Stock and $60.0 million
of Senior Notes in the Private Placement. The proceeds of the Private
Placement, together with the Loan proceeds and the proceeds raised under the
Founders' Agreements, were used primarily to fund the Acquisition. See "Use of
Proceeds." In connection with the Private Placement, the Company entered into
the Registration Rights Agreement with the initial purchasers of the Superior
Securities and the Placement Agent, pursuant to which, among other things, the
Company agreed to file within 120 days a shelf registration statement with the
Commission providing for the offer and sale of the Superior Securities. The
Registration Statement of which this Prospectus forms a part, has been filed
in satisfaction of such requirements. See "The Private Placement" and
"Registration Rights."
17
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following unaudited table presents the consolidated ratios of earnings
to fixed charges. The 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) and the portion of net rental expense
which is deemed to be equivalent to interest on debt. Interest expense (other
than on deposits) includes interest on notes and debentures, Federal Home Loan
Bank borrowings, federal funds purchased and securities sold under agreements
to repurchase, mortgages, and other funds borrowed. The pro forma ratio of
earnings to fixed charges to combined fixed charges has been presented to
reflect the interest expense of the Senior Notes issued as part of the Private
Placement Offering.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
---------------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges--Company:
Excluding interest on deposits
Actual............................. .79 -- -- -- -- --
Pro Forma.......................... .71 -- -- -- -- --
Including interest on deposits
Actual............................. .96 -- -- -- -- --
Pro Forma.......................... .93 -- -- -- -- --
Earnings to Fixed Charges--Bank:
Excluding interest on deposits
Actual............................. 1.48 3.83 2.73 3.47 5.64 20.16
Pro Forma.......................... 1.63 4.25 -- -- -- --
Including interest on deposits
Actual............................. 1.06 1.44 1.26 1.35 1.44 1.45
Pro Forma.......................... 1.08 1.46 -- -- -- --
</TABLE>
RECENT DEVELOPMENTS
OVERVIEW
Superior Financial Corp. (the "Company") is a savings and loan holding
company. The Company was organized in 1997 as SFC Acquisition Corp. for the
purpose of acquiring Superior Federal Bank, F. S. B. (the "Bank"). On April 1,
1998 the Company completed a private placement offering and the proceeds were
used to acquire 100% of the common stock of the Bank. This transaction was
accounted for using the purchase method of accounting for business
combinations, and accordingly, the results of operations of the Bank were
consolidated with those of the Company from April 1, 1998, the date of the
acquisition. Prior to the acquisition of the Bank on April 1, 1998, the
Company did not have any operations, other than the costs associated with the
private placement offering. The Bank is a federally chartered savings
association.
Net income available to common shareholders for the Company for the six
months ended June 30, 1998 was $2.2 million, or $0.22 per share--basic and
$0.21 per share--diluted.
18
<PAGE>
The following table presents for the periods indicated certain summary
consolidated financial data reflecting the Company's results of operations and
financial condition. The results of operations of the Bank have been
consolidated with those of the Company from April 1, 1998, the date of the
Acquisition.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998(8)
---------------------- ----------------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA) EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net income available to common
shareholders................... $ 2,248 $ 2,248
Net income per share--Basic(1).. .22 .22
Net income per share--Diluted... .21 .21
Cash earnings per share--Ba-
sic(6)......................... .31 .31
Cash earnings per share--Dilut-
ed(7).......................... .30 .30
Weighted average common shares
outstanding--Basic (in thou-
sands)(1)...................... 10,080 10,080
Weighted average common shares
outstanding--Diluted (in thou-
sands)(2)...................... 10,810 10,810
<CAPTION>
JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA(3):
Total assets.................... $1,315,188
Loans........................... 692,619
Goodwill........................ 75,501
Total deposits.................. 1,021,534
Debt:
Term Loans...................... 20,000
Senior Notes.................... 60,000
Total shareholders' equity...... 99,124
Book value per share............ 9.83
Tangible book value............. 2.34
ASSET QUALITY RATIOS(3):
Nonperforming assets to loans
and other real estate.......... 0.59%
Allowance for loan losses to
nonperforming loans(4)......... 302.00%
CAPITAL RATIOS(5)
Tangible Capital Ratio (7)--Com-
pany........................... 1.75%
Tangible Capital Ratio (7)--
Bank........................... 7.32%
Average Shareholders' equity to
average total assets (7)--Com-
pany........................... 3.81%
Average Shareholders' equity to
average total assets (7)--Bank. 12.70%
Core Capital Ratio (7)--Company. 1.75%
Core Capital Ratio (7)--Bank.... 7.32%
Risk-based capital Ratio (7)--
Company........................ 5.35%
Risk-based capital Ratio (7)--
Bank........................... 16.82%
</TABLE>
- --------
(1) Net income per share is based upon the weighted average number of common
shares outstanding.
(2) Net income per share is based upon the weighted average number of common
shares outstanding and common share equivalents during the period.
(3) At period end.
(4) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more.
(5) Capital ratios calculated at the Company and Bank level.
(6) Cash earnings per share is Net income plus goodwill amortization divided
by the weighted average number of common shares.
(7) Cash earnings per share is Net income plus goodwill amortization divided
by the weighted average number of common shares and common share
equivalents outstanding during the period.
(8) The only operations of the Company for the period January 1, 1998 through
March 31, 1998 were various expenses incurred related to the acquisition
of the Bank which are capitalizable under Accounting Principles Board
Opinion No. 16 ("APB No. 16"), Business Combinations. These amounts, which
include primarily legal fees and accounting fees as well as fees
associated with due diligence procedures, have been reported as deferred
acquisition costs and were included in the purchase accounting entries
recorded upon consummation of the acquisition.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet as of June 30, 1998
and unaudited pro forma combined statements of income for the year ended
December 31, 1997 and for the six month period ended June 30, 1998 give effect
to the following transaction:
On April 1, 1998 the Company paid $162.5 million to acquire 100% of the
common stock of the Bank. This transaction has been accounted for using the
purchase method of accounting for business combinations, and accordingly, the
results of operations of the Bank were consolidated with those of the Company
from April 1, 1998, the date of the acquisition. The assets and liabilities of
the Bank were adjusted to fair value at the purchase date. For pro forma
income statement purposes the assumed consummation date for the transaction is
January 1, 1997 for the pro forma combined statement of income for the year
ended December 31, 1997, and January 1, 1998 for the pro forma combined
statement of income for the six month period ended June 30, 1998.
The pro forma adjustments reflected in the pro forma combined balance sheet
and pro forma combined statement of income represent estimated values and
amounts based on available information regarding the Bank's assets and
liabilities. The actual adjustments that will result from the transaction will
be based on further evaluations and may differ substantially from the
adjustments presented herein. The pro forma combined balance sheet and the pro
forma combined statement of income are presented for illustrative purposes
only and are not necessarily indicative of the financial position or operating
results that would have been achieved had the transaction been consummated as
of the dates indicated or of the results that may be obtained in the future.
The pro forma combined balance sheet and the pro forma combined statement of
income should be read in conjunction with the accompanying notes and
historical financial statements of the Company and the Bank appearing
elsewhere in this Prospectus and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
20
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SUPERIOR SUPERIOR
FINANCIAL FEDERAL PRO FORMA
CORP. (A) BANK (B) ADJUSTMENTS PRO FORMA
--------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks..... $ 2,194 $ 25,467 $ 155 (D) $ 27,816
Mortgage-backed securities
available-for-sale......... 331,959 331,959
Short-term investments...... 5,184 159,000 164,184
Loans, net.................. 682,216 682,216
Premises and equipment, net. 64 18,390 18,454
Goodwill.................... 72,979 2,522 (D) 75,501
Other assets................ 170,346 13,152 (165,702)(C)(D) 17,796
-------- ---------- --------- ----------
$177,788 $1,303,163 $(163,025) $1,317,926
======== ========== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing...... $ $ 76,029 $ $ 76,029
Interest bearing.......... 948,999 948,999
-------- ---------- --------- ----------
Total deposits.......... 1,025,028 1,025,028
Federal Home Loan Bank
borrowings................. 105,000 105,000
Other liabilities........... 2,986 7,924 1,320 (E) 12,230
Short-term debt............. 20,000 20,000
Long-term debt.............. 60,000 60,000
-------- ---------- --------- ----------
Total liabilities....... 82,986 1,137,952 1,320 1,222,258
-------- ---------- --------- ----------
Stockholders' equity
Common stock............... 101 1 (1)(C) 101
Capital in excess of par
value..................... 94,975 162,499 (162,499)(C) 94,975
Retained earnings
(deficit)................. (274) 911 (911)(C)
(934)(D)(E) (1,208)
Net unrealized gains on
securities available-for-
sale...................... 1,800 1,800
-------- ---------- --------- ----------
Total stockholders' equity.. 94,802 165,211 (164,345) 95,668
-------- ---------- --------- ----------
$177,788 $1,303,163 $(163,025) $1,317,926
======== ========== ========= ==========
</TABLE>
- --------
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(A)Represents historical balance sheet of Superior Financial Corp.
(B)Represents historical balance sheet of Superior Federal Bank, F.S.B.
(C)To eliminate Bank's stockholder's equity in consolidation.
(D) To reduce Company's retained earnings (deficit) for increase in goodwill
amortization and reduction in interest expense on FHLB advances, which
both resulted from the acquisition of the Bank by the Company, and their
effects have been included in the unaudited pro forma combined statement
of income for the six month period ended June 30, 1998. The increase in
goodwill reflected in the June 30, 1998 Unaudited Pro Forma Combined
Balance Sheet as a result of the purchase of the Bank by the Company on
April 1, 1998, the date of closing, is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Total purchase price................................. $ 162.5
Less: Fair value of assets acquired.................. 1,370.2
Plus: Liabilities assumed............................ 1,275.3
Estimated Fees and Expenses Related to Private
Placement Offering................................. 8.8
--------
Goodwill............................................. $ 76.4
========
</TABLE>
(E)To reflect the changes in income tax expense due to the effect of the
additional pro forma adjustments.
21
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SUPERIOR SUPERIOR
FINANCIAL CORP. FEDERAL BANK PRO FORMA PRO
(A) (B) ADJUSTMENTS FORMA
--------------- ------------ ----------- -------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA.)
<S> <C> <C> <C> <C>
Interest income............. $ -- $83,664 $ $83,664
Interest expense............ -- 45,359 7,700 (E)
(780)(D) 52,279
------ ------- ------- -------
Net interest income......... -- 38,305 (6,920) 31,385
Provision for possible loan
losses..................... -- 2,155 2,155
------ ------- ------- -------
Net interest income after
provision for possible loan
losses..................... -- 36,150 (6,920) 29,230
Other operating income...... -- 23,280 23,280
Other operating expenses.... 20 39,317 342 (C) 39,679
------ ------- ------- -------
Income (loss) before income
taxes...................... (20) 20,113 (7,262) 12,831
Income tax expense.......... -- 9,191 (4,137)(F) 5,054
------ ------- ------- -------
Net income (loss)........... $ (20) $10,922 $(3,125) $ 7,777
====== ======= ======= =======
Average common shares
outstanding during period--
Basic (G).................. 10,080 1 (1) 10,080
Net income per common
share--Basic............... -- $10,922 -- $ 0.77
Average common shares out-
standing during the peri-
od--Diluted (H)............ 10,810 1 (1) 10,810
Net income per common
share--Diluted............. -- $10,922 -- $ 0.72
</TABLE>
- --------
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(A) Represents historical income statement of Superior Financial Corp.
(B) Represents historical income statement of Superior Federal Bank, F.S.B.
(C) To reflect the increase in amortization expense based upon the purchase of
the Bank by the Company. Pro forma amortization expense has been
calculated based upon goodwill being amortized over 20 years.
(D) Reflects the reduction in interest expense from the restructuring of the
FHLB advances, as a result of the acquisition.
(E) Pro forma adjustment to record interest expense for additional interest
costs and amortization of debt issuance costs related to the short-term
debt and Senior Notes. Interest on the short-term debt is 7.44% at
December 31, 1997. Interest on the Senior Notes is based on the rate of
8.65% per annum. Debt issuance costs are being amortized over the terms of
the related short-term debt and Senior Notes.
(F) To reflect the reduction in income tax expense due to the deductibility of
the goodwill from the purchase of the Bank and the effect of the
additional pro forma adjustments.
(G) Net income per share based upon weighted average number of common shares.
(H) Net income per share based upon weighted average number of common shares
and common share equivalents outstanding during the period.
22
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SUPERIOR SUPERIOR
FINANCIAL CORP. FEDERAL BANK PRO FORMA PRO
(A) (B) ADJUSTMENTS FORMA
--------------- ------------ ----------- -------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA.)
<S> <C> <C> <C> <C>
Interest income............ $ 26 $42,424 $ $42,450
Interest expense........... 1,925 23,046 1,925 (G)
(155)(D) 26,741
------ ------- ------- -------
Net interest income........ (1,899) 19,378 (1,770) 15,709
Provision for possible loan
losses.................... -- 8,149 -- 8,149
------ ------- ------- -------
Net interest income (loss)
after provision for possi-
ble loan
losses.................... (1,899) 11,229 (1,770) 7,560
Other operating income..... 911 11,125 (911)(C) 11,125
Other operating expenses... 54 20,852 (231)(E) 20,675
------ ------- ------- -------
Income (loss) before income
taxes..................... (1,042) 1,502 (2,450) (1,990)
Income tax expense (bene-
fit)...................... (768) 591 (605)(F) (782)
------ ------- ------- -------
Net income (loss).......... $ (274) $ 911 $(1,845) $(1,208)
====== ======= ======= =======
Average common shares
outstanding during
period--Basic (H)......... 10,080 1 (1) 10,080
Net (loss) income per com-
mon share--Basic.......... $(0.03) $911.00 -- $ (0.12)
Average common shares
outstanding during
period--Diluted (I)....... 10,750 1 (1) 10,750
Net income (loss) per com-
mon share--Diluted........ $(0.02) $911.00 -- $ (0.11)
</TABLE>
- --------
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(A) Represents historical income statement of Superior Financial Corp.
(B) Represents historical income statement of Superior Federal Bank, F.S.B.
The historical financial statements of the Bank for the six months ended
June 30, 1998 include a provision of approximately $4 million to increase
the allowance for loan losses for increased risk of losses in the
automobile loans, primarily in direct dealer loans, within the Bank's
portfolio, which experienced increased historical losses in the first
quarter of 1998.
(C) To eliminate Bank income from consolidation.
(D) Reflects the reduction in interest expense from the restructuring of the
FHLB advances, as a result of the acquisition.
23
<PAGE>
(E) To reflect the increase in amortization expense based upon the purchase of
the Bank by the Company. Pro forma amortization expense has been
calculated based upon goodwill being amortized over 20 years.
(F) To reflect the reduction in income tax expense due to the effect of the
additional pro forma adjustments.
(G) Pro forma adjustment to record interest expense for additional interest
costs and amortization of debt issuance costs related to the short-term
debt and Senior Notes. Interest on the short-term debt is 7.44% at June
30, 1998. Interest on the Senior Notes is based on the rate of 8.65% per
annum. Debt issuance costs are being amortized over the terms of the
related short-term debt and Senior Notes.
(H) Net income per share based upon weighted average number of common shares.
(I) Net income per share based upon weighted average number of common shares
and common share equivalents outstanding during the period.
24
<PAGE>
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the Superior
Securities sold pursuant to this Prospectus.
On April 1, 1998, the Company completed the Private Placement and closed the
Loan. Net Proceeds from the Loan and the sale of the Superior Securities in
the Private Placement were approximately $170.1 million, after deducting the
fees of the Placement Agent. The net proceeds from the sale of the Superior
Securities in the Private Placement were used as follows: (i) $162.5 million
was used to purchase the Bank Capital Stock; (ii) $5.1 million was used to
establish the Interest Reserve Account in accordance with the terms of the
Senior Notes, see "Description of Senior Notes--Interest Reserve Account"; and
(iii) $2.5 million was retained by the Company for general corporate purposes.
DIVIDENDS AND MARKET FOR SUPERIOR SECURITIES
The Board of Directors of the Company does not presently intend to implement
a policy of paying dividends on the Common Stock and does not expect to pay
dividends on the Common Stock before April 1, 1999. Rather, the Company
expects to retain earnings to support the anticipated future growth of the
Company. The initiation of a cash dividend policy will depend upon a number of
factors, including investment opportunities available to the Company and the
Bank, capital requirements, the Company's and the Bank's financial condition
and results of operations, tax considerations, statutory and regulatory
limitations and general economic conditions. No assurances can be given that
any dividends will be paid or that, if paid, will not be reduced or eliminated
in future periods. See "Regulation--Regulation of Federal Savings
Institutions--Capital Distribution Regulation," "Description of Senior Notes--
Certain Covenants--Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries" and "Description of Common Stock."
Dividends from the Company will depend principally on the ability of the
Bank to pay dividends to the Company. As described in "Regulation--Regulation
of Federal Savings Institutions--Capital Distribution Regulation," a Tier 1
institution is authorized to make capital distributions without OTS approval
during a calendar year of up to the higher of (i) 100% of its net income to
the date of such distribution during the calendar year plus the amount that
would reduce by one-half its surplus capital ratio at the beginning of the
calendar year; or (ii) 75% of its net income over the most recent four-quarter
period. Applicable regulations require, however, that all savings institutions
give the OTS at least 30-days advance notice of any capital distributions, and
the OTS may prohibit any capital distribution that it determines would
constitute an unsafe or unsound practice. As of June 30, 1998, under
applicable regulations of the OTS, the total capital available for the payment
of dividends by the Bank to the Company was $3.4 million, assuming application
of the OTS safe harbor for capital distributions. See "Regulation--Regulation
of Federal Savings Institutions--Capital Distribution Regulation."
Unlike the Bank, the Company is not subject to the aforementioned regulatory
restrictions on the payment of dividends to its shareholders, although the
source of such dividends will depend, in large part, upon dividends from the
Bank. The Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year.
Since consummation of the Private Placement, transactions in the Superior
Securities have been limited, and there is no established market for the
Superior Securities at this time. Although the Company intends to apply to
have the Common Stock and the Senior Notes quoted on a national and/or
regional securities exchange or inter-dealer quotation service upon
satisfaction of the applicable minimum listing requirements, no assurance can
be made as to when, if at all, the Company will satisfy such listing
requirements or if any such application will ultimately be approved.
Accordingly, there can be no assurance that an active public trading market
for either the Common Stock or the Senior Notes will develop or be sustained.
25
<PAGE>
The Company anticipates making an underwritten public offering (the "Public
Offering") of its Common Stock before the end of 1998. The Company's decision
to initiate and, if initiated, to consummate, the Public Offering will depend
upon variable factors, many of which are beyond the Company's control. These
factors include, but are not limited to, the Company's performance and results
of operations for the third quarter of 1998, market conditions in the
financial services industry, the perceived market for the Common Stock and the
likelihood that the Public Offering will be sufficiently subscribed at a price
that is satisfactory to the Company. The Company cannot predict with any
certainty whether or not the Public Offering will be initiated, and, if it is
initiated, whether or not it will be consummated. If the Public Offering is
consummated, the offering price of the Common Stock sold therein will be
determined at that time on the basis of then-current market conditions.
The Public Offering, if it is initiated and consummated, will be independent
of any rights of the holders of the Superior Securities under Section 3(c) of
the Registration Rights Agreement. Nevertheless, the Company expects that
holders of the Superior Securities will be offered the opportunity to sell
Superior Securities in the Public Offering, subject to the terms and
conditions of an underwriting agreement between the Company and the managing
underwriter and such other limitations as the Company, in its sole discretion,
may impose.
The development of a liquid public market depends upon the existence of
willing buyers and sellers, a circumstance that is not within the control of
the Company. Accordingly, the number of active buyers and sellers of the
Common Stock or the Senior Notes at any particular time may be limited. Under
such circumstances, investors in the Common Stock or the Senior Notes could
have difficulty disposing of their securities and should not view the Common
Stock or the Senior Notes as a short-term investment. Accordingly, there can
be no assurance that an active and liquid trading market for the Common Stock
or the Senior Notes will develop or that, if developed, it will continue, nor
is there any assurance that persons purchasing shares of Common Stock or
Senior Notes will be able to sell them at or above the purchase price
therefor.
26
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of June 30, 1998.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Notes Payable
Term loans......................................... $ 20,000
Senior Notes....................................... 60,000
Shareholders' equity
Preferred stock, $0.01 par value; 10 million shares
authorized, none issued and outstanding........... --
Common Stock, $0.01 par value; 20 million shares
authorized, 10,079,703 shares issued and
outstanding;(1)................................... 101
Capital in excess of par value..................... 94,975
Retained earnings ................................. 2,248
Unrealized appreciation on available-for-sale
securities........................................ 1,800
---------
Total shareholders' equity....................... 99,124
---------
Total capitalization............................. $179,124
=========
Capital Ratios:(2)
Tangible capital ratio............................. 1.75%
Average shareholders' equity to average total
assets............................................ 3.81%
Core capital ratio................................. 1.75%
Risk-based capital ratio........................... 5.35%
</TABLE>
- --------
(1) Does not include approximately 750,000 actual shares of Common Stock
reserved for issuance upon exercise of options.
(2) Capital ratios calculated at the Company level.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA--BANK
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Bank and the
Notes thereto, appearing elsewhere in the Prospectus, and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected historical consolidated financial data as
of the end of and for each of the four years in the period ended December 31,
1996 and the period from January 7, 1997 to December 31, 1997 are derived from
the Bank's Consolidated Financial Statements which have been audited by
independent public accountants.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED(4) DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income....... $ 83,664 $ 85,409 $ 83,439 $ 71,114 $ 60,017
Interest expense...... 45,359 48,733 49,326 37,897 31,855
---------- ---------- ---------- ---------- ----------
Net interest income. 38,305 36,676 34,113 33,217 28,162
Provision for loan
losses............... 2,155 1,125 1,050 300 375
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses........ 36,150 35,551 33,063 32,917 27,787
Noninterest income.... 23,280 23,370 20,572 17,389 13,681
Noninterest expenses.. 39,317 46,362 36,527 33,641 27,018
---------- ---------- ---------- ---------- ----------
Income before taxes. 20,113 12,559 17,107 16,665 14,450
Provision for income
taxes................ 9,191 4,925 6,710 6,537 5,584
---------- ---------- ---------- ---------- ----------
Net income............ $ 10,922 $ 7,634 $ 10,397 $ 10,128 $ 8,866
========== ========== ========== ========== ==========
BALANCE SHEET DATA(1):
Total assets.......... $1,256,153 $1,206,235 $1,294,575 $1,252,203 $1,225,071
Securities............ 382,211 449,006 534,709 618,952 724,809
Loans................. 697,869 674,861 639,880 528,901 395,140
Allowance for loan
losses............... 4,660 5,058 4,930 4,686 4,884
Total deposits........ 982,442 990,203 1,084,582 1,060,886 1,069,029
Total shareholder's
equity............... 161,832 84,521 84,279 76,928 74,000
PERFORMANCE RATIOS:
Return on average
assets............... .85% .61% .82% .82% .86%
Return on average
common equity........ 6.98% 8.92% 12.52% 12.85% 13.85%
Net interest margin... 3.44% 3.15% 2.88% 2.89% 2.92%
Efficiency ratio(2)... 63.84% 77.21% 66.80% 66.48% 64.57%
ASSET QUALITY RATIOS(1):
Nonperforming assets
to loans and other
real estate.......... .82% .79% .73% 1.59% 2.14%
Net charge-offs
(recoveries) to
average loans(1)..... .37% .15% .14% .11% .05%
Allowance for loan
losses to total
loans................ .67% .75% .77% .89% 1.24%
Allowance for loan
losses to
nonperforming
loans(3)............. 91% 107% 112% 59% 63%
CAPITAL RATIOS(1):
Tangible capital
ratio................ 7.40% 6.60% 5.97% 5.31% 5.11%
Average shareholders'
equity to average
total assets......... 12.11% 6.83% 6.53% 6.41% 6.23%
Core capital ratio.... 7.40% 6.60% 5.97% 5.31% 5.11%
Risk-based capital
ratio................ 15.69% 15.06% 14.86% 14.84% 16.65%
</TABLE>
- --------
(1) At period end except net charge-offs (recoveries) to average loans and
average shareholders' equity to average total assets.
(2) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(3) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more.
(4) For 1997, the period presented is for January 7, 1997 to December 31,
1997.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Superior Financial Corp. (the "Company") is a savings and loan holding
company. The Company was organized in 1997 as SFC Acquisition Corp. for the
purpose of acquiring Superior Federal Bank, F. S. B. (the "Bank"). On April 1,
1998 the Company completed a private placement offering and the proceeds were
used to acquire, in a purchase transaction, 100% of the common stock of the
Bank. Prior to the acquisition of the Bank on April 1, 1998, the Company did
not have any operations, other than the costs associated with the private
placement offering. The Bank is a federally chartered savings association. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations analyzes the major elements of the Bank's balance sheets
and statements of income. This section should be read in conjunction with the
Bank's financial statements and accompanying notes and other detailed
information appearing elsewhere in this Prospectus.
On January 7, 1997 NationsBank, Inc. purchased the Bank from Boatmen's
Bancshares, Inc. in a transaction accounted for by the purchase method of
accounting for business combinations. The phrase "year ended December 31,
1997" in the remainder of this discussion and analysis refers to the period
from January 7, 1997 to December 31, 1997.
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OVERVIEW
Total assets at December 31, 1997, 1996 and 1995 were $1,256 million, $1,206
million and $1,295 million, respectively. Loans were $698 million at December
31, 1997 an increase of $23 million or 3.4% from $675 million at the end of
1996. Loans were $640 million at year end 1995. Deposits decreased to $982
million at year end 1997 from $990 million at year end 1996 and $1,085 million
at year end 1995. The decrease in deposits for 1996 was due primarily to a
federal regulatory requirement to sell two branches with deposits of
$53.4 million.
Shareholders' equity was $162 million, $85 million and $84 million at
December 31, 1997, 1996 and 1995, respectively. The increase in stockholders'
equity from 1996 to 1997 was primarily the result of the acquisition of the
Bank by NationsBank on January 7, 1997 from Boatmen's Bankshares, Inc., the
former shareholder of the Bank's common stock.
Net income was $10.9 million, $7.6 million and $10.4 million for the years
ended 1997, 1996 and 1995, respectively. The decrease in net income for 1996
was due primarily to a one-time special assessment the Bank was required to
pay to recapitalize the Savings Association Insurance Fund ("SAIF") for $6.7
million. The Bank had returns on average assets of .85%, .61% and .82% and
returns on average common equity of 6.98%, 8.92% and 12.52% for the years
ended 1997, 1996 and 1995, respectively.
RESULTS OF OPERATIONS
Net Interest Income
1997 versus 1996. Net interest income totaled $38.3 million in 1997 compared
to $36.7 million in 1996, an increase of $1.6 million or 4.44%. This resulted
in net interest margins of 3.44% and 3.15% and net interest spreads of 3.16%
and 2.90% for 1997 and 1996, respectively.
The primary reason for higher net interest income was strong growth in loans
coupled with higher yields on the loan portfolio which increased to 8.02% from
7.94%. In addition, the securities portfolio yield increased 12 basis points
to 6.76% for the year ended 1997.
1996 versus 1995. Net interest income for 1996 was $36.7 million an increase
of $2.6 million or 7.6% from $34.1 million in 1995. The increase was driven by
an increase in interest income of $2.1 million and was further increased by a
decrease in interest expense of $.5 million. This resulted in net interest
spreads of 2.90% and 2.62% and net interest margins of 3.15% and 2.88% for the
years ended 1996 and 1995, respectively.
Interest income increased primarily due to growth in interest income from
the loan portfolio. Interest income from the loan portfolio grew to $51.8
million from $45.1 million, an increase of $6.7 million or 14.9%. The
29
<PAGE>
growth was due to an increase in the average loans to $652 million at year end
1996 from $589 million at the end of 1995. Also, the yield on loans increased
to 7.94% in 1996 from 7.66% in 1995.
The following table presents for the periods indicated the total dollar
amount of average balances interest income from average interest-earning
assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. No tax
equivalent adjustments were made and all average balances are monthly average
balance. Nonaccruing loans have been included in the table as loans carrying a
zero yield.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans.................. $ 684,379 $54,870 8.02% $ 652,172 $51,800 7.94% $ 589,020 $45,117 7.66%
Securities............. 410,876 27,765 6.76% 480,728 31,902 6.64% 578,879 37,195 6.43%
Federal funds sold and
other earning assets.. 18,650 1,029 5.52% 30,728 1,706 5.55% 18,513 1,127 6.09%
---------- ------- ---------- ------- ---------- -------
Total interest-
earning assets...... 1,113,905 83,664 7.51% 1,163,628 85,408 7.34% 1,186,412 83,439 7.03%
Less allowance for loan
losses................. 4,886 -- 5,003 -- 4,841 --
---------- ------- ---------- ------- ---------- -------
Total earning assets,
net of allowance...... 1,109,019 83,664 1,158,625 85,408 1,181,571 83,439
Nonearning assets....... 182,276 94,016 90,943
---------- ---------- ----------
Total assets......... $1,291,295 $1,252,641 $1,272,514
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing
demand deposits....... $ 188,646 $ 3,925 2.08% $ 178,044 $ 3,770 2.12% $ 166,621 $ 3,573 2.14%
Savings and money
market accounts....... 161,815 4,240 2.62% 165,169 4,081 2.47% 178,459 4,390 2.46%
Certificates of
deposit............... 577,141 30,269 5.24% 636,585 33,817 5.31% 659,740 34,616 5.25%
Borrowed funds......... 114,408 6,925 6.05% 117,253 7,064 6.02% 114,832 6,747 5.88%
---------- ------- ---------- ------- ---------- -------
Total interest-
bearing liabilities. 1,042,010 45,359 4.35% 1,097,051 48,732 4.44% 1,119,652 49,326 4.41%
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits....... 67,635 62,122 60,060
Other liabilities...... 6,987 7,912 9,761
---------- ---------- ----------
Total liabilities.... 1,116,632 1,167,085 1,189,473
Shareholders' equity.... 174,663 85,556 83,041
---------- ---------- ----------
Total liabilities and
shareholders'
equity.............. $1,291,295 $1,252,641 $1,272,514
========== ========== ==========
Net interest income..... $38,305 $36,676 $34,113
Net interest spread..... 3.16% 2.90% 2.62%
===== ===== =====
Net interest margin..... 3.44% 3.15% 2.88%
===== ===== =====
</TABLE>
30
<PAGE>
The following table presents the dollar amount of changes in interest income
and interest expense for the major components of interest-earning assets and
interest-bearing liabilities and distinguishes between the increase (decrease)
related to higher outstanding balances and the volatility of interest rates.
For purposes of this table, changes attributable to both rate and volume which
can be segregated have been allocated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 VS. 1996 1996 VS. 1995
--------------------- ------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
--------------------- ------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ---- ------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans.................... $ 2,566 $504 $ 3,070 $ 5,034 $1,649 $ 6,683
Securities............... (4,137) -- (4,137) (5,293) -- (5,293)
Federal funds sold and
other earning assets.... (677) -- (677) 672 (93) 579
------- ---- ------- ------- ------ -------
Total increase in
interest income....... (2,248) 504 (1,744) 413 1,556 1,969
------- ---- ------- ------- ------ -------
INTEREST-BEARING
LIABILITIES:
Interest-bearing demand
deposits................ 155 -- 155 197 -- 197
Savings and money market
accounts................ (84) 243 159 (309) -- (309)
Certificates of deposits. (3,548) -- (3,548) (799) -- (799)
Repurchase agreements and
borrowed funds.......... (139) (139) 146 171 317
------- ---- ------- ------- ------ -------
Total increase in
interest expense...... (3,616) 243 (3,373) (765) 171 (594)
------- ---- ------- ------- ------ -------
Increase in net interest
income.................... $ 1,368 $261 $ 1,629 $ 1,178 $1,385 $ 2,563
======= ==== ======= ======= ====== =======
</TABLE>
Provision for Loan Losses
The 1997 provision for loan losses increased to $2.2 million from $1.1
million in 1996, an increase of $1.1 million or 100%. The provision for the
year ended 1996 increased by $.8 million or 7% from the year ended December
31, 1995.
Noninterest Income
Noninterest income for the year ended December 31, 1997 was $23.3 million, a
decrease of $.1 million or .43% over the same period in 1996. Noninterest
income of $23.4 million earned in the year ended December 31, 1996 represented
an increase of $2.8 million or 13% over the same period in 1995. This was
partly due to a gain from sale of two branch deposit bases in the amount of
$1.3 million. The following table presents for the periods indicated the major
changes of noninterest income.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service charges on deposit accounts................. $20,241 $18,683 $17,236
Loan operations..................................... 1,796 1,330 1,242
Other noninterest income............................ 1,243 3,357 2,094
------- ------- -------
Total noninterest income........................ $23,280 $23,370 $20,572
======= ======= =======
</TABLE>
Service charges were $20.2 million for the year ended December 31, 1997,
compared to $18.7 million for the year ended December 31, 1996, an increase of
$1.5 million or 8%, and increased $1.4 million or 8% from 1995 to 1996. This
increase is attributed to the growth in the number of deposit accounts from
259,463 at December 31, 1995 to 263,904 at December 31, 1996 to 280,328 at
December 31, 1997.
31
<PAGE>
Noninterest Expenses
For the year ended December 31, 1997, noninterest expenses totaled $39.3
million, a decrease of $7.1 million, or 15.3%, from $46.4 million during 1996,
which had increased from $36.5 million during 1995. Noninterest expenses
increased from $36.5 million during 1995 to $46.4 million during 1996, an
increase of $9.9 million. The increase in 1996 was due primarily to a one-time
special assessment of $6.7 million the Bank was required to pay to
recapitalize the Saving Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC"). For the same time periods the
efficiency ratio was 63.84% in 1997, 77.21% in 1996 and 66.80% in 1995.
Salary and benefit expense for the year ended December 31, 1997 was $16.3
million, compared with $16.3 million for the year ended December 31, 1996.
Salary and benefit expense for the year ended December 31, 1996 was up $1.6
million or 11% from the same period in 1995. This increase was due primarily
to the hiring of additional personnel required to accommodate the Bank's
growth. Total full-time equivalent employees for the years ended 1997, 1996
and 1995 were 680, 684 and 668, respectively .
Occupancy expense rose $151,000 and $69,000 or 5% and 2% in 1997 and 1996,
respectively. Major categories included within occupancy expense are building
lease expense, depreciation expense, and maintenance contract expense.
Income Taxes
Income tax expense includes the regular federal income tax at the statutory
rate. The amount of federal income tax expense is influenced by the amount of
taxable income, the amount of tax-exempt income, the amount of nondeductible
interest expense, and the amount other nondeductible expenses. In 1997, income
tax expense was $9.2 million, an increase of $4.3 million or 88% from the $4.9
million of income tax expense in 1996. In 1996 income tax expense was $4.9
million, a decrease of $1.8 million or 27% from the $6.7 million of income tax
expense in 1995.
Impact of Inflation
The effects of inflation on the local economy and on the Bank's operating
results have been relatively modest for the past several years. Since
substantially all of the Bank's assets and liabilities are monetary in nature,
such as cash, securities, loans and deposits, their values are less sensitive
to the effects of inflation than to changing interest rates, which do not
necessarily change in accordance with inflation rates. The Bank tries to
control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. See "--Financial
Condition--Interest Rate Sensitivity and Liquidity" below.
FINANCIAL CONDITION
Loan Portfolio
Total loans increased by $23 million, or 3.41%, to $698 million at December
31, 1997, from $675 million at December 31, 1996. During 1996, total loans
increased by $35 million, or 5.47%, from $640 million at December 31, 1995.
At December 31, 1997, total loans represented 71% of deposits and 56% of
total assets. Total loans as a percentage of deposits were 68% at December 31,
1996 as compared with 59% at December 31, 1995. Total loans as a percentage of
total assets were 56% at December 31, 1996, compared with 49% at December 31,
1995.
32
<PAGE>
The following table summarizes the loan portfolio of the Bank by major
category of loans as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 4,403 .63% $ 2,704 .40% $ 2,931 .46% $ 3,496 .66% $ 1,900 .48%
Consumer................ 231,341 33.15% 215,238 31.89% 170,733 26.68% 117,875 22.29% 68,327 17.29%
Real estate
Construction & land
development........... 12,734 1.82% 13,304 1.97% 24,285 3.80% 23,780 4.50% 12,010 3.04%
1-4 family
residential........... 409,135 58.63% 416,668 61.74% 419,870 65.62% 361,485 68.35% 288,017 72.89%
Commercial owner
occupied.............. 40,257 5.77% 26,947 4.00% 22,061 3.44% 22,265 4.20% 24,886 6.30%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total Loans.......... $697,870 100.00% $674,861 100.00% $639,880 100.00% $528,901 100.00% $395,140 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The primary lending focus of the Bank is on small and medium sized
commercial, residential mortgage and consumer loans. Generally, the Bank's
commercial loans are underwritten in the Bank's primary market area on the
basis of the borrower's ability to service such debt from income. These loans
are primarily for owner-occupied commercial real estate with the loan
collateralized by the real estate.
A substantial portion of the Bank's real estate loans consists of single-
family residential mortgage loans collateralized by owner-occupied properties
located in the Bank's primary market area. The Bank offers a variety of
mortgage loan products which generally are amortized over three to 30 years.
Loans collateralized by single-family residential real estate generally have
been originated in amounts of no more than 90% of appraised value. The company
requires mortgage title insurance and hazard insurance in the amount of the
loan.
Consumer loans made by the Bank include automobile loans, recreational
vehicle loans, boat loans, home improvement loans, personal loans
(collateralized and uncollateralized) and deposit account collateralized
loans. The terms of these loans typically range from 12 to 60 months and vary
based upon the nature of collateral and size of loan.
Effective January 1, 1995, the Bank adopted SFAS No. 114, "Accounting for
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosures."
Under SFAS No. 114, as amended, a loan is considered impaired, based on
current information and events, if it is probable that the Bank will be unable
to collect the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement. The measurement of
impaired loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or the loan's observable
market price or based on the fair value of the collateral if the loan is
collateral-dependent. The adoption of SFAS No. 114 did not result in any
additional provision for loan losses.
Nonperforming Assets
The Bank's conservative lending approach has resulted in strong asset
quality. Nonperforming assets at December 31, 1997 were $5.8 million, compared
with $5.3 million at December 31, 1996 and $4.6 million at December 31, 1995.
This resulted in a ratio of nonperforming assets to loans plus other real
estate of .82%, .79% and .73% as of year end 1997, 1996 and 1995,
respectively.
33
<PAGE>
The following table presents information regarding nonperforming assets as
of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.................... $5,098 $4,715 $4,407 $7,972 $7,778
Other real estate and foreclosed
property........................... 662 600 242 457 677
------ ------ ------ ------ ------
Total nonperforming assets...... $5,760 $5,315 $4,649 $8,429 $8,455
====== ====== ====== ====== ======
Nonperforming assets to total loans
and other real estate.............. .82% .79% .73% 1.59% 2.14%
====== ====== ====== ====== ======
</TABLE>
The Bank has well developed procedures in place to maintain a high quality
loan portfolio. These procedures begin with approval of lending policies and
underwriting guidelines by the Board of Directors, low individual lending
limits for officers, Senior Loan Committee approval for large credit
relationships and quality loan documentation procedures. The loan review
department has consistently identified and analyzed weaknesses in the
portfolio and reports credit risk grade changes on a quarterly basis to bank
management and directors. The Bank also maintains a well developed monitoring
process for credit extensions in excess of $100,000. The Bank has established
underwriting guidelines to be followed by its officers. The Bank also monitors
its delinquency levels for any negative or adverse trends, and collection
efforts are done on a centralized basis. The Bank also has procedures to bring
rapid resolution of non-performing loans and prompt and orderly liquidation of
real estate, automobiles and other forms of collateral.
The Bank generally places a loan on nonaccrual status and ceases accruing
interest when loan payment performance is deemed unsatisfactory. All loans
past due 90 days, however, are placed on nonaccrual status, unless the loan is
both well collateralized and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction
of principal as long as doubt exists as to collection. The Bank is sometimes
required to revise a loan's interest rate or repayment terms in a troubled
debt restructuring. The Bank regularly updates appraisals on loans
collateralized by real estate, particularly those categorized as nonperforming
loans and potential problem loans. In instances where updated appraisals
reflect reduced collateral values, an evaluation of the borrower's overall
financial condition is made to determine the need, if any, for possible
writedowns or appropriate additions to the allowance for loan losses.
The Bank records real estate acquired by foreclosure at the lesser of the
outstanding loan balance, net of any reduction in basis, or the fair value at
the time of foreclosure, less estimated costs to sell.
Allowance for Loan Losses
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses at
January 1.................... $ 5,058 $ 4,930 $4,686 $4,884 $4,650
Provision for loan losses..... 2,155 1,125 1,050 300 375
Charge-offs................... (2,969) (1,322) (911) (542) (191)
Recoveries.................... 416 325 105 44 50
------- ------- ------ ------ ------
Allowance for loan losses at
December 31.................. $ 4,660 $ 5,058 $4,930 $4,686 $4,884
======= ======= ====== ====== ======
Allowance to period-end loans. .67% .75% .77% .89% 1.24%
Net charge-offs (recoveries)
to average loans............. .37% .15% .14% .11% .05%
Allowance to period end
nonperforming loans.......... 91% 107% 112% 59% 63%
</TABLE>
34
<PAGE>
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information as of
the dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future loan losses may
occur. The total allowance is available to absorb losses from any segment of
loans.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------
PERCENT OF
ALLOWANCE TO PERCENT OF
TOTAL LOANS TO
AMOUNT ALLOWANCE TOTAL LOANS
------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial.............................. $ -- -- 0.63%
Real estate:
Construction and land development..... -- -- 1.82%
1-4 family residential................ 694 15% 58.63%
Commercial owner occupied............. 319 7% 5.77%
Consumer................................ 3,603 77% 33.15%
Unallocated............................. 44 1% --
------ --- ------
Total allowance for loan losses..... $4,660 100% 100.00%
====== === ======
<CAPTION>
DECEMBER 31, 1996
-------------------------------
PERCENT OF
ALLOWANCE TO PERCENT OF
TOTAL LOANS TO
AMOUNT ALLOWANCE TOTAL LOANS
------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial.............................. $ -- -- 0.40%
Real estate:
Construction and land development..... -- -- 1.97%
1-4 family residential................ 678 13% 61.74%
Commercial owner occupied............. 557 11% 4.00%
Consumer................................ 3,641 72% 31.89%
Unallocated............................. 182 4% --
------ --- ------
Total allowance for loan losses..... $5,058 100% 100.00%
====== === ======
<CAPTION>
DECEMBER 31, 1995
-------------------------------
PERCENT OF
ALLOWANCE TO PERCENT OF
TOTAL LOANS TO
AMOUNT ALLOWANCE TOTAL LOANS
------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial.............................. $ -- 0.46%
Real estate:
Construction and land development..... -- 3.80%
1-4 family residential................ 736 15% 65.62%
Commercial owner occupied............. 561 11% 3.44%
Consumer................................ 2,013 41% 26.68%
Unallocated............................. 1,620 33% --
------ --- ------
Total allowance for loan losses..... 4,930 100% 100.00%
====== === ======
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------
PERCENT OF
ALLOWANCE TO PERCENT OF
TOTAL LOANS TO
AMOUNT ALLOWANCE TOTAL LOANS
------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial.............................. $ -- -- .66%
Real estate:
Construction and land development..... -- -- 4.50%
1-4 family residential................ 2,628 56% 68.35%
Commercial owner occupied............. 524 11% 4.20%
Consumer................................ 1,150 25% 22.29%
Unallocated............................. 384 8% --
------ --- ------
Total allowance for loan losses..... $4,686 100% 100.00%
====== === ======
<CAPTION>
DECEMBER 31, 1993
-------------------------------
PERCENT OF
ALLOWANCE TO PERCENT OF
TOTAL LOANS TO
AMOUNT ALLOWANCE TOTAL LOANS
------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial.............................. $ -- -- .48%
Real estate:
Construction and land development..... -- -- 3.04%
1-4 family residential................ 1,634 33% 72.89%
Commercial owner occupied............. 1,962 40% 6.30%
Consumer................................ 629 13% 17.29%
Unallocated............................. 659 14% --
------ --- ------
Total allowance for loan losses..... $4,884 100% 100.00%
====== === ======
</TABLE>
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Based on an evaluation of
the loan portfolio, management presents a quarterly review of the allowance
for loan losses to the Board of Directors, indicating any changes in the
allowance since the last review and any recommendations as to adjustments in
the allowance. In making its evaluation, management considers the
diversification by industry of the Bank's commercial loan portfolio, the
effect of changes in the local real estate market on collateral values, the
results of recent regulatory examinations, the effects on the loan portfolio
of current economic indicators and their probable impact on borrowers, the
amount of charge-offs for the period, the amount of nonperforming loans and
related collateral security, the evaluation of its loan portfolio by the loan
review function and the annual examination of the Bank's financial statements
by its independent auditors. Charge-offs occur when loans are deemed to be
uncollectible.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans
and other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An unallocated allowance is also established based on the
Bank's historical charge-off experience. The Bank then charges to operations a
provision for loan losses determined on an annualized basis to maintain the
allowance for loan losses at an adequate level determined according to the
foregoing methodology.
36
<PAGE>
Management believes that the allowance for loan losses at December 31, 1997
is adequate to cover losses inherent in the portfolio as of such date. There
can be no assurance, however, that the Bank will not sustain losses in future
periods, which could be greater than the size of the allowance at December 31,
1997. However, the allowance for loan losses has been significantly increased
in the first quarter of 1998 to reflect the increased risk of losses in the
automobile loans within the Bank's loan portfolio, which experienced increased
historical losses in the first quarter of 1998.
Securities
The Bank's securities portfolio is the second largest component of earning
assets. It provides a significant source of revenue for the Bank and acts as a
source of funding should the Bank experience unanticipated deposit withdrawals
or loan demand. At the date of purchase, the Bank is required to classify debt
and equity securities into one of three categories: held to maturity, trading
or available for sale. At each reporting date, the appropriateness of the
classification is reassessed. Investments in debt securities are classified as
held to maturity and measured at amortized cost in the financial statements
only if management has the positive intent and ability to hold those
securities to maturity. Securities that the Bank does not have the positive
intent and ability to hold to maturity and all marketable equity securities
are classified as available-for-sale or trading and carried at fair value.
Unrealized holding gains and losses on securities classified as available-for-
sale are carried as a separate component of stockholders' equity.
The following table summarizes the amortized cost of securities held by the
Bank as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities...... $365,781 $437,835 $524,410 $608,553 $718,358
Federal Home Loan Bank Stock.... 12,655 11,929 11,250 10,399 6,451
-------- -------- -------- -------- --------
Total securities............ $378,436 $449,764 $535,660 $618,952 $724,809
======== ======== ======== ======== ========
</TABLE>
All securities held by the Bank as of December 31, 1997, 1996 and 1995 are
classified as available-for-sale. The following table presents the amortized
cost and estimated market values for securities as of the dates shown.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------- -----------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities............. $365,781 $4,098 $(323) $369,556 $437,835 $3,386 $(4,144) $437,077
Federal Home Loan Bank
Stock.................. 12,655 -- -- 12,655 11,929 -- -- 11,929
-------- ------ ----- -------- -------- ------ ------- --------
Total securities........ $378,436 $4,098 $(323) $382,211 $449,764 $3,386 $(4,144) $449,006
======== ====== ===== ======== ======== ====== ======= ========
</TABLE>
The following table presents the amortized cost of securities and their
approximate fair values at December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINs LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed securities......... $524,410 $3,099 $(4,050) $523,459
Federal Home Loan Bank Stock....... 11,250 -- -- 11,250
-------- ------ ------- --------
Total securities............... $535,660 $3,099 $(4,050) $534,709
======== ====== ======= ========
</TABLE>
37
<PAGE>
At December 31, 1997, securities totaled $382 million, a decrease of $67
million from $449 million at December 31, 1996. The decrease occurred
primarily in mortgage-backed securities. During 1996, securities decreased $86
million from $535 million at December 31, 1995. The yield on the securities
portfolio for 1997 was 6.76% while the yield was 6.64% in 1996 and 6.43% in
1995.
The Bank has no mortgage-backed securities that have been issued by non-
agency entities.
At December 31, 1997, 92% of the mortgage-backed securities held by the Bank
had final maturities of more than 10 years. At December 31, 1997,
approximately $243 million of the Bank's mortgage-backed securities earned
interest at floating rates and repriced within one year, and accordingly were
less susceptible to declines in value should interest rates increase, but
benefit less than fixed rate securities in value changes at times of declining
interest rates.
The following table summarizes the contractual maturity of investments
(including securities, federal funds sold and interest-bearing deposits) and
their weighted average yields at December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------
AFTER ONE AFTER FIVE
YEAR BUT YEARS BUT
WITHIN WITHIN WITHIN AFTER TEN
ONE YEAR FIVE YEARS TEN YEARS YEARS
------------- ------------ ------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
------- ----- ------ ----- ------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities............. $ -- -- $5,051 7.40 $23,945 7.22 $336,785 6.74 $365,781 6.78
Federal Home Loan Bank
Stock.................. 12,655 6.00 -- -- -- -- -- -- 12,655 6.00
Federal funds sold...... 2,750 5.50 -- -- -- -- -- -- 2,750 5.50
Interest-bearing
deposits............... 30,240 5.50 -- -- -- -- -- -- 30,240 5.50
------- ---- ------ ---- ------- ---- -------- ---- -------- ----
Total investments.... $45,645 5.64 $5,051 7.40 $23,945 7.22 $336,785 6.74 $411,426 6.65
======= ==== ====== ==== ======= ==== ======== ==== ======== ====
</TABLE>
Deposits
The Bank's ratio of average demand deposits to average total deposits for
years ended December 31, 1997, 1996 and 1995 were 26%, 23%, and 22%,
respectively.
Average total deposits during 1997 decreased to $995 million from $1,042
million in 1996, a decrease of $47 million or 4.5%. In addition, average
noninterest-bearing deposits increased to $68 million in 1997 from $62 million
in 1996 due to the increase in the number of deposit accounts. Average
deposits in 1996 decreased to $1,042 million from $1,065 million in 1995, and
decrease of $23 million or 2.1%. This was due to the federal regulatory
requirement to sell two branches with deposits of $53.4 million.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1997, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- --------------- ---------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- ---------- ---- ---------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts.................. $188,646 2.08 $ 178,044 2.12 $ 166,621 2.14
Regular savings............... 104,787 2.37 106,476 2.37 109,236 2.43
Money market.................. 57,028 3.08 58,693 2.65 69,223 2.51
CD's.......................... 577,141 5.24 636,585 5.31 659,740 5.25
-------- ---------- ----------
Total interest-bearing
deposits................. 927,602 4.35 979,798 4.44 1,004,820 4.41
Noninterest-bearing deposits.. 67,635 62,122 60,060
-------- ---------- ----------
Total deposits............ $995,237 $1,041,920 $1,064,880
======== ========== ==========
</TABLE>
38
<PAGE>
Total deposits $100,000 and over at December 31, 1997 were $60.8 million.
Borrowings
Other short-term borrowings, consisting of Federal Home Loan Bank Advances,
generally represent borrowings with maturities ranging from one to thirty
days. Information relating to these borrowings is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996 1995
----- ------ --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Other short-term borrowings:
Average........................................... $ 0 $4,317 $ 70,644
Year-end.......................................... 0 8,000 0
Maximum month-end balance during year............... 0 8,000 105,000
Interest rate:
Average........................................... 0.00% 5.80% 6.10%
Year-end.......................................... 0.00% 5.80% 0.00%
</TABLE>
Interest Rate Sensitivity and Liquidity
Asset and liability management is concerned with the timing and magnitude of
repricing assets compared to liabilities. It is the objective of the Bank to
generate stable growth in net interest income and to attempt to control risks
associated with interest rate movements. In general, management's strategy is
to reduce the impact of changes in interest rates on its net interest income
by maintaining a favorable match between the maturities or repricing dates of
its interest-earning assets and interest-bearing liabilities. The Bank's asset
and liability management strategy is formulated and monitored by the Asset
Liability Committee, which is composed of senior officers of the Bank, in
accordance with policies approved by the Bank's Board of Directors. This
committee meets regularly to review, among other things, the sensitivity of
the Bank's assets and liabilities to interest rate changes, the book and
market values of assets and liabilities, unrealized gains and losses, purchase
and sale activity, and maturities of investments and borrowings. The Asset
Liability Committee also approves and establishes pricing and funding
decisions with respect to the Bank's overall asset and liability composition.
The Committee reviews the Bank's liquidity, cash flow flexibility, maturities
of investments, deposits and borrowings, retail and institutional deposit
activity, current market conditions, and interest rates on both a local and
national level.
The Bank reports to the Board of Directors rate sensitive assets minus rate
sensitive liabilities divided by total earning assets on a cumulative basis
quarterly. At December 31, 1997, this ratio was a positive 6.91%. The Bank
estimates that a 100 basis point change in interest rates would have no
significant impact on its net interest income over a twelve-month period. The
Committee regularly reviews interest rate risk exposure by forecasting the
impact of alternative interest rate environments on net interest income.
The interest rate sensitivity ("GAP") is defined as the difference between
interest-earning assets and interest-bearing liabilities maturing or repricing
within a given time period. A GAP is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A GAP is considered negative when the amount of interest rate
sensitive liabilities exceeds interest rate sensitive assets. During a period
of rising interest rates, a negative GAP would tend to adversely affect net
interest income, while a positive GAP would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative GAP
would tend to result in an increase in net interest income, while a positive
GAP would tend to affect net interest income adversely. While the interest
rate sensitivity GAP is a useful measurement and contributes toward effective
asset and liability management, it is difficult to predict the effect of
changing interest rates solely on the measure. Because different types of
assets and liabilities with the same or similar maturities
39
<PAGE>
may react differently to changes in overall market rates or conditions,
changes in interest rates may affect net interest income positively or
negatively even if an institution were perfectly matched in each maturity
category.
Shortcomings are inherent in any GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change.
Consequently, as the interest rate environment has become more volatile, the
Bank's management has increased monitoring its net interest rate sensitivity
position and the effect of various interest rate environments on earnings.
Interest Rate Sensitivity and Liquidity
The following table sets forth an interest rate sensitivity analysis for the
Bank as of December 31, 1997:
<TABLE>
<CAPTION>
PERIOD/CUMULATIVE GAP ANALYSIS
-----------------------------------------------------
0-90 91-180 181-360 AFTER
DAYS DAYS DAYS ONE YEAR TOTAL
-------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market funds.... $ 45,645 $ -- $ -- $ -- $ 45,645
Securities............ 97,356 80,230 65,184 123,011 365,781
Loans................. -- 3,260 31,994 662,616 697,870
-------- -------- -------- -------- ----------
Total interest-
earning assets..... $143,001 $ 83,490 $ 97,178 $785,627 $1,109,296
======== ======== ======== ======== ==========
Interest-bearing
liabilities:
Demand, money market
and savings deposits. $ -- $ -- $ -- $350,461 $ 350,461
Certificates of
deposit and other
time deposits........ 157,772 135,802 136,112 147,455 577,141
Borrowings............ -- -- 15,000 90,000 105,000
-------- -------- -------- -------- ----------
Total interest-
bearing
liabilities........ $157,772 $135,802 $151,112 $587,916 $1,032,602
======== ======== ======== ======== ==========
Period GAP.............. $(14,771) $(52,312) $(53,934) $197,711 $ 76,694
Cumulative GAP.......... (14,771) (67,083) (121,017) 76,694 --
Period GAP to earning
assets................. (1.33)% (4.72)% (4.86)% 17.82 --
Cumulative GAP to
earning assets......... (1.33)% (6.05)% (10.91)% 6.91% --
</TABLE>
Capital Resources
Shareholders' equity increased to $162 million at December 31, 1997 from
$84.5 million at December 31, 1996, an increase of $77.5 million, or 92%. This
increase was primarily the result of net income of $10.9 million and creation
of purchase accounting goodwill of $67 million from the purchase of Superior
Federal Bank by NationsBank. During 1996, shareholders' equity increased by
$.2 million, or .24%, from $84.3 million at December 31, 1995.
The following table provides a comparison of the Bank's leverage and risk-
weighted capital ratios as of December 31, 1997 to the minimum regulatory
standards:
<TABLE>
<CAPTION>
WELL-
CAPITALIZED
BANK MINIMUM MINIMUM
RATIO REQUIRED REQUIRED
----- -------- -----------
<S> <C> <C> <C>
Tangible capital ratio........................... 7.40% 1.50% 5.00%
Core capital ratio............................... 7.40% 3.00% 6.00%
Risk-based capital ratio......................... 15.69% 8.00% 10.00%
</TABLE>
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth all of the directors and executive officers
of the Company, their respective positions with the Company and, if
applicable, the Bank and their ages:
<TABLE>
<CAPTION>
NAME POSITION AGE(1)
---- -------- ------
<C> <S> <C>
C. Stanley Bailey....... Chairman of the Board, Chief Executive
Officer, Chairman of the Board of the Bank,
Chief Executive Officer of the Bank 49
C. Marvin Scott......... President, Director, President of the Bank,
Director of the Bank 48
Joe Edwards, Jr......... Chief Operating Officer, Chief Operating
Officer of the Bank, Director of the Bank 53
Boyd W. Hendrickson..... Director 53
David E. Stubblefield... Director 61
John M. Stein........... Director 31
</TABLE>
- --------
(1) As of June 30, 1998.
C. Stanley Bailey. Mr. Bailey is Chairman of the Board of Directors of the
Company and Chief Executive Officer of both the Company and the Bank. From May
1995, until joining the Company in January 1998, Mr. Bailey served as the
Chief Financial Officer and Executive Vice President of Hancock Holding
Company and Hancock Bank in Gulfport, Mississippi. Before joining Hancock
Holding Company, Mr. Bailey was Vice Chairman of the Board of Directors of
AmSouth Bancorp and AmSouth Bank, an $18.3 billion multi-state bank holding
company headquartered in Birmingham, Alabama and its wholly owned subsidiary
bank.
C. Marvin Scott. Mr. Scott is currently President and a director of both the
Company and the Bank. From February 1996 until joining the Company in January
1998, Mr. Scott served as Chief Retail Officer and Senior Vice President of
Hancock Holding Company and Hancock Bank in Gulfport, Mississippi. Prior to
his employment with Hancock Holding Company, Mr. Scott was Executive Vice
President--Consumer Banking for AmSouth Bank, a multi-state bank holding
company headquartered in Birmingham, Alabama, where he served for eight years.
Mr. Scott also spent seventeen years at Crestar Bank, a multi-state bank
holding company headquartered in Richmond, Virginia where he served in various
capacities in operations, accounting, marketing, and consumer banking.
Joe Edwards, Jr. Mr. Edwards is currently Chief Operating Officer of both
the Company and the Bank. In the past 19 years with the Bank, Mr. Edwards has
served in various capacities in the areas of mortgage servicing, finance,
mergers, and personnel. Mr. Edwards served as Chief Financial Officer of the
Bank from July, 1992 until April 1, 1997, and as President and Chief Executive
Officer from April 1, 1997 until March 31, 1998, when he was appointed Chief
Operating Officer.
David E. Stubblefield. Mr. Stubblefield is President and Chief Executive
Officer of ABF Freight System, Inc. in Fort Smith, Arkansas. He has been a
Director of the Bank since 1994. He was elected to the Board of Directors of
the Company in 1998.
Boyd W. Hendrickson. Mr. Hendrickson is President and Chief Operating
Officer of Beverly Enterprises, Inc., a nursing home management company based
in Fort Smith, Arkansas. He was elected to the Company and Bank Boards of
Directors in 1998.
John M. Stein. Mr. Stein is President and a founder of Financial Stocks,
Inc., a registered investment advisor based in Cincinnati, Ohio. Financial
Stocks, Inc. is the general partner of Financial Stocks Limited Partnership,
Vine Street Exchange Fund, L.P. and Financial Stocks Private Equity Fund 1998
L.P. From 1993 to the formation of Financial Stocks, Inc. in 1995, Mr. Stein
was an officer of Bankers Trust Company and served most recently as Vice
President and manager of the Market Risks Analytics Group. Before he joined
Bankers Trust Company, Mr. Stein was a consultant with The MAC Group/Gemini
Consulting and specialized in commercial and investment banking issues.
41
<PAGE>
Directors are elected for one-year terms. Each officer of the Company is
elected by the Board of Directors and holds office until his successor is duly
elected and qualified or until his or her earlier death, resignation or
removal.
The Board of Directors has established Audit and Compensation committees.
The Audit Committee currently consists of Messrs. Stubblefield and
Hendrickson, neither of whom is an employee of the Company. The Audit
Committee will review the general scope of the audit conducted by the
Company's independent auditors, the fees charged therefor and matters relating
to the Company's internal control systems. In performing its functions, the
Audit Committee will meet separately with representatives of the Company's
independent auditors and with representatives of senior management.
The Compensation Committee currently consists of Messrs. Stein, Stubblefield
and Hendrickson, none of whom is an employee of the Company. The Compensation
Committee will administer the Company's stock option plans and will grant
options and other awards to Company employees under such plans. In addition,
the Compensation Committee is responsible for making recommendations to the
Board of Directors with respect to the compensation of the Company's executive
officers and is responsible for the establishment of policies dealing with
various compensation and employee benefit matters for the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Stein, Stubblefield
and Hendrickson, none of whom is an employee of the Company. Before the
formation of the Compensation Committee, and in connection with the
Acquisition, Messrs. Bailey and Scott negotiated their respective employment
agreements with the Lead Investor and the Placement Agent, each of whom is a
principal shareholder. See "--Employment Agreements."
OTHER TRANSACTIONS--LOANS
Certain directors, officers and principal stockholders of the Company and
their affiliated interests were customers of and had transactions with the
Bank in the ordinary course of business; additional transactions may be
expected to take place in the ordinary course of business. Included in such
transactions were outstanding loans and commitments from the Bank, all of
which were made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than the normal risk of collectability or present other unfavorable features.
DIRECTOR COMPENSATION
Directors of the Company and of the Bank receive fees of $500 for each Board
meeting of each entity attended. Members of committees of the Company and the
Bank receive fees of $200 for each committee meeting attended. Certain
directors of the Company also serve as directors of the Bank. The Company paid
no directors fees in 1997. Fees paid to directors of the Company from January
1, 1998 to June 30, 1998 totaled $900.00. The Bank paid directors fees of
$40,350 in 1997, and has paid directors fees of $19,950 from January 1, 1998
to June 30, 1998.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chairman of the Board and Chief Executive Officer and the two most highly
compensated executive officers of the Company, in addition to the Chief
Executive Officer, whose total annual salary and bonus for 1998 is expected to
exceed $100,000 (the "Named Executives"). No information is given for 1996 or
1997 because the Company was not organized until 1997 and no executive
compensative was paid until 1998.
42
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES
SALARY UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION ($) BONUS ($) OPTIONS (#) COMPENSATION
- --------------------------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
C. Stanley Bailey............... $225,000 $75,000(1) 487,500(2) *
Chairman and CEO
C. Marvin Scott................. 150,000 50,000(1) 243,750(2) *
President
Joe Edwards, Jr................. 138,000 46,000(1) -- *
Chief Operating Officer
</TABLE>
- --------
* Does not include amounts attributable to miscellaneous benefits received by
the named officers. The costs of providing such benefits to the named
officers for the year ended 1998 are not anticipated to exceed the lesser
of $50,000 or 10% of the total annual salary and bonus reported.
(1) Targeted bonus based upon the achievement of certain performance goals.
(2) Represents options granted to Messrs. Bailey and Scott on December 22,
1997 and January 9, 1998, respectively. The exercise price of these
options is $10.00 per share.
STOCK OPTION PLANS
The Company adopted the 1998 Long-Term Incentive Plan (the "LTIP") on June
17, 1998. The LTIP is an omnibus plan administered by the Compensation
Committee to provide equity-based incentive compensation for the Company's key
employees. It provides for issuance of incentive stock options, qualified
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options. The LTIP also provides for issuance
of stock appreciation rights, whether in tandem with options or separately,
and awards of restricted shares subject to time-based restrictions and/or
performance goals. The portion of the LTIP applicable to incentive stock
options is subject to shareholder approval by June 17, 1999.
The LTIP imposes a limit on the total number of shares that may be issued
during the ten-year term of the LTIP equal to 10% of the number of shares
outstanding as of December 31, 1998. It imposes a limit on the number of
awards that may be granted to all employees in any one calendar year equal to
1% of the number of shares outstanding on December 31, 1998. Finally, the LTIP
limits the number of restricted stock awards that may be granted each year,
which are time-based restricted only (i.e., without regard to any performance
goals), to a number of shares equal to .33% (one-third of one percent) of the
number of shares outstanding on December 31, 1998.
Each award is non-transferrable during the life of the employee, except as
permitted by the Compensation Committee to the employee's family or a trust
for the employee's family. The awards do not create a right to employment.
Upon a change in control of the Company any vesting schedules and performance
goals are deemed satisfied.
As discussed further below, options were granted to Mr. Bailey and Mr. Scott
pursuant to their Founder's Agreements and Employment Agreements,
respectively. Those options were issued before adoption of the LTIP by the
Company's Board and, therefore, are non-qualified stock options. They have not
been issued pursuant to the LTIP. The Company may reissue some of those
options as incentive stock options under the LTIP to enhance the federal and
state income tax consequences to Mr. Bailey and Mr. Scott, which provides the
same tax consequences as if the LTIP were in place at the time of execution of
their Founder's Agreements and Employment Agreements. If some of those options
are reissued, the LTIP may be amended to provide that any reissuance of
options to Mr. Bailey and Mr. Scott shall not count against the limits
described above. The Company generally would not be entitled to an income tax
deduction upon exercise of the incentive stock options.
43
<PAGE>
EMPLOYMENT AGREEMENTS
The Company and Mr. Bailey have entered into an employment agreement which
provides, among other things, that Mr. Bailey serve as the Chairman of the
Board of Directors and Chief Executive Officer of the Company and the Bank for
an initial term of employment of three years at an initial base annual salary
of $225,000 and an initial targeted annual bonus of $75,000 based upon the
achievement of certain performance goals. Mr. Bailey is also entitled to
receive options to acquire 487,500 shares of Common Stock, or 5% of the shares
of Common Stock issued and outstanding. The exercise price of such options is
$10.00 per share.
The Company and Mr. Scott have entered into an agreement which provides,
among other things, that Mr. Scott serve as the President of the Company and
the Bank for an initial base annual salary of $150,000 and an annual targeted
bonus of $50,000 based upon the achievement of certain performance goals. Mr.
Scott is also entitled to receive options to acquire 243,750 shares of Common
Stock, 2.5% of the shares of Common Stock issued and outstanding. The exercise
price of such options is $10.00 per share.
BENEFIT PLAN
The Company has established a contributory profit sharing plan pursuant to
Section 401(k) of the Code covering substantially all employees (the "Plan").
Superior Financial Corp. is the Plan administrator and investment advisor and
Capital Guardian serves as the Plan's trustee. Each year the Company
determines, at its discretion, the amount of matching contributions not to
exceed 6% of the employee's annual compensation vesting ratably over a four
year period. Total Plan expenses charged to the Company's operations from
April 1, 1998 through June 30, 1998 were $71,293. The Company has budgeted
$235,000 for total 1998 contributions.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Mr. Bailey and Mr. Scott have entered into employment agreements with the
Company. These agreements provide, among other things, that each of them is
entitled to receive options to acquire shares of Common Stock pursuant to a
vesting schedule determined by the occurrence of certain events. See "--
Employment Agreements." In addition, Mr. Bailey, in his individual capacity,
and Mr. John Stein and Mr. Steven Stein, as principals of Financial Stocks,
Inc., are Founders of the Company pursuant to Founders' Agreements. These
Founders' Agreements entitled Mr. Bailey and Financial Stocks, Inc. to
purchase Common Stock in the Private Placement at discounted prices. See "The
Private Placement."
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1998 by each person
known by the Company to own beneficially 5% or more of the Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
NAME NUMBER OF SHARES BENEFICIALLY OWNED
---- ---------------- ------------------
<S> <C> <C>
Franklin Mutual Advisors................... 550,000 5.46
JP Morgan.................................. 550,000 5.46
Keefe, Bruyette & Woods, Inc............... 552,083 5.48
Keefe Managers, Inc........................ 550,000 5.46
Steven N. Stein............................ 577,600(1) 5.73
Alexander D. Warm.......................... 537,100(1) 5.33
Wellington Management Company.............. 550,000 5.46
</TABLE>
- --------
(1) John M. Stein, a director of the Company, and Steven N. Stein, a principal
shareholder of the Company, are directors, executive officers and
principal shareholders of Financial Stocks, Inc. Alexander D. Warm, who is
the beneficial owner of 537,100 shares of the Company, and Stanley L.
Viagran, who owns 30,000 shares of the Company, are the remaining
directors and shareholders of Financial Stocks, Inc. Financial Stocks,
Inc. is a general partner and investment manager of certain investment
funds, including Vine Street Exchange Fund, L.P. Vine Street Exchange
Fund, L.P. owns 312,500 shares of the Company. Steven N. Stein and John M.
Stein are brothers. Alexander D. Warm and Stuart E. Warm, who owns 20,000
shares of the Company, are brothers. Steven N. Stein and John M. Stein
each disclaim any ownership of the Company stock held by the other.
Alexander D. Warm and Stuart E. Warm each disclaim any ownership of the
Company stock held by the other.
44
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1998 by each director
and each executive officer, and all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENTAGE
NAME NUMBER OF SHARES BENEFICIALLY OWNED
---- ---------------- ------------------
<S> <C> <C>
C. Stanley Bailey.......................... 201,666(1) 2.00
Joe Edwards, Jr............................ -- *
Boyd W. Hendrickson........................ -- *
C. Marvin Scott............................ 48,750(2) *
John M. Stein.............................. 160,800(3) 1.60
David E. Stubblefield...................... -- *
Officers and Directors as a Group.......... 411,216 4.08
</TABLE>
- --------
* Represents less than 1%.
(1) Includes 97,500 shares of Common Stock subject to stock options.
(2) Includes 48,750 shares of Common Stock subject to stock options.
(3) John M. Stein, a director of the Company, and Steven N. Stein, a principal
shareholder of the Company, are directors, executive officers and
principal shareholders of Financial Stocks, Inc. Alexander D. Warm, who is
the beneficial owner of 537,100 shares of the Company, and Stanley L.
Viagran, who owns 30,000 shares of the Company, are the remaining
directors and shareholders of Financial Stocks, Inc. Financial Stocks,
Inc. is a general partner and investment manager of certain investment
funds, including Vine Street Exchange Fund, L.P. Vine Street Exchange
Fund, L.P. owns 312,500 shares of the Company. Steven N. Stein and John M.
Stein are brothers. Alexander D. Warm and Stuart E. Warm, who owns 20,000
shares of the Company, are brothers. Steven N. Stein and John M. Stein
each disclaim any ownership of the Company stock held by the other.
Alexander D. Warm and Stuart E. Warm each disclaim any ownership of the
Company stock held by the other.
REGULATION
GENERAL
The Bank is a federally chartered and insured stock savings bank subject to
extensive regulation and supervision by the OTS, as its chartering agency, and
the FDIC, as the insurer of its deposits. In addition, the Company is a
registered savings and loan holding company subject to OTS regulation,
examination, supervision and reporting.
The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings institutions and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description
of these provisions or their effects on the Company or the Bank, is qualified
in its entirety by reference to the particular statutory or regulatory
provisions or proposals.
REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES
Holding Company Acquisitions. The Company is a registered savings and loan
holding company. The HOLA and OTS regulations issued thereunder generally
prohibit a savings and loan holding company, without prior OTS approval, from
acquiring, directly or indirectly, the ownership or control of any other
savings association or savings and loan holding company, or all, or
substantially all, of the assets or more than 5% of the voting shares thereof.
These provisions also prohibit, among other things, any director or officer of
a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. The Company currently operates as a unitary
savings and loan holding company by virtue of its direct ownership of the
Bank. As a unitary savings and loan holding company, the
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<PAGE>
Company generally is not subject to activity restrictions under the HOLA. If
the Company acquires control of another savings association as a separate
subsidiary other than in a supervisory acquisition, it would become a multiple
savings and loan holding company. There generally are more restrictions on the
activities of a multiple savings and loan holding company than on those of a
unitary savings and loan holding company. The HOLA provides that, among other
things, no multiple savings and loan holding company or subsidiary thereof
which is not an insured association shall commence or continue for more than
two years after becoming a multiple savings and loan holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple savings and loan holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities
for savings and loan holding companies. Those activities described in (vii)
above must be approved by the OTS prior to being engaged in by a multiple
savings and loan holding company.
Affiliate Restrictions. Transactions between a savings association and its
"affiliates" are subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act. Affiliates of a savings
association include, among other entities, the savings association's holding
company and companies that are under common control with the savings
association.
In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings association or its subsidiaries
may engage in certain "covered transactions" with affiliates to an amount
equal to 10% of the association's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates.
In addition, a savings association and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction"
is defined to include a loan or extension of credit to an affiliate; a
purchase of investment securities issued by an affiliate; a purchase of assets
from an affiliate, with certain exceptions; the acceptance of securities
issued by an affiliate as collateral for a loan or extension of credit to any
party; or the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate.
In addition, under the OTS regulations, a savings association may not make a
loan or extension of credit to an affiliate unless the affiliate is engaged
only in activities permissible for bank holding companies; a savings
association may not purchase or invest in securities of an affiliate other
than shares of a subsidiary; a savings association and its subsidiaries may
not purchase a low-quality asset from an affiliate; and covered transactions
and certain other transactions between a savings association or its
subsidiaries and an affiliate must be on terms and conditions that are
consistent with safe and sound banking practices. With certain exceptions,
each loan or extension of credit by a savings association to an affiliate must
be secured by collateral with a market value ranging from 100% to 130%
(depending on the type of collateral) of the amount of the loan or extension
of credit.
The OTS regulations generally exclude all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Federal Reserve Board decides to
treat such subsidiaries as affiliates. The regulations also require savings
associations to make and retain records that reflect affiliate transactions in
reasonable detail, and provide that certain classes of savings associations
may be required to give the OTS prior notice of affiliate transactions.
REGULATION OF FEDERAL SAVINGS INSTITUTIONS
Regulatory System. The activities of federal savings institutions are
governed by the HOLA and, in certain respects, the Federal Deposit Insurance
Act (the "FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which
46
<PAGE>
federal savings associations may engage. Lending activities and other
investments must comply with various statutory and regulatory capital
requirements. In addition, the Bank's relationship with its depositors and
borrowers is also regulated to a great extent, especially in such matters as
the ownership of deposit accounts and the form and content of the Bank's
mortgage documents. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as
mergers with, or acquisitions of, other financial institutions. There are
periodic examinations by the OTS and the FDIC to review the Bank's compliance
with various regulatory requirements. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to: supervise the FHLBs; ensure that the
FHLBs carry out their housing finance mission; ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets; and
ensure that the FHLBs operate in a safe and sound manner. The Bank, as a
member of the FHLB System, is required to acquire and hold shares of capital
stock in an FHLB in an amount equal to the greater of: (i) 1% of its aggregate
outstanding principal amount of its residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each calendar year, or
(ii) 1/20 of its FHLB advances (borrowings). Among other benefits, FHLB
membership provides the Bank with a central credit facility.
Liquid Assets. Under OTS regulations, for each calendar quarter, a savings
institution is required to maintain an average daily balance of liquid assets
(including cash, certain time deposits and savings accounts, bankers'
acceptances, certain government obligations and certain other investments) of
not less than a specified percentage of the average daily balance of its net
withdrawable accounts plus short-term borrowings (its liquidity base) during
the preceding calendar quarter. This liquidity requirement is currently 4.0%.
In addition to meeting the liquidity requirement, each savings association
must maintain sufficient liquidity to ensure its safe and sound operation.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to satisfy minimum capital standards: risk-based capital
requirements, a leverage requirement and a tangible capital requirement.
Savings institutions must meet each of these standards in order to be deemed
in compliance with OTS capital requirements. In addition, the OTS may require
savings institutions to maintain capital above the minimum capital levels.
All savings institutions are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal
to 8% of risk-weighted assets (which includes the credit risk equivalents of
certain off-balance sheet items). In calculating total capital for purposes of
the risk-based requirement, supplementary capital may not exceed 100% of core
capital. Under the leverage requirement, a savings institution is required to
maintain core capital equal to a minimum of 3% of adjusted total assets. (In
addition, under the prompt corrective action provisions of the OTS
regulations, all but the most highly-rated institutions must maintain a
minimum leverage ratio of 4% in order to be adequately capitalized. See "--
Prompt Corrective Action.") A savings institution is also required to maintain
tangible capital in an amount at least equal to 1.5% of its adjusted total
assets.
Under OTS regulations, a savings institution with a greater than "normal"
level of interest rate exposure must deduct an interest rate risk ("IRR")
component in calculating its total capital for purposes of determining whether
it meets its risk-based capital requirement. Interest rate exposure is
measured, generally, as the decline in an institution's net portfolio value
that would result from a 200 basis point increase or decrease in market
interest rates (whichever would result in lower net portfolio value), divided
by the estimated economic value of the savings association's assets. The
interest rate risk component to be deducted from total capital is equal to
one-half of the difference between an institution's measured exposure and
"normal" IRR exposure (which is defined as 2%), multiplied by the estimated
economic value of the institution's assets. The OTS has postponed the date the
component will be deducted from an institution's total capital.
47
<PAGE>
These capital requirements are viewed as minimum standards by the OTS, and
most institutions are expected to maintain capital levels well above the
minimum. In addition, the OTS regulations provide that minimum capital levels
higher than those provided in the regulations may be established by the OTS
for individual savings institutions, upon a determination that the savings
institution's capital is or may become inadequate in view of its
circumstances. The OTS regulations provide that higher individual minimum
regulatory capital requirements may be appropriate in circumstances where,
among others: (1) a savings institution has a high degree of exposure to
interest rate risk, prepayment risk, credit risk, concentration of credit
risk, certain risks arising from nontraditional activities, or similar risks
or a high proportion of off-balance sheet risk; (2) a savings institution is
growing, either internally or through acquisitions, at such a rate that
supervisory problems are presented that are not dealt with adequately by other
OTS regulations and guidance; and (3) a savings institution may be adversely
affected by activities or condition of its holding company, affiliates,
subsidiaries or other persons or savings institutions with which it has
significant business relationships. The Bank is not subject to any such
individual minimum regulatory capital requirement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Capital Resources."
Certain Consequences of Failure to Comply with Regulatory Capital
Requirements. A savings institution's failure to maintain capital at or above
the minimum capital requirements may be deemed an unsafe and unsound practice
and may subject the savings institution to enforcement actions and other
proceedings. Any savings institution not in compliance with all of its capital
requirements is required to submit a capital plan that addresses the
institution's need for additional capital and meets certain additional
requirements. The savings institution must certify that, among other things,
while the capital plan is being reviewed by the OTS, the savings association
will not, without the approval of the appropriate OTS Regional Director, grow
beyond net interest credited or make any capital distributions. If a savings
institution's capital plan is not approved, the institution will become
subject to asset growth restrictions and other restrictions or limitations set
forth in the OTS Regional Director's notice of disapproval. In addition, the
OTS, through a capital directive or otherwise, may restrict the ability of a
savings institution not in compliance with the capital requirements to pay
dividends and compensation, and may require such a bank to take one or more of
certain corrective actions, including, without limitation: (i) increasing its
capital to specified levels, (ii) reducing the rate of interest that may be
paid on savings accounts, (iii) limiting receipt of deposits to those made to
existing accounts, (iv) ceasing issuance of new accounts of any or all classes
or categories except in exchange for existing accounts, (v) ceasing or
limiting the purchase of loans or the making of other specified investments,
and (vi) limiting operational expenditures to specified levels.
Prompt Corrective Action. Under Section 38 of the FDIA, as added by the FDIC
Improvement Act of 1991 ("FDICIA"), each federal banking agency is required to
implement a system of prompt corrective action for institutions that it
regulates. The prompt corrective action regulation of the OTS requires certain
mandatory actions and authorizes certain other discretionary actions to be
taken by the OTS against a savings institution that falls within certain
undercapitalized capital categories specified in the regulation.
The regulations establish five categories of capital classification: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Under the regulation,
the ratio of total capital to risk-weighted assets, Tier 1 capital to risk-
weighted assets and the leverage ratio are used to determine an institution's
capital classification. Under the prompt corrective action regulations of the
OTS, an institution shall be deemed to be (i) "well-capitalized" if it has
total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a leverage capital ratio of 5.0% or more and is not
subject to any written agreement, order or final capital directive to meet and
maintain a specific capital level for any capital measure, (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a
Tier 1 risk-based capital ratio of 4.0% or more and a leverage capital ratio
of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized," (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital
ratio that is less than 4.0% or a leverage capital ratio that is less than
4.0% (3.0% under certain circumstances), (iv) "significantly undercapitalized"
if it has total risk-based capital ratio that is less than 6.0%, a Tier 1
risk-based capital ratio
48
<PAGE>
that is less than 3.0% or a leverage capital ratio that is less than 3.0% and
(v) "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%. Federal law authorizes the
OTS to reclassify a well-capitalized institution as adequately-capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category (except that the OTS may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
A savings institution is prohibited from making any capital distribution
(including payment of a dividend) or paying any management fee to its holding
company if the institution would thereafter be undercapitalized. Institutions
that are classified as undercapitalized are subject to certain mandatory
supervisory actions, including: (i) increased monitoring by the appropriate
federal banking agency for the institution and periodic review of the
institution's efforts to restore its capital, (ii) a requirement that the
institution submit a capital restoration plan acceptable to the appropriate
federal banking agency and implement that plan, and that each company having
control of the institution guarantee compliance with the capital restoration
plan in an amount not exceeding the lesser of 5% of the institution's total
assets at the time the institution received notice of being undercapitalized,
or the amount necessary to bring the institution into compliance with
applicable capital standards at the time it fails to comply with the plan, and
(iii) a limitation on the institution's ability to make any acquisition, open
any new branch offices, or engage in any new line of business without the
prior approval of the appropriate federal banking agency for the institution
or the FDIC.
The regulations also provide that the OTS may take any of certain additional
supervisory actions against an undercapitalized institution if the agency
determines that such actions are necessary to resolve the problems of the
institution at the least possible long-term cost to the deposit insurance
fund. These supervisory actions include: (i) requiring the institution to
raise additional capital or be acquired by another institution or holding
company if certain grounds exist, (ii) restricting transactions between the
institution and its affiliates, (iii) restricting interest rates paid by the
institution on deposits, (iv) restricting the institution's asset growth or
requiring the institution to reduce its assets, (v) requiring replacement of
senior executive officers and directors, (vi) requiring the institution to
alter or terminate any activity deemed to pose excessive risk to the
institution, (vii) prohibiting capital distributions, (viii) requiring the
institution to divest certain subsidiaries, or requiring the institution's
holding company to divest the institution or certain affiliates of the
institution, and (ix) taking any other supervisory action that the agency
believes would better carry out the purposes of the prompt corrective action
provisions of FDICIA.
Institutions classified as undercapitalized that fail to submit a timely,
acceptable capital restoration plan or fail to implement such a plan are
subject to the same supervisory actions as significantly undercapitalized
institutions. Significantly undercapitalized institutions are subject to the
mandatory provisions applicable to undercapitalized institutions. The
regulation also makes mandatory for significantly undercapitalized
institutions certain of the supervisory actions that are discretionary for
institutions classified as undercapitalized, creates a presumption in favor of
certain discretionary supervisory actions, and subjects significantly
undercapitalized institutions to additional restrictions, including a
prohibition on paying bonuses or raises to senior executive officers without
the prior written approval of the appropriate federal bank regulatory agency.
In addition, significantly undercapitalized institutions may be subjected to
certain of the restrictions applicable to critically undercapitalized
institutions.
The regulations require that an institution be placed into conservatorship
or receivership within 90 days after it becomes critically undercapitalized,
unless the OTS, with concurrence of the FDIC, determines that other action
would better achieve the purposes of the prompt corrective action provisions
of FDICIA. Any such determination must be renewed every 90 days. A depository
institution also must be placed into receivership if the institution continues
to be critically undercapitalized on average during the calendar quarter
beginning 270 days after the date on which the institution initially became
critically undercapitalized, unless the institution's federal bank regulatory
agency, with concurrence of the FDIC, makes certain positive determinations
with respect to the institution.
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<PAGE>
Critically undercapitalized institutions are also subject to the
restrictions generally applicable to significantly undercapitalized
institutions and to a number of other severe restrictions. For example,
beginning 60 days after becoming critically undercapitalized, such
institutions may not pay principal or interest on subordinated debt without
the prior approval of the FDIC. (However, the regulation does not prevent
unpaid interest from accruing on subordinated debt under the terms of the debt
instrument, to the extent otherwise permitted by law.) In addition, critically
undercapitalized institutions may be prohibited from engaging in a number of
activities, including entering into certain transactions or paying interest
above a certain rate on new or renewed liabilities.
If the OTS determines that an institution is in an unsafe or unsound
condition, or if the institution is deemed to be engaging in an unsafe and
unsound practice, the OTS may, if the institution is well capitalized,
reclassify it as adequately capitalized; if the institution is adequately
capitalized but not well capitalized, require it to comply with restrictions
applicable to undercapitalized institutions; and, if the institution is
undercapitalized, require it to comply with certain restrictions applicable to
significantly undercapitalized institutions.
At June 30, 1998, the Bank met the capital requirements of a "well
capitalized" institution under applicable OTS regulations.
Enforcement Powers. The OTS and, under certain circumstances, the FDIC, have
substantial enforcement authority with respect to savings institutions,
including authority to bring various enforcement actions against a savings
institution and any of its "institution-affiliated parties" (a term defined to
include, among other persons, directors, officers, employees, controlling
stockholders, agents and stockholders who participate in the conduct of the
affairs of the institution). This enforcement authority includes, without
limitation: (i) the ability to terminate a savings institution's deposit
insurance, (ii) institute cease-and-desist proceedings, (iii) bring
suspension, removal, prohibition and criminal proceedings against institution-
affiliated parties, and (iv) assess substantial civil money penalties. As part
of a cease-and-desist order, the agencies may require a savings institution or
an institution-affiliated party to take affirmative action to correct
conditions resulting from that party's actions, including to make restitution
or provide reimbursement, indemnification or guarantee against loss; restrict
the growth of the institution; and rescind agreements and contracts.
Capital Distribution Regulation. In addition to the prompt corrective action
restriction on paying dividends, OTS regulations limit certain "capital
distributions" by OTS-regulated savings institutions. Capital distributions
are defined to include, in part, dividends and payments for stock repurchases
and other distributions charged against the capital accounts of a savings
institution.
Under the regulation, an institution that meets its capital requirement both
before and after a proposed distribution (a "Tier 1 institution") and which
has not been notified by the OTS that it is in need of more than normal
supervision may, after prior notice to but without the approval of the OTS,
make capital distributions during a calendar year up to the higher of: (i)
100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its surplus capital ratio at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period. A Tier 1 institution may make capital distributions in excess of the
above amount if it gives notice to the OTS and the OTS does not object to the
distribution. A savings institution that meets its minimum capital requirement
both before and after a proposed distribution but does not meet its capital
requirement (a "Tier 2 institution") is authorized after prior notice to the
OTS but without OTS approval, to make capital distributions in an amount up to
75% of its net income over the most recent four-quarter period, taking into
account all prior distributions during the same period. Any distribution in
excess of this amount must be approved in advance by the OTS. A savings
institution that does not meet its minimum capital requirement (a "Tier 3
institution") cannot make any capital distribution without prior approval from
the OTS, unless the capital distribution is consistent with the terms of a
capital plan approved by the OTS.
The Bank has been classified as a Tier 1 institution. As of June 30, 1998,
under applicable regulations of the OTS, the total capital available for the
payment of dividends by the Bank to the Company was $3.4 million, assuming
application of the OTS's safe harbor for capital distributions.
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<PAGE>
The OTS has proposed to amend its capital distribution regulation to conform
its requirements to those of the other federal banking agencies. Under the
proposed regulation, an institution that would remain at least adequately
capitalized after making a capital distribution, and that meets other
specified requirements, would not be required to obtain the prior approval of
the OTS or to provide notice to the OTS prior to making capital distributions
below specified amounts. Under other circumstances, either an application or
notice must be filed with the OTS prior to a proposed capital distribution.
Qualified Thrift Lender Test. All savings associations are required to meet
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either become a national bank or be subject to the following restrictions on
its operations: (i) the association may not make any new investment or engage
in activities that would not be permissible for national banks; (ii) the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish
a branch office; (iii) the association shall be ineligible to obtain new
advances from any FHLB; and (iv) the payment of dividends by the association
shall be subject to the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings institution ceases to be a QTL, the savings institution
would be prohibited from retaining any investment or engaging in any activity
not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the
rules applicable to such companies. A savings institution may requalify as a
QTL if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Code or that 65% of its
"portfolio assets" (as defined) consist of certain housing and consumer-
related assets on a monthly average basis in nine out of every 12 months.
Assets that qualify without limit for inclusion as part of the 65% requirement
are loans made to purchase, refinance, construct, improve or repair domestic
residential housing and manufactured housing; home equity loans; mortgage-
backed securities (where the mortgages are secured by domestic residential
housing or manufactured housing); FHLB stock; direct or indirect obligations
of the FDIC; and loans for educational purposes, loans to small businesses and
loans made through credit cards or credit card accounts. In addition, the
following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and 100% of stock issued by the Federal Home Loan
Mortgage Corporation or FNMA. "Portfolio assets" consist of total assets minus
the sum of (i) goodwill and other intangible assets, (ii) property used by the
savings institution to conduct its business, and (iii) liquid assets up to 20%
of the institution's total assets. At June 30, 1998, the Bank met the QTL
test.
Activities of Associations and Their Subsidiaries. Subject to a number of
restrictions and limitations, savings associations are permitted to establish
or acquire subsidiaries that engage in various activities. Pursuant to the
FDIA and OTS regulations, at least 30 days prior to establishing or acquiring
such a subsidiary, or conducting any new activity through a subsidiary, the
savings association must notify the FDIC and the OTS and provide the
information each agency may, by regulation, require. In certain circumstances,
written approval of the OTS must be obtained prior to acquiring or
establishing a subsidiary or engaging in a new activity in an existing
subsidiary. Savings associations also must conduct the activities of
subsidiaries in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
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<PAGE>
FDIC Assessments. The FDIC is an independent federal agency established
originally to insure the deposits, up to prescribed statutory limits, of
federally insured banks and to preserve the safety and soundness of the
banking industry. The FDIC maintains two separate insurance funds: the BIF and
the SAIF. As insurer of the Bank's deposits, the FDIC has examination,
supervisory and enforcement authority over all savings associations. The
Bank's deposit accounts are insured by the FDIC under the SAIF to the maximum
extent permitted by law. The Bank pays deposit insurance premiums to the FDIC
based on a risk-based assessment system established by the FDIC for all SAIF-
member institutions.
Under FDIC regulations, institutions are assigned to one of three capital
groups for insurance premium purposes--"well capitalized," "adequately
capitalized" and "undercapitalized"--which are defined in the same manner as
the regulations establishing the prompt corrective action system, as discussed
previously. These three groups are then divided into subgroups which are based
on supervisory evaluations by the institution's primary federal regulator,
resulting in nine assessment classifications. Effective January 1, 1997,
assessment rates for both SAIF-insured institutions and BIF-insured
institutions ranged from 0% of insured deposits for well-capitalized
institutions with minor supervisory concerns to .27% of insured deposits for
undercapitalized institutions with substantial supervisory concerns. In
addition, an assessment of 6.4 basis points and 1.3 basis points is added to
the regular SAIF-assessment and the regular BIF-assessment, respectively,
until the earlier of December 31, 1999 or the date upon which the last savings
association ceases to exist in order to cover Financing Corporation debt
service payments. The Bank's assessment expense for the year ended December
31, 1997 equaled $635,843.
Conservatorship/Receivership. In addition to the grounds discussed under "--
Prompt Corrective Action," the OTS (and, under certain circumstances, the
FDIC) may appoint a conservator or receiver for a savings institution if any
one or more of a number of circumstances exist, including, without limitation,
the following: (i) the institution's assets are less than its obligations to
creditors and others, (ii) a substantial dissipation of assets or earnings due
to any violation of law or any unsafe or unsound practice, (iii) an unsafe or
unsound condition to transact business, (iv) a willful violation of a final
cease-and-desist order, (v) the concealment of the institution's books,
papers, records or assets or refusal to submit such items for inspection to
any examiner or lawful agent of the appropriate federal banking agency or
state bank or savings association supervisor, (vi) the institution is likely
to be unable to pay its obligations or meet its depositors' demands in the
normal course of business, (vii) the institution has incurred, or is likely to
incur, losses that will deplete all or substantially all of its capital, and
there is no reasonable prospect for the institution to become adequately
capitalized without federal assistance, (viii) any violation of law or unsafe
or unsound practice that is likely to cause insolvency or substantial
dissipation of assets or earnings, weaken the institution's condition, or
otherwise seriously prejudice the interests of the institution's depositors or
the federal deposit insurance fund, (ix) the institution is undercapitalized
and the institution has no reasonable prospect of becoming adequately
capitalized, fails to become adequately capitalized when required to do so,
fails to submit a timely and acceptable capital restoration plan, or
materially fails to implement an accepted capital restoration plan, (x) the
institution is critically undercapitalized or otherwise has substantially
insufficient capital, or (xi) the institution is found guilty of certain
criminal offenses related to money laundering.
Cross-Guarantee Liability and Effect of a Resolution of the Bank. Depository
institutions insured by the FDIC, such as the Bank, can be held liable for any
loss incurred, or reasonably expected to be incurred, by the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a
commonly controlled depository institution in danger of default. "Default" is
defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur in the absence of regulatory
assistance. Accordingly, to the extent that the FDIC incurs or anticipates
incurring any loss in connection with any other insured depository institution
owned by the Company, the Bank could be required to compensate the FDIC by
reimbursing it for the amount of such loss. Such cross-guarantee liability can
result in the ultimate failure or insolvency of all insured depository
institutions in a holding company structure. Any obligation or liability owed
by a banking subsidiary to its parent company, any other shareholder or any of
the banking subsidiary's other affiliates is subordinate to the banking
subsidiary's cross-guarantee liability.
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Because the Company is a legal entity separate and distinct from the Bank,
the Company's right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a
liquidation or other resolution of the Bank or any other insured depository
institution owned by the Company, the claims of depositors and other general
or subordinated creditors of such Bank would be entitled to a priority of
payment over the claims of holders of any obligation of the Bank to its
shareholders, including any depository institution holding company (such as
the Company) or any shareholder or creditor of such holding company.
Thrift Charter. Congress has been considering legislation in various forms
that would require federal thrifts, such as the Bank, to convert their
charters to national or state bank charters. Recent legislation required the
Treasury Department to prepare for Congress a comprehensive study on
development of a common charter for federal savings associations and
commercial banks; and, in the event that the thrift charter was eliminated by
January 1, 1999, would require the merger of the BIF and the SAIF into a
single Deposit Insurance Fund on that date. The Bank cannot determine whether,
or in what form, such legislation may eventually be enacted and there can be
no assurance that any legislation that is enacted would contain adequate
grandfather rights for the Company or the Bank.
In the absence of appropriate "grandfather" provisions, legislation
eliminating the savings association charter could cause the Company to be
treated as a bank holding company subject to extensive regulation by the
Federal Reserve Board. Bank holding companies are generally not permitted to
engage directly or indirectly in any nonbanking activities other than certain
nonbanking activities that are considered closely related to banking. Bank
holding companies are also subject, on a consolidated basis, to minimum
regulatory capital requirements similar to those imposed on banks and on
savings associations such as the Bank. A bank holding company is generally
expected to maintain a Tier 1 leverage capital ratio of at least 3-5% of
adjusted total assets (depending on the bank holding company's particular
circumstances), a Tier 1 risk-based capital ratio of 4% of risk-weighted
assets, and a total risk-based capital ratio of 8% of risk-weighted assets.
Tier 1 capital is limited to common stockholders' equity and related surplus,
certain perpetual preferred stock instruments and related surplus, and
minority interests in equity accounts of consolidated subsidiaries, less the
amount of goodwill and certain other intangible assets deducted from Tier 1
capital. Total capital includes Tier 1 capital plus the amount of the
allowance for loan and lease losses, certain perpetual preferred stock and
related surplus, certain hybrid capital instruments and mandatory convertible
debt securities, and certain subordinated debt and intermediate-term preferred
stock and related surplus, less the amount of goodwill and certain other
intangible assets deducted from capital. Risk-weighted assets comprise the
total amount of assets and adjusted off-balance-sheet items after each is
multiplied by a credit-risk factor of 0% to 100%. The Company would be
materially undercapitalized if such capital requirements were made applicable
to the Company.
Community Reinvestment Act and the Fair Lending Laws. Savings institutions
have a responsibility under the Community Reinvestment Act ("CRA") and related
regulations of the OTS to help meet the credit needs of their communities,
including low-and moderate-income neighborhoods. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act (together, the "Fair Lending Laws")
prohibit lenders from discriminating in their lending practices on the basis
of characteristics specified in those statutes. An institution's failure to
comply with the provisions of CRA could, at a minimum, result in regulatory
restrictions on its activities, and failure to comply with the Fair Lending
Laws could result in enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice.
Safety and Soundness Guidelines. The OTS and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial, as well as compensation matters for insured
financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators.
The OTS and the other agencies have also established guidelines regarding
asset quality and earnings standards for insured institutions.
Change of Control. Subject to certain limited exceptions, no company can
acquire control of a savings association without the prior approval of the
OTS, and no person may acquire control of a savings association
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without the prior approval of the OTS. Any company that acquires control of a
savings association becomes a savings and loan holding company subject to
extensive registration, examination and regulation by the OTS. Conclusive
control exists, among other ways, when an acquiring party acquires more than
25% of any class of voting stock of a savings association or savings and loan
holding company, or controls in any manner the election of a majority of the
directors of the company. In addition, a rebuttable presumption of control
exists if, among other things, a person acquires more than 10% of any class of
a savings association or savings and loan holding company's voting stock (or
25% of any class of stock) and, in either case, any of certain additional
control factors exist.
TAXATION
FEDERAL TAXATION
General. The Company and its subsidiaries, including the Bank, are subject
to federal income taxation under the Code in the same general manner as other
corporations with some exceptions discussed below. The following discussion of
federal taxation is intended only to summarize certain pertinent federal
income tax matters and is not a comprehensive description of the tax rules
applicable to the Bank. The Company and its subsidiaries will file its initial
consolidated federal income tax return for the calendar year ending December
31, 1998.
Method of Accounting. The Company and subsidiaries for financial and federal
income tax purposes will use the accrual method of accounting.
Bad Debt Reserves. The Company and its subsidiaries are required to use the
specific charge-off method. Under the specific charge-off method, bad debts
are deducted as they become wholly worthless or partially worthless, as the
case may be. The deduction must be claimed for wholly worthless debts in the
year in which the debt becomes worthless.
Minimum Tax. The Company and its subsidiaries may be subject to the
corporate alternative minimum tax which is imposed to the extent it exceeds
the Company's regular income tax for the year. The alternative minimum tax
will be imposed at the rate of 20% of a specially computed tax base.
Corporate Dividends-Received Deduction. The Company may exclude from its
income 100% of dividends received from its subsidiaries, including the Bank,
as a member of the same affiliated group of corporations. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued
on their behalf.
STATE AND LOCAL TAXATION
Delaware State Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. The Delaware franchise tax is based on the Company's
authorized capital stock or on its assumed par and non-par capital, whichever
yields a lower result. Under the authorized capital method, each share is
taxed at a graduated rate based on the number of authorized shares with a
maximum aggregate tax of $150,000 per year. Under the assumed par value
capital method, Delaware taxes each $1,000,000 of assumed par-capital at the
rate of $200.
Arkansas State Taxation. The Company and its subsidiaries will be required
to file a consolidated Arkansas income tax return because it will be doing
business in Arkansas. For Arkansas tax purposes, corporations are presently
taxed at a rate equal to 6.5% of taxable income. For this purpose, "taxable
income" generally means federal taxable income subject to Arkansas
modifications.
Oklahoma State Taxation. The Company's subsidiary, Superior Federal Bank,
will be required to file a separate company Oklahoma income tax return because
it will be doing business in Oklahoma. For Oklahoma
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tax purposes, corporation are presently taxed at a rate equal to 6% of taxable
income. Oklahoma taxable income is federal taxable income, subject to Oklahoma
modifications.
DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes were issued pursuant to the Indenture. The Indenture will
be qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") in connection with the filings of the Registration Statement
of which this Prospectus forms a part. This summary of certain terms and
provisions of the Senior Notes and the Indenture does not purport to be
complete, and where reference is made to particular provisions of the
Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a
part of the Indenture by the Trust Indenture Act. Capitalized terms not
otherwise defined herein have the meanings specified in the Indenture. The
Indenture has been filed as an Exhibit to the Registration Statement of which
this Prospectus forms a part. Capitalized terms not otherwise defined in the
following discussion or elsewhere in this Prospectus are defined below at "--
Certain Definitions."
The Senior Notes will mature on April 1, 2003. The Senior Notes are general
unsecured obligations of the Company and rank senior to such other
Indebtedness as the Company may incur that is not expressly subordinated to
the Senior Notes. The Indenture generally restricts the incurrence of
additional Indebtedness by the Company, except for certain Junior
Indebtedness. See "--Certain Covenants--Limitations on Indebtedness."
The Senior Notes were issued and are transferable only in registered form
without coupons and only in denominations of $100,000 and any integral
multiple above that amount.
The Senior Notes bear interest from the date of their initial issuance, at
the rate of 8.65% per annum, payable semi-annually in arrears on April 15 and
October 15 of each year (each an "Interest Payment Date"), commencing October
15, 1998, to the holders of record at the close of business on the October 1st
or April 1st (whether or not a business day), as the case may be, next
preceding such Interest Payment Date (each, a "Regular Record Date"). Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Senior Notes are not savings accounts or deposits and are not insured by
the FDIC or by the United States or any agency or fund thereof. The Senior
Notes are not secured by the assets of the Company or any of its Subsidiaries,
including the Bank, or otherwise and do not have the benefit of a sinking fund
for the retirement of principal or interest. Because the Company is a holding
company that conducts substantially all of its operations through the Bank,
the right of the Company to participate in any distribution of assets of the
Bank, upon its liquidation or reorganization or otherwise (and thus the
ability of Holders to benefit indirectly from such distribution), is subject
to the prior claims of creditors of the Bank, including claims of depositors
of the Bank. Additionally, distributions to the Company by the Bank, whether
in liquidation, reorganization or otherwise, are subject to regulatory
restrictions and, under certain circumstances, may be prohibited. See
"Regulation-- Regulation of Federal Savings Institutions--Capital Distribution
Regulation."
NO SINKING FUND OR MANDATORY REDEMPTION
The Senior Notes are not entitled to the benefit of any sinking fund or
mandatory redemption.
INTEREST RESERVE ACCOUNT
In connection with the issuance of the Senior Notes, the Company established
the Interest Reserve Account, which consists of a segregated deposit account
and segregated Permitted Investments in a bank or trust company which is
unaffiliated with the Company and which meets specified requirements. The
arrangements relating to
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the Interest Reserve Account are set forth in a Custody and Security Agreement
between the Company and The Bank of New York (the "Security Agreement").
Any funds or other assets in the Interest Reserve Account from time to time
may not be commingled with any other funds or assets of the Company or any of
the Company's subsidiaries or affiliates, provided, however, that if on any
Interest Payment Date, the amount of funds and the Fair Market Value of any
Permitted Investments in the Interest Reserve Account shall exceed the amount
required to be maintained therein in accordance with the Indenture, the
Company shall be entitled to withdraw all or any portion of such excess.
The Company is required to carry in the Interest Reserve Account an
aggregate amount of cash and Fair Market Value of Permitted Investments
(determined not less frequently than on each Interest Payment Date) sufficient
at all times to pay the interest on the next two succeeding semi-annual
interest payments due on the Senior Notes.
OPTIONAL REDEMPTION
Upon the occurrence of a Change of Control, the Senior Notes not tendered in
accordance with the provisions set forth under "Offer to Purchase upon a
Change of Control" shall be redeemable at the option of the Company, in whole
or in part, at any time or from time to time, upon not less than 45 nor more
than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at a redemption price equal to the sum of (i) the
principal amount of the Senior Notes being redeemed plus accrued interest
thereon to the redemption date and (ii) the Make-Whole Amount, if any, with
respect to such Senior Notes (the "Redemption Price"). If notice has been
given as provided in the Indenture and funds for the redemption of any Senior
Notes called for redemption shall have been made available on the redemption
date referred to in such notice, such Senior Notes will cease to bear interest
on the date fixed for such redemption specified in such notice and the only
right of the Holders of the Senior Notes will be to receive payment of the
Redemption Price.
Notice of any optional redemption of any Senior Notes will be given to
Holders not more than 60 nor less than 45 days prior to the date fixed for
redemption. The notice of redemption will specify, among other things, the
Redemption Price and the principal amount of the Senior Notes held by such
Holder to be redeemed.
If less than all the Senior Notes are to be redeemed at the option of the
Company, the Company will notify the Trustee at least 60 days prior to the
redemption date (or such shorter period as is satisfactory to the Trustee) of
the aggregate principal amount of the Senior Notes to be redeemed and their
redemption date. The Trustee shall select, in such manner as it shall deem
fair and appropriate, the Senior Notes to be redeemed in whole or in part.
Senior Notes may be redeemed in part in the minimum authorized denomination
for the Senior Notes or in any integral multiple thereof.
For purposes of the foregoing discussion:
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Senior Note, the excess, if any, of (i) the
aggregate present value as of the date of such redemption or accelerated
payment of each dollar of principal being redeemed or paid and the amount
of interest (exclusive of interest accrued to the date of redemption or
accelerated payment) that would have been payable in respect of such dollar
if such redemption or accelerated payment had not been made, determined by
discounting, on a semi-annual basis, such principal and interest at the
Reinvestment Rate (determined on the third Business Day preceding the date
such notice of Redemption is given or declaration of acceleration is made)
from the respective dates on which such principal and interest would have
been payable if such redemption or accelerated payment had not been made,
over (ii) the aggregate principal amount of the Senior Notes being redeemed
or paid.
"Reinvestment Rate" means .50% (fifty one-hundredths of one percent) plus
the arithmetic mean of the yields under the respective headings "This Week"
and "Last Week" published in the Statistical Release under the caption
"Treasury Constant Maturities" for the maturity (rounded to the nearest
month)
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corresponding to the remaining life to maturity of the Senior Notes, as of
the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published
maturities most closely corresponding to such maturity shall be calculated
pursuant to the immediately preceding sentence and the Reinvestment Rate
shall be interpolated or extrapolated from such yields on a straight-line
basis, rounding in each of such relevant periods to the nearest month. For
such purposes of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" means the statistical release which is published
weekly by the Federal Reserve System and which establishes yields on
actively traded United States government securities adjusted to constant
maturities or, if the statistical release is not published at the time of
any determination under the Indenture, then such other reasonably
comparable index which shall be designated by the Company.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitations on Indebtedness. Neither the Company nor any Subsidiary may
create, incur, issue, assume, guarantee or otherwise in any manner become
directly or indirectly liable for or with respect to, or otherwise permit to
exist any Indebtedness, except: (i) Indebtedness represented by the Senior
Notes; (ii) Indebtedness incurred under the Loan Agreement in the amount and
on such terms as are in effect on the Issue Date; (iii) Junior Indebtedness
with a Stated Maturity of principal (or any required repurchase, redemption,
defeasance or sinking fund payments) which is after the final Stated Maturity
of the Senior Notes; (iv) Indebtedness the proceeds of which are immediately
applied to redeem or repurchase Senior Notes and provided that if such
Indebtedness is used to redeem or repurchase only a portion of the Senior
Notes, such Indebtedness has a Stated Maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund payments) which is after
the final Stated Maturity of the Senior Notes; (v) Indebtedness specified in
paragraph (b) of the definition of "Permitted Payment;" and (vi) Excluded
Indebtedness.
Notwithstanding the foregoing exceptions, the Company may not, and may not
permit any Subsidiary to, create, incur, assume, guarantee or otherwise in any
manner become directly or indirectly liable for or with respect to, or
otherwise permit to exist, any Indebtedness (including any Indebtedness
assumed in connection with the acquisition of assets from another Person or as
a result of the merger of any Person with or into the Company) unless, at the
time of such event, the principal amount of total Indebtedness of the Company
and its Subsidiaries would not exceed 100% of the Company's Consolidated Net
Worth, provided that for purposes of this requirement, Indebtedness shall be
net of any fund or interest reserve account which has been established to fund
the payment of principal and/or interest on Indebtedness.
Limitations on Restricted Payments. The Company may not, and may not permit
any Subsidiary to, directly or indirectly, make any Restricted Payment if, at
the time of such Restricted Payment or after giving effect thereto,
(a) a Default or Event of Default shall have occurred and be continuing; or
(b) the Company would fail to maintain sufficient Liquid Assets to comply
with the terms of the covenant described below under "--Liquidity
Maintenance;"
(c) the Bank would fail to meet any applicable minimum capital requirements
under the regulations of the OTS which are necessary to enable it to qualify
as an "adequately capitalized" institution under such regulations; or
(d) the aggregate amount of all Restricted Payments (the amount of such
payments, if other than in cash, having been determined in good faith by the
Board of Directors, whose determination shall be conclusive and
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evidenced by a resolution of the Board of Directors filed with the Trustee)
declared and made after the Issue Date would exceed the sum of
(i) 25% of the aggregate Consolidated Net Income (or, if such
Consolidated Net Income is a deficit, 100% of such deficit) of the Company
accrued on a cumulative basis during the period beginning on the first day
of the fiscal quarter during which the Issue Date occurred and ending on
the last day of the Company's last fiscal quarter ending prior to the date
of such proposed Restricted Payment, plus
(ii) the aggregate Net Cash Proceeds received by the Company as capital
contributions (other than from a Subsidiary) after the Issue Date, plus
(iii) the aggregate Net Cash Proceeds and the Fair Market Value of
property not constituting Net Cash Proceeds received by the Company from
the issuance or sale (other than to a Subsidiary) of Qualified Capital
Stock after the Issue Date; plus
(iv) 100% of the amount of any Indebtedness of the Company or a
Subsidiary that is converted into or exchanged for Qualified Capital Stock
of the Company after the Issue Date;
provided, however, that the foregoing provisions will not prevent (x) the
payment of a dividend within 60 days after the date of its declaration if at
the date of declaration such payment was permitted by the foregoing provisions
or (y) any Permitted Payment.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company may not, and may not permit any of its Subsidiaries
to, create, assume or otherwise cause or suffer to exist or to become
effective any consensual encumbrance or restriction on the ability of any such
Subsidiary to:
(a) pay any dividends or make any other distribution on its Capital Stock;
(b) make payments in respect of any Indebtedness owed to the Company or any
other Subsidiary; or make loans or advances to the Company or any Subsidiary
or to guarantee Indebtedness of the Company or any other Subsidiary; other
than, in the case of (a), (b) and (c),
(1) restrictions imposed by applicable laws and regulations;
(2) restrictions existing under agreements in effect on the date of the
Indenture;
(3) consensual encumbrances or restrictions binding upon any Person at
the time such Person becomes a Subsidiary of the Company so long as such
encumbrances or restrictions are not created, incurred or assumed in
contemplation of such Person becoming a Subsidiary;
(4) restrictions on the transfer of assets which are subject to Liens;
(5) restrictions existing under agreements evidencing Indebtedness which
is incurred after the date of the Indenture as permitted by the covenants
described above under "--Limitations on Indebtedness," provided that the
terms and conditions of any such restrictions are no more restrictive than
those contained in the Indenture; and
(6) restrictions existing under any agreement which refinances or
replaces any of the agreements containing the restrictions in clauses (2),
(3) and (5), provided that the terms and conditions of any such
restrictions are not less favorable to the Holders than those under the
agreement evidencing or relating to the Indebtedness refinanced or
replaced.
Restrictions on Issuance and Sale or Disposition of Capital Stock of
Subsidiaries. Except as otherwise provided in the Indenture, the Company may
not, and may not permit any Subsidiary to, issue or sell, pledge, convey or
otherwise transfer any shares of the Bank Capital Stock or the Capital Stock
of any other Subsidiary (including Capital Stock of any successor entity
thereto), other than (i) to the Company or a Wholly Owned Subsidiary; (ii)
with respect to any Subsidiary which is a bank, directors' qualifying shares;
(iii) as expressly required under the relevant provisions of the Loan
Agreement as in effect on the Issue Date; and (iv) solely with respect to the
Company, as permitted pursuant to duly approved stock option plans and
employment agreements.
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In the event that the amount of Bank Capital Stock pledged to secure the
Company's obligations under the Loan Agreement exceeds the amount required
under the relevant provisions thereof, as in effect on the Issue Date, the
Company shall promptly obtain the release and return of such excess stock.
Limitations on Transactions with Affiliates. The Company may not, and may
not permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including without limitation,
the sale, purchase, exchange or lease of assets, property or services) with
any Affiliate of the Company (except that the Company and any of its
Subsidiaries may enter into any transaction or series of related transactions
with any other Subsidiary of the Company without limitation under this
covenant) unless: (i) such transactions or series of related transactions is
on terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than would be available in a comparable transaction in an arm's
length dealing with a Person that is not such an Affiliate; (ii) with respect
to any transaction or series of related transactions involving aggregate
payments in excess of $500,000, the Company delivers an Officers' Certificate
to the Trustee certifying that such transaction or series of transactions
complies with clause (i) above and has been approved by a majority of the
Board of Directors of the Company; and (iii) with respect to any transaction
or series of related transactions involving aggregate payments in excess of
$2,000,000, the Company delivers to the Trustee a written opinion of a
nationally-recognized investment banking firm to the effect that the
transaction or series of transactions are fair to the Company or such
Subsidiary from a financial point of view. The limitations set forth in this
paragraph will not apply to (a) transactions entered into pursuant to any
agreement already in effect on the date of the Indenture, (b) any employment
agreement, stock option, employee benefit, indemnification, compensation,
business expense reimbursement or other employment-related agreement,
arrangement or plan entered into by the Company or any of its Subsidiaries
either (A) in the ordinary course of business of the Company or in the
ordinary course of business and consistent with the past practice of such
Subsidiary or (B) which agreement, arrangement or plan was adopted by the
Board of Directors of the Company or such Subsidiary, as the case may be, (c)
residential mortgage, credit card and other consumer loans to an Affiliate who
is an officer, director or employee of the Company or any of its Subsidiaries
and which comply with the applicable provisions of 12 U.S.C.(S) 1468(b) and
any rules and regulations of the OTS thereunder, (d) any Restricted Payments
or (e) any transaction or series of transactions in which the total amount
involved does not exceed $250,000.
Limitations on Liens and Guarantees. Except for Permitted Liens, the Company
may not create, assume, incur or suffer to exist any Lien upon (i) the Bank
Capital Stock (except for any Liens securing Indebtedness under the Loan
Agreement as in effect on the Issue Date) or (ii) any of the Company's
property or assets (other than the Bank Capital Stock) now owned, or acquired
after the date of the Indenture, or any income or profits from any such
property or assets, as security for Indebtedness which may be incurred by the
Company under the Indenture and having a contractual time to maturity greater
than one year (other than the Senior Notes), without in the case of either (i)
or (ii), effectively providing that the Senior Notes will be equally and
ratably secured with (or prior to) such Indebtedness, provided that if such
Indebtedness is Junior Indebtedness, any security interest with respect to
such Junior Indebtedness shall be subordinated to the security interest with
respect to the Senior Notes to the same extent as such Junior Indebtedness is
subordinated to the Senior Notes.
Except for Permitted Liens and Liens securing Indebtedness under the Loan
Agreement pursuant to the terms of such Loan Agreement as in effect on the
Issue Date, the Company may not permit any Subsidiary of the Company, directly
or indirectly, to guarantee or assume, or subject any of its assets to a Lien
to secure, any Indebtedness which may be incurred by the Company or any
Subsidiary under the Indenture (other than the Senior Notes) unless (i) such
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Indenture providing for a guarantee of, or pledge of assets to secure, the
Senior Notes by such Subsidiary on terms at least as favorable to the Holders
as such guarantee or security interest in such assets is to the holders of
such Indebtedness, except that in the event of a guarantee or security
interest in such assets with respect to Junior Indebtedness, any such
guarantee of security interest in such assets with respect to such Junior
Indebtedness shall be subordinated to such Subsidiary's guarantee or security
interest in such assets with respect to the Senior Notes to the same extent as
such Junior Indebtedness is subordinated to the Senior Notes and (ii) such
Subsidiary
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waives, and agrees that it will not in any manner whatsoever claim, or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Subsidiary of
the Company as a result of any payment by such Subsidiary under its
guarantees.
Liquidity Maintenance. The Company must at all times when the Senior Notes
are not rated in an investment grade category by one or more nationally
recognized statistical rating organizations, maintain Liquid Assets with a
value equal to at least 100% of the required interest payments due on the
Senior Notes on the next succeeding semi-annual Interest Payment Date.
Offer to Purchase upon a Change of Control. Upon the occurrence of a Change
of Control, each Holder will have the right to require that the Company
purchase all or a portion of such Holder's Senior Notes in cash pursuant to
the offer described below (the "Change of Control Offer"), at a purchase price
equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
Within 30 days following the date on which a Change of Control occurs (the
"Change of Control Date"), the Company will send, by first class mail, postage
prepaid, a notice to each Holder of Senior Notes and the Trustee, which notice
will govern the terms of the Change of Control Offer. The notice to the
Holders will contain all instructions and materials necessary to enable such
Holders to tender Senior Notes pursuant to the Change of Control Offer. Such
notice will state, among other things:
(1) that the Change of Control Offer is being made pursuant to the
Indenture and that all Senior Notes validly tendered and not withdrawn will
be accepted for payment;
(2) the purchase price (including the amount of accrued interest, if any)
and the purchase date (which will be no earlier than 30 days nor later than
60 days from the date such notice is mailed, other than as may be required
by law) (the "Change of Control Payment Date"); provided, however, that
with respect to a Change of Control occurring solely by operation of clause
(iii) of the definition of "Change of Control" and the reference to clause
(ii) of such definition therein, in no event shall the Change of Control
Payment Date occur until the time and date on which the Company shall
consummate the transaction referred to in such clause (ii).
(3) that any Senior Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Senior Note accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest after the Change of Control Payment Date;
(5) the instructions that Holders will be required to follow in order to
have such Holders' Senior Notes repurchased;
(6) that Holders will be entitled to withdraw their election, not later
than the third Business Day prior to the Change of Control Payment Date and
the instructions that Holders must follow in order to withdraw such
election;
(7) any other information necessary to enable Holder to tender their
Senior Notes and have such Senior Notes repurchased; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company will (i) accept
for payment Senior Notes or portions thereof (in integral multiples of
$100,000) validly tendered pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent money sufficient to pay the purchase price plus
accrued and unpaid interest, if any, of all Senior Notes to be purchased and
(iii) deliver to the Trustee Senior Notes so accepted together with an
Officers' Certificate stating the Senior Notes or portions thereof being
purchased by the Company. Upon receipt by the Paying Agent of the monies
specified in clause (ii) above and a copy of the Officers' Certificate
specified in clause (iii) above, the Paying Agent will promptly mail to the
Holders of Senior Notes so accepted payment in an amount equal to the purchase
price plus accrued and unpaid interest, if any, out of the funds deposited
with the Paying Agent in accordance with the preceding sentence. The Trustee
will promptly
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authenticate and mail to such Holders new Senior Notes equal in principal
amount to any unpurchased portion of the Senior Notes surrendered.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such rule, laws and regulations are applicable in connection with the
purchase of the Senior Notes pursuant to a Change of Control Offer. There can
be no assurance that the Company will have sufficient financial resources to
repurchase any or all of the Senior Notes at such time as it might be required
to do so.
Except as required by applicable law or regulations, the Company shall not
enter into any agreement which conflicts with, would be breached by, or
requires the Company to obtain consent of another Person for the Company's
performance of its obligations under this provision.
Maintenance of Depository Institution Subsidiary and Minimum Total Capital
of Bank. The Company will (a) subject to requirements governing
consolidations, mergers and conveyances, maintain at all times as a Wholly
Owned Subsidiary an entity that is a bank or thrift or substantially similar
institution subject to regulation by federal or state authorities and do all
things necessary to ensure that savings accounts of the Bank or such other
institution are insured by the FDIC or any successor organization up to the
maximum amount permitted by the Federal Deposit Insurance Act and regulations
thereunder or any succeeding federal law hereinafter enacted and (b) only for
so long as any Indebtedness remains outstanding under the Loan Agreement, do
or cause to be done all things necessary to cause the Bank to maintain Total
Capital equal to or greater than $85,000,000.
Additional Covenants. The Indenture will also contain covenants with respect
to, among other things, the following matters: (i) payment of principal,
premium and interest; (ii) maintenance of corporate existence; (iii) payment
of taxes and other claims; (iv) maintenance of properties; (v) maintenance of
insurance; (vi) maintenance of business; (vii) maintenance of books and
records; and (viii) registration rights.
MERGER AND CONSOLIDATION
The Indenture provides that the Company will not, in a single transaction or
a series of transactions, consolidate or merge with or into or transfer, sell,
lease or convey all or substantially all of it assets to another Person
unless: (i) either the Company will be the entity surviving such merger or
consolidation or the corporation formed by or surviving such consolidation or
merger, or the Person to which such transfer, sale, lease or conveyance shall
have been made, shall be a corporation duly organized and existing under the
laws of the United States, any state thereof or the District of Columbia and
will unconditionally expressly assume by a supplemental indenture hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of the Company under the Senior Notes and the Indenture;
(ii) immediately before and immediately after giving effect to the transaction
or series of transactions, no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to the transaction or
series of transactions, the Company or the surviving entity, as applicable,
and their respective banking and thrift subsidiaries, as applicable, will be
in compliance with all applicable regulatory capital requirements; (iv)
immediately after giving effect to the transaction or series of transactions,
the Company or the surviving entity, as applicable, could incur at least $1.00
of additional Indebtedness without violating the limitations on Indebtedness
provisions of the Indenture; and (v) the Company has delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger, business combination, transfer, sale, lease or
conveyance and such supplemental indenture complies with the Indenture and
that all conditions precedent therein relating to such transaction have been
complied with.
MODIFICATION OF THE INDENTURE; WAIVER OF COVENANTS
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of greater than 50% in aggregate
principal amount of the Senior Notes then Outstanding; provided, however, that
no such modification or amendment may, without the consent of the Holder of
each
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outstanding Senior Note affected thereby, (i) change the Stated Maturity of
the principal of, or any installment of interest on, any Senior Note or reduce
the principal amount thereof, premium, if any, or the rate of interest thereon
or change any Place of Payment, or change the coin or currency in which any
Senior Note or any premium or the interest thereon is payable or impair the
right to institute suit for the enforcement of any such payment after the
Stated Maturity thereof; (ii) reduce the percentage in principal amount of the
outstanding Senior Notes, the consent of whose Holders is required for any
such amendment or modification, or the consent of whose Holders is required
for any waiver of compliance with the Indenture or certain defaults
thereunder, and (iii) modify any of the provisions relating to supplemental
indentures requiring the consent of Holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to increase
the percentage in principal amount of outstanding Senior Notes required for
such action or to provide that certain other provisions of the Indenture may
not be modified or waived without the consent of the Holder of each Senior
Note affected thereby.
Notwithstanding the foregoing, without the consent of any Holders, the
Company and the Trustee may modify or amend the Indenture (i) to evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Senior
Notes in accordance with the provisions of the Indenture described above under
"--Merger and Consolidation," (ii) to add any additional covenants of the
Company for the benefit of the Holders, or to surrender any right or power
conferred upon the Company in the Indenture or in the Senior Notes; (iii) to
secure the Senior Notes or to add a guarantor; (iv) to comply with any
requirements of the Commission in order to effect and maintain the
qualification of the Indenture under the Trust Indenture Act; or (v) to cure
any ambiguity, to correct or supplement any provision of the Indenture which
may be defective or inconsistent with any other provision of the Indenture, or
to make any other provisions with respect to matters or questions arising
under the Indenture which shall not be inconsistent with the provisions of the
Indenture, provided such action pursuant to clause (v) shall not adversely
affect the interests of the Holders in any material respect.
The Holders of greater than 50% in aggregate principal amount of the Senior
Notes outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
EVENTS OF DEFAULT
An Event of Default will be defined in the Indenture to include:
(i) failure by the Company to pay the principal of, or premium, if any,
on any Senior Note when due and payable at maturity or upon redemption,
acceleration or otherwise;
(ii) failure by the Company to pay interest on any Senior Note when due
and payable, such failure continues for a period of 15 days;
(iii) default in the performance, or breach, of the provisions described
above under "--Merger and Consolidation;"
(iv) default, on the Change of Control Purchase Date, in the purchase of
Senior Notes required to be purchased by the Company pursuant to an Offer
to Purchase;
(v) failure by the Company to comply with any other agreement or covenant
contained in the Indenture if such failure continues for a period of 30
days after notice to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in principal amount of the Senior
Notes then Outstanding;
(vi) default by the Company or any Subsidiary of the Company in the
payment of any Indebtedness of the Company or any Subsidiary of the Company
after any applicable grace period after final maturity or in the event that
final maturity is accelerated because of a default, which default is not
cured, waived or consented to for 30 days and the total amount of such
Indebtedness unpaid or accelerated is equal to or greater than 5% of the
Company's Consolidated Net Worth;
(vii) the existence of certain events of bankruptcy or insolvency of the
Company or the Bank;
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(viii) the rendering of one or more final judgments, decrees or orders
against the Company or any Subsidiary for the payment of an amount of money
which, individually or in the aggregate, is equal to or greater than 5% of
the Company's Consolidated Net Worth and which remains unsatisfied for a
period of 60 days without a stay of execution of any such judgment, decree
or order;
(ix) failure by the Bank to comply with any of its Regulatory Capital
Requirements; provided, that an Event of Default under this paragraph (ix)
shall not be deemed to have occurred (a) during the 45-day period following
the first day on which the Bank fails to comply with any of its Regulatory
Capital Requirements, if within such 45-day period the Bank files a capital
plan with the OTS, (b) during the 60-day period following the initial
submission of a capital plan to the OTS by the Bank (or, if the OTS
notifies the Bank in writing that it needs a longer period of time to
determine whether to approve such capital plan, such longer period as is so
specified by the OTS), unless prior to such date the OTS shall have
notified the Bank of its determination not to approve such capital plan, or
(c) during the period that the Bank is operating in material compliance
with a capital plan approved by the OTS, provided, further, that if the
Bank meets the minimum amount of capital required to meet each of the
industry-wide regulatory capital requirements pursuant to 12 U.S.C. Section
1464(t) and 12 C.F.R. Part 567 (and any amendment to either thereof) or any
successor law or regulation, notwithstanding the Bank's failure to meet an
individual minimum capital requirement pursuant to 12 U.S.C. Section
1464(s) and 12 C.F.R. Section 567.3 (and any amendment to either thereof)
or any successor law or regulation, no Event of Default shall have occurred
pursuant to this clause unless written notice thereof shall have been given
(x) to the Company by the Trustee or (y) to the Company and the Trustee by
the Holders of 25% in aggregate principal amount of the Senior Notes then
outstanding; and
(x) the termination of the Acquisition Agreement prior to the
consummation of the transactions contemplated thereby.
The Company has covenanted in the Indenture to file annually with the
Trustee a statement regarding compliance by the Company with the terms of the
Indenture and specifying any defaults of which the signers may have knowledge.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of not less than 25% in principal amount of the Senior Notes then outstanding
may declare all the Senior Notes to be immediately due and payable by notice
to the Company (and to the Trustee if given by the Holders). Under certain
circumstances, the Holders of a majority in principal amount of the Senior
Notes then Outstanding may rescind such a declaration.
DEFEASANCE
The Indenture provides that (i) if applicable, the Company will be
discharged from any and all obligations in respect of then Outstanding Senior
Notes, other than the obligation to duly and punctually pay the principal of,
premium, if any, and interest on, the Senior Notes in accordance with the
terms of the Senior Notes and the Indenture, or (ii) if applicable, the
Company may omit to comply with certain restrictive covenants, and that such
omission shall not be deemed to be an Event of Default under the Indenture or
the Senior Notes, in either case (i) or (ii), upon irrevocable deposit with
the Trustee, in trust, of money and/or U.S. Government Obligations which will
provide money in an amount sufficient in the opinion of a nationally-
recognized accounting firm to pay the principal of and premium, if any, and
each installment of interest, if any, on the Outstanding Senior Notes. With
respect to clause (ii), the obligations under the Indenture other than with
respect to such covenants shall remain in full force and effect. Such trust
may only be established if, among other things, (a) with respect to clause
(i), the Company has received from, or there has been published by, the IRS a
ruling or there has been a change in law, which in an Opinion of Counsel
provides that Holders of the Senior Notes will not recognize gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; or with respect to clause (ii), the
Company has delivered to the Trustee an Opinion of Counsel to the effect that
the Holders of the Senior Note will not recognize gain or loss for federal
income tax purposes as a result of such deposit and defeasance and
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will be subject to federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and
defeasance had not occurred; (b) no Event of Default or event that with the
passing of time or the giving of notice, or both, shall constitute an Event of
Default shall have occurred or be continuing; and (c) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Senior Notes, as
expressly provided for in the Indenture) as to all outstanding Senior Notes
when (i) either (a) all the Senior Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Senior Notes which have been
replaced or paid) have been delivered to the Trustee for cancellation or (b)
all Senior Notes not theretofore delivered to the Trustee for cancellation
have become due and payable, or will become due and payable or are to be
called for redemption within one year, and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Senior Notes
not theretofore delivered to the Trustee for cancellation, for principal of,
and premium, if any, and interest on the Senior Notes to the date of deposit
together with irrevocable instructions to the Trustee from the Company
directing the Trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be; (ii) the Company has paid all other sums
payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
each stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
The Indenture, and provisions of the Trust Indenture Act incorporated by
reference, contain limitations on the rights of the Trustee, should it become
a creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee will be permitted to engage in other
transactions with the Company or any Affiliate; provided, however, that if it
acquires any conflicting interest (as defined in the Indenture or in the Trust
Indenture Act), it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture provides that it and the Senior Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings corresponding to
the foregoing.
"Capital Lease Obligation" of any Person means any obligations of such
Person under any capital lease for real or personal property which, in
accordance with GAAP, is required to be recorded as a capitalized lease
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obligation; and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents in the equity (however designated) of such
Person and any rights (other than debt securities convertible into an equity
interest), warrants or options to acquire an equity interest in such Person.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed
to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the total
Voting Stock of the Company; (ii) the Company consolidates with, or merges
into, another person, or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is changed into or exchanged for cash, securities or other property, other
than any such transaction between the Company and a Wholly Owned Subsidiary;
(iii) the Company, the Board of Directors or any executive officer of the
Company enters into or approves any agreement, transaction or proposal that
would result in the occurrence of any event described in clauses (i) and (ii)
(including without limitation any agreement, transaction or proposal that
would have such result with the passage of time, upon the payment of money or
other consideration, or upon the occurrence of any contingency or
contingencies); or (iv) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Company's
Board of Directors (together with any new directors whose elections by the
Company's Board of Directors or whose nomination for elections by the
Stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then
in office.
"Consolidated Net Income (Loss)" of any Person means, for any period the
consolidated net income (or loss) of such Person and its consolidated
Subsidiaries for such period determined in accordance with GAAP; provided,
however, that there shall be excluded therefrom:
(a) any net income (or loss) of any Person if such Person is not a
Subsidiary, except that (A) the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to a Subsidiary, to the limitations contained in clause (c)
below) and (B) the Company's equity in a net loss of any such Person for
such period shall be included in determining such Consolidated Net Income;
(b) any net income (but not loss) of any Person acquired by the Company
or a Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(c) any net income (or loss) of any Subsidiary if such Subsidiary is
subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary, directly or
indirectly, to the Company, except that (A) the Company's equity in the net
income of any such Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Subsidiary during such period to the Company or another
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any
such Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(d) any gain (but not loss) realized upon the sale or other disposition
of any property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback
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arrangement) and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(e) the cumulative effect of a change in accounting principles; and
(f) the gain (but not the loss) from the sale, transfer, conveyance or
other disposition (other than to the Company or any of its Subsidiaries) in
a single transaction or in a series of related transactions, in either case
occurring outside the ordinary course of business, of more than 75% of the
assets of the Bank shown on a balance sheet of the Bank as of the end of
the most recent fiscal quarter ending at least 45 days prior to such
transaction (or the first transaction in such related series of
transactions).
"Consolidated Net Worth" of any Person means, at any date, all amounts which
would, in conformity with GAAP, be included under stockholders' equity on a
consolidated balance sheet of such Person as at such date.
"Default" means any event or condition that upon the giving of notice or the
passage of time or both would be an Event of Default.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, or is exchangeable for debt securities of the Company or its
Subsidiaries with a maturity prior to, the final Stated Maturity of principal
of the Senior Notes.
"Excluded Indebtedness" with respect to any Subsidiary of the Company shall
mean any liability or obligation of any Subsidiary of the Company with respect
to (i) any deposits with or funds collected by it, (ii) any banker's
acceptance or letter of credit issued by it, (iii) any check, note,
certificate of deposit, money order, traveler's check, draft or bill of
exchange, issued, accepted or endorsed by it, (iv) any discount with,
borrowing from, or other obligation to any Federal Reserve Bank, the FDIC or
any Federal Home Loan Bank (or successor organization), (v) any agreement,
made by it in the ordinary course of its banking business, to purchase or
repurchase securities, loans or federal funds or to participate in any such
purchase or repurchases, (vi) any transactions in the nature of an extension
of credit, whether in the form of commitment, guaranty or otherwise,
undertaken by it for account of a third party with the application by it of
the same banking considerations and legal lending limits that would be
applicable if the transaction were a loan to such party, (vii) any transaction
in which it acts solely in a fiduciary or agency capacity, (viii) any pledge
of mortgage assets to the Federal Home Loan Bank, (ix) any Liens incurred in
the ordinary course of making payments by and transferring securities by,
wire, (x) Liens incurred in connection with the acquisition of property or
assets acquired in the ordinary course of business pursuant to foreclosure
proceedings or pursuant to an acquisition of such property or assets in lieu
of foreclosure, (xi) other obligations to customers of a bank Subsidiary,
(xii) other obligations incurred by it in the ordinary course of its banking,
mortgage banking or trust business to its customers solely in their capacities
as such, (xiii) any other liability or obligation of such Subsidiary incurred
in the ordinary course of its banking business not involving any obligation
for borrowed money, (xiv) Capitalized Leases, (xv) any borrowings under
warehousing lines of credit, (xvi) any borrowings under revolving lines of
credit with a maturity date of less than one year up to an aggregate amount at
any time outstanding equal to 30% of Consolidated Net Worth, and (xvii) drafts
outstanding or official bank checks outstanding used to fund mortgage loan
volume.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under
compulsion to complete the transaction as determined by the Board of Directors
of the Company, acting reasonably and in good faith, and shall be evidenced by
a Board Resolution delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as
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may be approved by a significant segment of the accounting profession of the
United States, which are in effect from time to time after the date of the
Indenture.
"Guaranteed Indebtedness" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness; (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss; (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services without
requiring that such property be received or such services be rendered); (iv)
to maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor;
or (v) otherwise to assure a creditor with respect to Indebtedness against
loss; provided that the term "guarantee" shall not include endorsements for
collection of deposit, in the ordinary course of business.
"Holder" when used with respect to any Senior Note means a Noteholder.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all the principal of and premium (if any) in respect of indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services, excluding any trade payables and other accrued current liabilities
arising in the ordinary course of business, but including, without limitation,
all obligations, contingent or otherwise, of such Person in connection with
any letters of credit issued under letter of credit facilities, and in
connection with any agreement by such Person to purchase, redeem, exchange,
convert or otherwise acquire for value any Capital Stock of such Person now or
hereafter outstanding; (ii) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments; (iii) all indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade payables arising in the ordinary course of business; (iv) all
obligations under interest rate swap agreements of such Person; (v) all
Capital Lease Obligations of such Person; (vi) any agreement to purchase or
repurchase securities, loans or federal funds, except to the extent that such
agreement is made by such Person in the ordinary course of its banking
business; (vii) all Indebtedness referred to in clauses (i) through (vi) above
of other Persons and all dividends payable by other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligations being deemed to be the lesser of the value of such property or
asset or the amount of the obligations so secured); (viii) all guarantees by
such Person of Guaranteed Indebtedness; (ix) all Disqualified Capital Stock
(valued at the greater of book value and voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends) of such Person; and
(x) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing or any liability of the types referred to in clauses
(i) through (ix) above. For purposes hereof, (x) the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market
value is to be determined reasonably and in good faith by the board of
directors of the issuer of such Disqualified Capital Stock, and (y)
Indebtedness is deemed to be incurred pursuant to a revolving credit facility
each time an advance is made thereunder.
"Issue Date" means April 1, 1998.
"Junior Indebtedness" means any Indebtedness of the Company subordinated in
right of payment of either principal, premium (if any) or interest thereon to
the Senior Notes.
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"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Liquid Assets" shall include: (i) cash; (ii) any of the following
instruments that have a remaining term to maturity not in excess of 90 days
from the determination date: (a) repurchase agreements on obligations of, or
which are guaranteed as to timely receipt of principal and interest by, the
United States or any agency or instrumentality thereof when such obligations
are backed by the full faith and credit of the United States, provided that
the party agreeing to repurchase such obligations is a primary dealer in U.S.
government securities, (b) federal funds and deposit accounts, including but
not limited to certificates of deposit, time deposits and bankers' acceptances
of any U.S. depositary institution or trust company incorporated under the
laws of the United States or any state, provided that the debt of such
depository institution or trust company at the date of acquisition thereof has
been rated by Standard & Poor's Corporation in the highest short-term rating
category or has an equivalent rating from another nationally recognized rating
agency, or (c) commercial paper of any corporation incorporated under the laws
of the United States or any state thereof that on the date of acquisition is
rated investment grade by Standard & Poor's Corporation or has an equivalent
rating from another nationally recognized rating agency; (iii) any debt
instrument which is an obligation of, or is guaranteed as to the receipt of
principal and interest by the United States, its agencies or any U.S.
government sponsored enterprise, or (iv) any mortgage-backed or mortgage-
related security issued by the United States, its agencies, or any U.S.
government sponsored enterprise, as to which the payment of principal and
interest from the mortgages underlying such securities will be passed through
to the holder thereof and which has a remaining weighted average maturity of
15 years or less.
"Loan Agreement" means the Loan Agreement, dated as of April 1, 1998 among
the Company and Colonial Bank, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such Loan Agreement and related documents may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing (whether or not contemporaneously) or
otherwise restructuring (including adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, or options, warrants or rights to purchase Capital Stock, or debt
securities or Capital Stock that have been converted into or exchanged for
Capital Stock, or any capital contribution in respect of Capital Stock, the
proceeds of such issuance or sale or capital contribution in the form of cash
or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when
disposed for, cash or cash equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Subsidiary of the Company), net of attorney's fees, accountant's fees and
brokerage, consulting, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale or capital contribution and
net of taxes paid or payable by the Company as a result thereof.
"Noteholder" means a Person in whose name a Senior Note is registered in the
Note Register.
"Permitted Investments" means (i) a marketable obligation, maturing within
two years after issuance thereof, issued or guaranteed by the United States of
America or an instrumentality or agency thereof, (ii) a certificate of deposit
or banker's acceptance, maturing within one year after issuance thereof,
issued by a national or state bank or trust company having capital, surplus
and undivided profits of at least $100,000,000 and whose long-term unsecured
debt has a rating of "A" or better by S&P or A2 or better by Moody's or the
equivalent rating by any other nationally recognized rating agency, (iii) open
market commercial paper, maturing within 270 days after issuance thereof,
which has a rating of A1 or better by S&P or P1 or better by Moody's, or the
equivalent rating by any other nationally recognized rating agency, (iv)
repurchase agreements and reverse repurchase agreements with a term not in
excess of one year with any financial institution which has been elected
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a primary government securities dealer by the Federal Reserve Board or whose
securities are rated AA- or better by S&P or Aa3 or better by Moody's or the
equivalent rating by any other nationally recognized rating agency relating to
marketable direct obligations issued or unconditionally guaranteed by the
United States of America or any agency or instrumentality thereof and backed
by the full faith and credit of the United States of America and (v) "Money
Market" preferred stock maturing within six months after issuance thereof or
municipal bonds issued by a corporation organized under the laws of any state
of the United States, which has a rating of "A" or better by S&P or Moody's or
the equivalent rating by any other nationally recognized rating agency;
provided, that, notwithstanding anything to the contrary contained herein,
Permitted Investments shall not include any of the foregoing investments to
the extent that any such investment, in the good faith business judgment of
the Board of Directors of the Company, involves at the time of acquisition or
thereafter a reasonable likelihood of a loss of principal.
"Permitted Liens" shall mean the following Liens so long as such Liens do
not in the aggregate materially and adversely affect the conduct of the
business of the Company or the Bank: (i) Liens securing taxes, assessments,
fees or other governmental charges or levies or the claims of materialmen,
mechanics, carriers, warehousemen, landlords and other similar persons; (ii)
Liens incurred or deposits made in the ordinary course of business (x) in
connection with workmen's compensation, unemployment insurance, social
security or other similar laws, or (y) to secure the performance of letters of
credit issued by persons other than the Company or any Subsidiary, bids,
tenders, contracts, leases, public or statutory obligations, surety, customs,
appeal and performance bonds and other similar obligations not incurred in
connection with indebtedness for money borrowed; (iii) attachment, judgment
and other similar Liens arising in connection with court proceedings;
provided, however, that the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are currently being
contested in good faith by appropriate proceedings; (iv) easements, rights of
way, restrictions, and other similar encumbrances affecting real or tangible
personal property, which do not in the aggregate materially detract form the
value of said property or materially impair its use in the operation of the
business of the Company or the Bank; (v) Liens outstanding on the date hereof
with respect to property then owned by the Company or the Bank; (vi)
capitalized leases not otherwise prohibited by any provision of this
Agreement; (vii) Liens on real or tangible personal property owned and used by
the Company or the Bank in the ordinary course of its business and incurred to
secure the payment of the cost of such property or any improvement thereof;
(viii) Liens on tangible personal property acquired by the Company or the Bank
in the ordinary course of its business and securing the purchase price of such
property; (ix) Liens on property owned and used by any person in the ordinary
course of its business existing prior to the time such person becomes a
Subsidiary; (x) Liens on property owned and used by any Subsidiary in the
ordinary course of its business existing prior to the time of acquisition of
such property by such Subsidiary through purchase, merger, consolidation or
otherwise, whether or not such Liens are assumed by such Subsidiary; (xi) any
extensions or renewals of any of the foregoing Liens; (xii) pledges,
assignments, or security devices entered into in connection with the financing
and refinancing of customers' leases, mortgages, conditional sales contracts,
accounts receivable, credit cards and other loans which arise in the ordinary
course of the banking or trust business; (xiii) pledges of securities against
deposits of municipalities or other governmental agencies created or incurred
in the ordinary course of business in order to receive deposits from such
entities; (xiv) Liens securing Excluded Indebtedness; and (xv) other Liens;
provided that the aggregate indebtedness of the Company and the Bank secured
thereby does not at any time exceed $1,000,000.
"Permitted Payment" means, so long as no Default or Event of Default is
continuing,
(a) the purchase, redemption, defeasance or other acquisition or retirement
for value of any Capital Stock of the Company or any Affiliate (other than a
Wholly-Owned Subsidiary, which is unrestricted) of the Company, or any Junior
Indebtedness of the Company which may be incurred pursuant to the covenant
described above under "--Certain Covenants--Limitations on Indebtedness" in
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege where, in connection therewith, cash is paid in
lieu of the issuance of fractional shares or scrip), or out of the Net Cash
Proceeds or Fair Market Value of property not constituting Net Cash Proceeds
of, a substantially concurrent issue and sale (other than to a Subsidiary of
the Company or to an employee benefit plan of the Company or any of its
Subsidiaries) of Qualified Capital Stock
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of the Company; provided that the Net Cash Proceeds or Fair Market Value of
such property received by the Company from the issuance of such shares of
Qualified Capital Stock, to the extent so utilized, shall be excluded from
clause (c)(iii) of the covenant described above under "--Certain Covenants--
Limitations on Restricted Payments;" and
(b) the repurchase, redemption, defeasance or other acquisition or
retirement for value of any Junior Indebtedness of the Company which may be
incurred pursuant to the covenant described under "--Certain Covenants--
Limitations on Indebtedness" above in exchange for, or out of the Net Cash
Proceeds of, a substantially concurrent issue and sale (other than to a
Subsidiary of the Company) of new Indebtedness to the Company (such a
transaction, a "refinancing"); provided, that (i) any such new Indebtedness of
the Company shall be in a principal amount that does not exceed an amount
equal to the sum of (A) the principal amount of the Junior Indebtedness so
refinanced less any discount from the face amount of such Junior Indebtedness
to be refinanced expected to be deducted from the amount payable to the
holders of such Junior Indebtedness in connection with such refinancing, (B)
the amount of any premium expected to be paid in connection with such
refinancing pursuant to the terms of any Junior Indebtedness of the Company
which may be incurred pursuant to the covenant described above under "--
Certain Covenants--Limitations on Indebtedness" refinanced or the amount of
any premium reasonably determined by the Company as necessary to accomplish
such refinancing by means of a tender offer, privately negotiated repurchase
or otherwise and (C) the amount of legal, accounting, printing and other
similar expenses of the Company incurred in connection with such refinancing;
provided, further, that for purposes of this clause (i), the principal amount
of any Indebtedness shall be deemed to mean the principal amount thereof or,
if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration thereof, such
lesser amount as of the date of determination; (ii) each Stated Maturity of
principal (or any required repurchase, redemption, defeasance or sinking fund
payments) of such new Indebtedness shall be after the final Stated Maturity of
principal of the Senior Notes then outstanding; and (iii) any such new
Indebtedness of the Company is made expressly subordinated to the Senior Notes
to substantially the same extent as the Junior Indebtedness being refinanced
or expressly subordinate to such refinanced Indebtedness.
"Person" means any natural person, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.
"Regulatory Capital Requirements" means (i) the minimum amount of capital
required to meet each of the industry-wide regulatory capital requirements
applicable to the Bank pursuant to 12 U.S.C. Section 1464(t) and 12 C.F.R.
Part 567 (and any amendment to either thereof) or any successor law or
regulation, and (ii) such higher amount of capital as the Bank is required to
maintain in order to meet any individual minimum capital standard applicable
to it pursuant to 12 U.S.C. Section 1464(s) and 12 C.F.R. Section 567.3 (and
any amendment to either thereof) or any successor law or regulation.
"Restricted Payment" means:
(a) the declaration, payment or setting apart of any funds for the
payment of any dividend on, or making of any distribution to holders of,
the Capital Stock of the Company or any Subsidiary of the Company (other
than (i) dividends or distributions in Qualified Capital Stock of the
Company, and (ii) dividends or distributions payable on or in respect of
any class or series of Capital Stock of a Wholly Owned Subsidiary of the
Company);
(b) the purchase, redemption or other acquisition or retirement for
value, directly or indirectly, of any Capital Stock of the Company or any
Affiliate of the Company (other than a Wholly-Owned Subsidiary); or
(c) the making of any principal payments on, or repurchase, redemption,
defeasance, retirement or other acquisition for value, directly or
indirectly, of any Junior Indebtedness, prior to the Stated Maturity of
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principal or scheduled redemption or defeasance of, or any scheduled
sinking fund payment on, such Junior Indebtedness.
"Stated Maturity" when used with respect to any Senior Note or any
installment of interest thereon means the date specified in such Senior Note
as the fixed date on which the principal of such Senior Note or such
installment of interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having ordinary voting power to elect a majority of the
directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Company, by one or more Subsidiaries
of the Company, or by the Company and one or more Subsidiaries.
"Total Capital" shall mean, without duplication, the Bank's consolidated
total equity capital surplus and retained earnings at the time of
determination thereof plus net income or loss less the sum of cash dividends
on stock, plus the net effect of the on-going retirement of capital stock plus
loan loss reserves.
"Voting Stock" means Capital Stock of any class or classes, however
designated, having ordinary voting power for the election of a majority of the
board of directors, other than stock having such power only by reason of the
occurrence of a contingency.
"Wholly Owned Subsidiary" means a Subsidiary of which all of the outstanding
Capital Stock (other than directors' qualifying shares) is at the time
directly or indirectly owned by the Company, or by one or more Wholly Owned
Subsidiaries or by the Company and one or more Wholly Owned Subsidiaries.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue up to 20,000,000 shares of
Common Stock, par value $.01 per share and 10,000,000 shares of Preferred
Stock, par value $.01 per share. As of June 30, 1998, 10,079,703 shares of
Common Stock were issued and outstanding, and no shares of Preferred Stock
were issued and outstanding. THE CAPITAL STOCK OF THE COMPANY DOES NOT
REPRESENT OR CONSTITUTE A DEPOSIT ACCOUNT AND IS NOT INSURED BY THE FDIC.
COMMON STOCK
General. Each share of Common Stock has the same relative rights and is
identical in all respects with each other share of Common Stock. The Common
Stock is not subject to call for redemption.
Voting Rights. Except as provided in any resolution or resolutions adopted
by the Board of Directors establishing any series of Preferred Stock, the
holders of Common Stock possess exclusive voting rights in the Company. Each
holder of Common Stock is entitled to one vote for each share held on all
matters to be voted upon by shareholders. Shareholders are not permitted to
cumulate votes in elections of directors.
Dividends. The holders of the Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors of the Company out
of funds legally available therefor. For a discussion of the requirements and
limitations relating to the Company's ability to pay dividends to shareholders
and the ability of the Bank to pay dividends to the Company, see "Certain
Regulatory Matters--Restrictions on Capital Distributions and Transactions by
the Bank with Affiliates."
Preemptive Rights. Holders of the Common Stock of the Company are not
entitled to preemptive rights with respect to any shares which may be issued
in the future.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Company, the holders of the Common Stock would be entitled to receive,
after payment of all debts and liabilities of the Company, all assets
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of the Company available for distribution, subject to the rights of the
holders of Preferred Stock, if any, which would have a priority in liquidation
or dissolution over the holders of the Common Stock.
PREFERRED STOCK
Within the limits and restrictions contained in the Certificate of
Incorporation, the Board of Directors of the Company is authorized without
further action by the shareholders of the Company, to issue up to an aggregate
of 10,000,000 shares of the Company's authorized class of Preferred Stock, in
one or more series. Each series of Preferred Stock may have such number of
shares, designations, preferences, powers, qualifications and special or
relative rights or privileges as may be determined by the Board of Directors,
which may include, among others, dividend rights, voting rights, redemption
and sinking fund provisions, liquidation preferences, conversion rights and
preemptive rights.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
Several provisions of the Delaware General Corporation Law ("DGCL") could
affect the acquisition of Common Stock or control of the Company. Section 203
of the DGCL generally provides that a Delaware corporation shall not engage in
any "business combination" with an "interested stockholder" for a period of
three years following the time that such stockholder became an interested
stockholder unless (1) prior to such time the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; or (2) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for this purpose, shares owned by persons who are
directors and also officers and shares owned by employee stock ownership plans
in which employee participants do not have the right to determine
confidentially whether the shares held subject to the plan will be tendered in
a tender offer or exchange offer; or (3) on or subsequent to such time, the
business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. The three-year prohibition on
business combinations with an interested stockholder does not apply under
certain circumstances, including business combinations with a corporation
which does not have a class of voting stock that is (i) listed on a national
securities exchange, (ii) authorized for quotation on an inter-dealer
quotation system of a registered national securities association, or (iii)
held of record by more than 2,000 stockholders, unless in each case this
result was directly or indirectly caused by the interested stockholder.
An "interested stockholder" generally means any person that (i) is the owner
of 15% of more of the outstanding voting stock of the corporation or (ii) is
an affiliate or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder; and the
affiliates and associates of such a person. The term "business combination" is
broadly defined to include a wide variety of transactions, including mergers,
consolidations, sales of 10% or more of a corporation's assets and various
other transactions which may benefit an interested stockholder.
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more persons, may acquire
control of a savings association unless the OTS has been given 60 days' prior
written notice. The HOLA provides that no company may acquire "control" of a
savings association without the prior approval of the OTS. Any company that
acquires such control becomes a savings and loan holding company subject to
registration, examination and regulation by the OTS. See "Certain Regulatory
Matters--General."
Limitation of Liability. The Company's Certificate of Incorporation provides
that a director of the Company shall not be personally liable for monetary
damages for any breach of fiduciary duty by such director as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders,
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(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law ("DGCL") for approval of an unlawful dividend
or an unlawful stock purchase or redemption, or (iv) for any transaction from
which the director derived an improper personal benefit.
Indemnification of Directors, Officers, Employees and Agents. The Company's
Certificate of Incorporation provides that the Company shall indemnify
officers, directors, employees and agents to the full extent permitted under
the DGCL. Section 145 of the DGCL contains detailed and comprehensive
provisions providing for indemnification of directors and officers of Delaware
corporations against expenses, judgments, fines and settlements in connection
with litigation. Under the DGCL, other than an action brought by or in the
right of the Company, such indemnification is available if it is determined
that the proposed indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In actions
brought by or in the right of the Company, such indemnification is limited to
expenses (including attorneys' fees) actually and reasonably incurred in the
defense of settlement of such action if the indemnitee acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person has been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which the action was brought
determines upon application that in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
as the court deems proper.
To the extent that the proposed indemnitee has been successful on the merits
or otherwise in defense of any action, suit or proceeding (or any claim, issue
or matter therein), he or she must be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
The Company maintains an officers' and directors' insurance policy and a
separate indemnification agreement pursuant to which directors and certain
officers of the Company would be entitled to indemnification against certain
liabilities, including reimbursement of certain expenses that extends beyond
the minimum indemnification provided by Section 145 of the DGCL.
REGISTRATION RIGHTS
In connection with the Private Placement, the Company on or about April 1,
1998, entered into the Registration Rights Agreement with the initial
purchasers of the Superior Securities and with Keefe, Bruyette & Woods, Inc.,
the Placement Agent in the Private Placement, pursuant to which the Company
agreed to (i) cause to be filed with the Commission within 120 days after the
original issuance of the Superior Securities pursuant to the Purchase
Agreement, a shelf registration statement providing for the offer and sale of
the Superior Securities issued in the Private Placement, (ii) use its best
efforts to cause the shelf registration statement to be declared effective
under the Securities Act as promptly as possible and (iii) use its best
efforts to keep effective the shelf registration statement until the earlier
of the second anniversary of the date such shelf registration statement is
declared effective by the Commission or such time as all of the Superior
Securities have been sold thereunder or otherwise may be sold without the need
for the shelf registration statement, as set forth in the Registration Rights
Agreement. The Company agreed to bear its expenses arising out of the filing
of such shelf registration statement and up to $50,000 of certain expenses
incurred by the initial purchasers. The Registration Statement of which this
Prospectus forms a part has been filed to satisfy the Company's obligations
under the Registration Rights Agreement.
Pursuant to the terms of the Registration Rights Agreement, a holder of
Superior Securities and the Placement Agent desiring to sell some or all of
such securities pursuant to the shelf registration statement shall give the
Company not less than five days' prior written notice, and the Company will
use its best efforts to file promptly any required amendment(s) to the shelf
registration statement in order to facilitate such sales. Initiating
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Holders, as defined in the Registration Rights Agreement to mean one or more
holders of either not less than 35% in aggregate principal amount of Senior
Notes or not less than 25% of the then-outstanding Common Stock, may elect
that the offering of Superior Securities be in the form of an underwritten
offering. Under such circumstances, the Company will provide written notice to
all holders of the Superior Securities and the Placement Agent of such
underwritten offering and will provide them with an opportunity to participate
in such underwritten offering, under terms and with such conditions as set
forth in the Registration Rights Agreement.
Under the Registration Rights Agreement, a holder that sells Superior
Securities pursuant to the shelf registration statement generally will be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the Registration Rights Agreement
that are applicable to such a holder (including certain indemnification rights
and obligations). Each holder of Superior Securities may be required to
deliver information to be used in connection with the shelf registration
statement in order to have such holder's Superior Securities included in the
shelf registration statement and to benefit from the provisions of the
succeeding paragraph.
Each of the Superior Securities contain a legend to the effect that the
holder thereof, by its acceptance thereof, is deemed to have agreed to be
bound by the provisions of the Registration Rights Agreement. In that regard,
each holder is deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event which makes a statement in the
prospectus which is part of the shelf registration statement untrue in any
material respect or which requires the making of any changes in such
prospectus in order to make the statements therein not misleading, such holder
will suspend the sale of Superior Securities pursuant to such prospectus until
the Company has amended or supplemented such prospectus to correct such
misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such holder or the Company has given notice that
the sale of the Superior Securities may be resumed.
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of Delaware. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement.
SELLING HOLDERS
The Superior Securities were originally issued and sold by the Company in
the Private Placement in transactions exempt from the registration
requirements of the Securities Act, to persons reasonably believed by the
Company to be "qualified institutional buyers" (as defined in Rule 144A under
the Securities Act) or other "accredited investors" (as defined in Rule 501(a)
under the Securities Act). The Selling Holders (which term includes their
transferees, pledgees, donees or their successors) may from time to time offer
and sell pursuant to this Prospectus any or all of the Superior Securities
owned by each of them.
The following table sets forth information with respect to the Selling
Holders named herein and the shares of Common Stock and/or Senior Notes
beneficially owned and offered hereby by such Selling Holders. Such
information has been obtained from such Selling Holders. Except as otherwise
disclosed herein, such Selling Holders do not have, or within the past three
years have not had, any position, office or other material relationship with
the Company or affiliates. Because such Selling Holders may offer all or some
portion of the Common Stock or Senior Notes pursuant to this Prospectus, no
estimate can be given as to the amount of the Common Stock or Senior Notes
that will be held by such Selling Holders upon termination of any such sales.
In addition, the Selling Holders identified below may have sold, transferred
or otherwise disposed of all or a portion of their Common Stock and/or Senior
Notes since the date on which it provided the information regarding their
Common
74
<PAGE>
Stock and/or Senior Notes in transactions exempt from the registration
requirements of the Securities Act. Finally, if required, additional Selling
Holders may from time to time be identified and information with respect to
such Selling Holders be provided in a Prospectus Supplement.
The Company has agreed to indemnify the Selling Holders against certain
liabilities arising out of any actual or alleged material misstatements or
omissions in the Registration Statement, other than liabilities arising from
information supplied by the Selling Holders for use in the Registration
Statement. Each Selling Holder, severally but not jointly, has agreed to
indemnify the Company against liabilities arising out of any actual or alleged
material misstatements or omissions in the Registration Statement insofar as
such misstatements or omissions were made in reliance upon written information
furnished to the Company by such Selling Holder expressly for use in the
Registration Statement.
PLAN OF DISTRIBUTION
The Superior Securities offered hereby may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the Selling Holders
may from time to time offer the Superior Securities to or through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of Superior Securities, for whom they may act as agents. The
Selling Holders and any underwriters, dealers or agents which participate in
the distribution of Superior Securities may be deemed to be "underwriters"
within the meaning of the Securities Act and any profit on the sale of
Superior Securities by them and any discounts, commissions, concessions or
other compensation received by any such underwriter, dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Superior Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Superior Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Superior Securities may be listed or quoted
at the time of sale, (ii) in the over-the-counter market or (iii) in
transactions otherwise than on such exchanges or in the over-the-counter
market. At the time a particular offering of the Superior Securities is made,
a Prospectus Supplement, if required, will be distributed which will set forth
the aggregate amount and type of Superior Securities being offered and the
terms of the offering, including the name or names of any underwriters,
dealers or agents, any discounts, commissions and other terms constituting
compensation from the Selling Holders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Superior Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Superior Securities may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied
with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Superior Securities may not simultaneously
engage in market-making activities with respect to such securities for a
restricted period prior to the commencement of such distribution. In addition
to and without limiting the foregoing, each Selling Holder and any other
person participating in a distribution will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Rules 102, 103 and 104, which provisions may
limit the timing of purchases and sales of any of the securities by the
Selling Holders or any such other person. All of the foregoing may affect the
marketability of the Superior Securities and brokers' and dealers' ability to
engage in market-making activities with respect to these securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Superior Securities will be paid by the Company,
including, without limitation, Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, that
the Selling Holders will pay all underwriting discounts and selling
commissions, if any. The Selling Holders will be indemnified by the Company
against
75
<PAGE>
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith. The Company
will be indemnified by the Selling Holders against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
SHARES ELIGIBLE FOR FUTURE SALE
There are currently 10,079,703 shares of Common Stock of the Company
outstanding. All shares of Common Stock sold in the Offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by affiliates of the Company, as that term is
defined in Rule 144 under the Securities Act, may generally only be resold in
compliance with applicable provisions of Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for
at least one year is entitled to sell, within any three-month period, a number
of such shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the date of the
notice filed pursuant to Rule 144. Sales under Rule 144 are also subject to
certain manner of sale restrictions and notice requirements and to the
availability of current public information about the Company. In addition, a
person who is deemed an "affiliate" of the Company must comply with Rule 144
in any sale of shares of Common Stock not covered by a registration statement
(except, in the case of registered shares acquired by the affiliate on the
open market, for the holding period requirement). A person (or person whose
shares are aggregated) who is not deemed an "affiliate" of the Company and who
has beneficially owned restricted shares for at least two years is entitled to
sell such shares under Rule 144(k) without regard to the volume, notice and
other limitations of Rule 144. In meeting the one and two year holding periods
described above, a holder of restricted shares can include the holding periods
of a prior owner who was not an affiliate.
The Company anticipates making the Public Offering of its Common Stock
before the end of 1998. The Company's decision to initiate and, if initiated,
to consummate, the Public Offering will depend upon variable factors, many of
which are beyond the Company's control. These factors include, but are not
limited to, the Company's performance and results of operations for the third
quarter of 1998, market conditions in the financial services industry, the
perceived market for the Common Stock and the likelihood that the Public
Offering will be sufficiently subscribed at a price that is satisfactory to
the Company. The Company cannot predict with any certainty whether or not the
Public Offering will be initiated, and, if it is initiated, whether or not it
will be consummated. If the Public Offering is consummated, the offering price
of the Common Stock sold therein will be determined at that time on the basis
of then-current market conditions.
The Public Offering, if it is initiated and consummated, will be independent
of any rights of the holders of the Superior Securities under Section 3(c) of
the Registration Rights Agreement. Nevertheless, the Company expects that
holders of the Superior Securities will be offered the opportunity to sell
Superior Securities in the Public Offering, subject to the terms and
conditions of an underwriting agreement between the Company and the managing
underwriter and such other limitations as the Company, in its sole discretion,
may impose.
The Company has reserved 10% of the common shares outstanding on December
31, 1998 for grants under the LTIP. As of June 30, 1998, the Company had
options outstanding to purchase up to 731,250 shares of Common Stock outside
of the LTIP and had not yet granted any options under the LTIP. See
"Management--Stock Option Plan." The Company intends to file a registration
statement under the Securities Act to register all shares of Common Stock
issuable under such Stock Option Plan. Shares covered by this registration
statement will be eligible for sale in the public market after the effective
date of such registration statement.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
On April 22, 1998, pursuant to authorization of its Board of Directors, the
Company engaged the firm of Ernst & Young LLP as its auditors. The Bank, prior
to its becoming a subsidiary of the Company, was served by
76
<PAGE>
Deloitte & Touche LLP. Deloitte & Touche LLP's report on the Bank's financial
statement for the period from January 7, 1997 to December 31, 1997 and for the
years ended December 31, 1996 and 1995 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to audit scope or
accounting principles.
During the period from January 1, 1998 to the date of the change in
accountants, there were no disagreements with Deloitte & Touche LLP on any
matter of accounting principles or practice, financial statement disclosure,
or auditing scope or procedure, which if not resolved to the satisfaction of
Deloitte & Touche LLP would have caused them to make reference to the subject
matter of the disagreement in connection with their reports on the Company's
financial statements. During the period from January 1, 1998 to the date of
the change in accountants, there were no reportable events (as that term is
used in Regulation S-K, Item 304(a)(1)(v)(A) through (D) of the Exchange Act).
CERTAIN LEGAL MATTERS
The validity of the Superior Securities offered hereby will be passed upon
for the Company by Miller, Hamilton, Snider & Odom, L.L.C., Montgomery,
Alabama.
EXPERTS
The consolidated financial statements of Superior Financial Corp. at
December 31, 1997, and for the period from November 12, 1997 (date of
inception) to December 31, 1997 then ended 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
is included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Superior Federal Bank, F.S.B. and
Subsidiary as of December 31, 1997 and for the period from January 7, 1997 to
December 31, 1997, and the consolidated financial statements of Superior
Federal Bank, F.S.B. and Subsidiary ("Predecessor Entity") as of December 31,
1996 and for each of the two years in the period ended December 31, 1996
included in this prospectus and registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
77
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
[TO COME]
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Superior Financial Corp.
We have audited the accompanying balance sheet of Superior Financial Corp.
(the "Company") as of December 31, 1997 and the related statements of
operations, shareholders' equity and cash flows for the period from November
12, 1997 (date of inception) to 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Superior Financial Corp.
at December 31, 1997 and the results of its operations and cash flows for the
period from November 12, 1997 (date of inception) to December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
July 7, 1998
F-2
<PAGE>
SUPERIOR FINANCIAL CORP.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Cash held in escrow................................................... $ 94,072
Deferred acquisition costs............................................ 328,520
--------
Total assets.......................................................... 422,592
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses................................. 182,549
Commitments and contingencies......................................... --
Shareholders' equity:
Common stock--$0.01 par value; one million shares authorized,
none issued and outstanding......................................... --
Paid in capital...................................................... 260,000
Accumulated deficit.................................................. (19,957)
--------
Total shareholders' equity............................................ 240,043
--------
Total liabilities and shareholders' equity............................ $422,592
========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SUPERIOR FINANCIAL CORP.
STATEMENT OF OPERATIONS
For Period from November 12, 1997 (date of inception) to December 31, 1997
<TABLE>
<S> <C>
Revenues............................................................. $ --
Expenses............................................................. 19,957
--------
Loss before income taxes provision................................... (19,957)
Provision for income taxes........................................... --
--------
Net loss............................................................. $(19,957)
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
SUPERIOR FINANCIAL CORP.
STATEMENT OF SHAREHOLDERS' EQUITY
For Period from November 12, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
TOTAL
PAID IN ACCUMULATED SHAREHOLDERS'
CAPITAL DEFICIT EQUITY
-------- ----------- -------------
<S> <C> <C> <C>
Balance at November 12, 1997 $ -- $ -- $ --
Contribution from investors................ 260,000 -- 260,000
Net loss for the period from November 12,
1997 through December 31, 1997............ -- (19,957) (19,957)
-------- -------- --------
Balance at December 31, 1997................ $260,000 $(19,957) $240,043
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SUPERIOR FINANCIAL CORP.
STATEMENT OF CASH FLOWS
For Period from November 12, 1997 (date of inception) to December 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss............................................................. $(19,957)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Increase in accounts payable and accrued expenses................... 182,549
--------
Net cash provided by operating activities............................ 162,592
INVESTING ACTIVITIES
Deferred acquisition costs........................................... (328,520)
--------
Net cash used in investing activities................................ (328,520)
FINANCING ACTIVITIES
Contribution from investors.......................................... 260,000
--------
Net cash provided by financing activities............................ 260,000
--------
Net increase in cash................................................. 94,072
Cash and cash equivalents at beginning of period..................... --
--------
Cash and cash equivalents at end of period........................... $ 94,072
========
</TABLE>
See accompanying notes.
F-6
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Superior Financial Corp. is a savings and loan holding company organized
under the laws of Delaware and headquartered in Fort Smith, Arkansas. The
Company was organized on November 12, 1997 as SFC Acquisition Corporation
("SFC") for the purpose of acquiring Superior Federal Bank, F.S.B. (the
"Bank"), a federally chartered savings institution. On March 24, 1998 SFC's
name was changed to Superior Financial Corp.
On December 3, 1997, NationsBank entered into an agreement with SFC whereby
SFC would purchase 100% of the issued and outstanding shares of common stock
of the Bank. The transaction closed in the second quarter of 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
FISCAL YEAR
The Company's fiscal year ends on December 31. The accompanying statements
of operations, cash flows, and shareholders' equity reflect activity for the
period from November 12, 1997 (date of inception) to December 31, 1997.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents includes
cash held in escrow by Miller, Hamilton, Snider and Odom, LLC.
2.SUBSEQUENT EVENTS
On April 1, 1998, the Company completed a private placement offering
totaling $165 million, consisting of $95 million in common stock, $60 million
in 8.65% Senior Notes due 2003, and $20 million in LIBOR plus 1.75% Notes due
2000. The proceeds from the private placement offering were used to acquire,
in a purchase transaction, 100% of the common stock of the Bank. In connection
with the private placement offering, the Company entered into a Registration
Rights Agreement which requires that a Shelf Registration Statement to
register the Common Stock and Senior Notes be filed with the Securities and
Exchange Commission no later than July 29, 1998.
The acquisition of the Bank by the Company closed on April 1, 1998 and was
accounted for under the purchase method of accounting. As of December 31,
1997, the Bank had total assets of $1,256,153,000; deposits of $982,442,000;
loans of $697,869,000 and stockholders' equity of $161,832,000. The Company
paid $162.5 million for the Bank. The assets and liabilities of the Bank were
adjusted to fair value at the purchase date, resulting in an excess cost over
fair value of $76.4 million, which will be amortized over 20 years.
F-7
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2.SUBSEQUENT EVENTS (CONTINUED)
On March 24, 1998, the Company filed Amended and Restated Articles of
Incorporation to increase the number of authorized shares of common stock from
20 million shares to 30 million shares and to authorize 10 million shares of
$0.01 par value preferred stock.
3.ACQUISITION COSTS
Prior to the end of the fiscal year, the Company incurred various expenses
related to the acquisition of the Bank which are capitalizable under
Accounting Principles Board Opinion No. 16 ("APB No. 16"), Business
Combinations. These amounts, which include primarily legal and accounting fees
as well as fees associated with due diligence procedures, are reported as
deferred acquisition costs in the accompanying balance sheet and were
subsequently included in the purchase accounting entries recorded upon
consummation of the acquisition.
4.INCOME TAXES
The Company incurred a net operating loss in its year of inception. This net
operating loss will be carried forward and will be available to offset future
taxable income.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Superior Federal Bank, F.S.B.:
We have audited the accompanying consolidated statement of financial condition
of Superior Federal Bank, F.S.B. (a wholly owned subsidiary of NationsBank,
Inc.) and subsidiary (the "Bank") as of December 31, 1997, and the related
consolidated statements of income, stockholder's equity and cash flows for the
period from January 7, 1997 to December 31, 1997. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Bank at December
31, 1997, and the results of its operations and its cash flows for the period
from January 7, 1997 to December 31, 1997, in conformity with generally
accepted accounting principles.
Little Rock, Arkansas
January 16, 1998
F-9
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents....................................... $ 73,320,358
Loans receivable, net........................................... 693,208,982
Mortgage-backed securities available-for-sale................... 369,555,494
Accrued interest receivable..................................... 6,257,386
Federal Home Loan Bank stock.................................... 12,655,000
Office properties and equipment, net............................ 17,981,830
Loan servicing rights........................................... 1,991,230
Core deposit premium, net....................................... 7,802,695
Prepaid expenses and other assets............................... 8,661,420
Goodwill........................................................ 64,056,164
Real estate acquired in settlement of loans, net................ 662,085
--------------
TOTAL........................................................... $1,256,152,644
==============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Deposits....................................................... $ 982,442,127
Federal Home Loan Bank borrowings.............................. 105,000,000
Advance payments by borrowers for taxes and insurance.......... 3,929,806
Other liabilities.............................................. 2,948,735
--------------
Total liabilities............................................. 1,094,320,668
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock--$1 par value; 1,000 shares authorized, issued and
outstanding................................................... 1,000
Capital in excess of par value................................. 150,603,054
Retained earnings.............................................. 9,340,588
Net unrealized gains on securities available-for-sale, net of
taxes......................................................... 1,887,334
--------------
Total stockholder's equity.................................... 161,831,976
--------------
TOTAL........................................................... $1,256,152,644
==============
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
<TABLE>
<S> <C>
INTEREST INCOME:
Loans:
First mortgage loans............................................. $33,626,800
Consumer and other loans......................................... 21,242,845
Mortgage-backed securities........................................ 27,036,633
Interest-bearing deposits......................................... 1,029,018
Other............................................................. 728,293
-----------
Total interest income............................................ 83,663,589
INTEREST EXPENSE:
Deposits.......................................................... 38,433,919
Other............................................................. 6,924,999
-----------
Total interest expense........................................... 45,358,918
-----------
NET INTEREST INCOME................................................ 38,304,671
PROVISION FOR LOAN LOSSES.......................................... 2,154,998
-----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES................ 36,149,673
OTHER INCOME:
Deposit account and other fees.................................... 20,241,242
Loan servicing fees, net.......................................... 1,796,431
Income from real estate operations, net........................... 261,760
Other............................................................. 980,265
-----------
Total other income............................................... 23,279,698
OTHER EXPENSES:
Salaries and employee benefits.................................... 16,340,929
Net occupancy expense of premises................................. 3,041,154
Deposit insurance premium......................................... 635,843
Data processing................................................... 2,867,346
Advertising and promotion......................................... 2,314,908
Amortization of core deposit premium.............................. 797,571
Amortization of goodwill.......................................... 2,556,359
Postage and supplies.............................................. 2,522,934
Equipment expense................................................. 1,906,656
Other............................................................. 6,332,547
-----------
Total other expenses............................................. 39,316,247
-----------
INCOME BEFORE INCOME TAX PROVISION................................. 20,113,124
INCOME TAX PROVISION............................................... 9,191,236
-----------
NET INCOME......................................................... $10,921,888
===========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS ON
CAPITAL IN SECURITIES TOTAL
COMMON EXCESS OF RETAINED AVAILABLE STOCKHOLDER'S
STOCK PAR VALUE EARNINGS FOR SALE EQUITY
------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 7,
1997................... $1,000 $150,603,054 $150,604,054
Dividends............. $ (1,581,300) (1,581,300)
Net income............ 10,921,888 10,921,888
Net change in
unrealized gains in
securities
available for sale. $1,887,334 1,887,334
------ ------------ ------------ ---------- ------------
BALANCE, DECEMBER 31,
1997................... $1,000 $150,603,054 $ 9,340,588 $1,887,334 $161,831,976
====== ============ ============ ========== ============
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income...................................................... $10,921,888
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses..................................... 2,154,998
Depreciation.................................................. 2,068,445
Amortization of loan servicing rights......................... 276,968
Amortization of core deposit premium.......................... 797,571
Amortization of premiums on mortgage-backed securities, net... 3,156,936
Amortization of goodwill...................................... 2,556,359
Loss on sales oF real estate.................................. 138,715
Gain on sales of Loans........................................ (66,946)
Proceeds from sales of loans held for sale.................... 11,610,425
Decrease in accrued interest receivable....................... 853,953
Increase in prepaid expenses and other assets................. (7,027,047)
Decrease in other liabilities................................. (3,727,554)
-----------
Net cash provided by operating activities................... 23,714,741
INVESTING ACTIVITIES:
Increase in loans receivable, net............................... (40,979,885)
Principal payments on mortgage-backed securities................ 68,138,748
Purchase of Federal Home Loan Bank stock........................ (726,000)
Proceeds from sales of real estate.............................. 1,056,787
Purchase of office property and equipment....................... (988,729)
-----------
Net cash provided by investing activities................... 26,500,921
FINANCING ACTIVITIES:
Net change in deposits.......................................... (7,760,799)
Payments of Federal Home Loan Bank advances..................... (18,000,000)
Payment of dividends............................................ (1,581,300)
Net increase in advance payments by borrowers for taxes and
insurance...................................................... 207,368
-----------
Net cash used by financing activities....................... (27,134,731)
-----------
NET INCREASE IN CASH.............................................. 23,080,931
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................... 50,239,427
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $73,320,358
===========
SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest........................ $45,364,061
===========
Cash paid during the period for income taxes.................... $ 7,108,479
===========
SUPPLEMENT NONCASH ACTIVITIES:
Additions to other real estate from settlement of loans......... $ 1,214,263
===========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Superior Federal Bank, F.S.B. (the "Bank") is a
wholly-owned subsidiary of NationsBank, Inc. ("NationsBank"). The Bank is a
federally chartered savings association which provides a broad line of
financial products to small to medium sized businesses and consumers. On
January 7, 1997, NationsBank acquired the Bank through its acquisition of
Boatmen's Bankshares, Inc. (the former sole shareholder of the Bank's common
stock). This purchase was accounted for under the purchase (pushdown) method
whereby the assets and liabilities of the Bank were recorded at fair value at
the date of acquisition and the difference between the net book value of the
Bank and the allocated purchase price was recorded as goodwill of
approximately $66,600,000.
On December 3, 1997, NationsBank entered into an agreement with SFC
Acquisition Corporation ("SFC") whereby SFC will purchase 100% of the issued
and outstanding shares of common stock of the Bank. While the terms of the
agreement have been established, the agreement is subject to regulatory
approval. Pending such approval, the deal is expected to close in the second
quarter of 1998.
BASIS OF PRESENTATION--The accounting and reporting policies of the Bank
conform to generally accepted accounting principles ("GAAP") and general
practices within the thrift and mortgage banking industries. The following
summarizes the more significant of these policies.
USE OF ESTIMATES--The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Bank and its wholly-owned subsidiary, SFS Corporation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and
cash equivalents includes cash on hand and amounts due from depository
institutions.
LIQUIDITY REQUIREMENTS--Regulations require the Bank to maintain an amount
equal to 5% of deposits (net of loans on deposits) and short-term borrowings
in cash and U. S. Government and other approved securities.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities ("MBSs") that the
Bank has the positive intent and ability to hold to maturity are classified as
held-to-maturity and recorded at cost, adjusted for the amortization of
premiums and the accretion of discounts, which are recognized in interest
income using the interest method over the period to maturity.
MBSs that the Bank intends to hold for indefinite periods of time are
classified as available-for-sale and are recorded at fair value. Unrealized
holding gains and losses are excluded from earnings and reported net of tax as
a separate component of stockholder's equity until realized. MBSs in the
available-for-sale portfolio may be used as part of the Bank's asset and
liability management practices and may be sold in response to changes in
interest rate risk, prepayment risk or other economic factors.
The overall return or yield earned on MBSs depends on the amount of interest
collected over the life of the security and the amortization of any premium or
discount. Premiums and discounts are recognized in income using the level-
yield method over the assets' remaining lives adjusted for anticipated
prepayments. Although the
F-14
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
Bank receives the full amount of principal if prepaid, the interest income
that would have been collected during the remaining period to maturity, net of
any discount or premium amortization, is lost. Accordingly, the actual yields
and maturities of MBSs depend on when the underlying mortgage principal and
interest are repaid. Prepayments primarily result when market interest rates
fall below a mortgage's contractual interest rate and it is to the borrower's
advantage to prepay the existing loan and obtain new, lower rate financing. In
addition to changes in interest rates, mortgage prepayments are affected by
other factors such as loan types and geographic location of the related
properties.
If the fair value of a MBS for sale declines for reasons other than
temporary market conditions, the carrying value of such a MBS would be written
down to current value by a charge to operations. Gains and losses on the sale
of MBSs available-for-sale are determined using the specific-identification
method. The Bank did not hold any MBSs classified as held-to-maturity or as
trading securities during 1997.
LOANS RECEIVABLE--Loans receivable are stated at unpaid principal balances
plus premium from acquisition less allowance for loan losses and deferred
fees. The premium arising from fair value adjustments of the loans in business
combinations is being accreted over the remaining contractual lives of the
loans using the level-yield method adjusted for actual experience. Loans held
for sale are carried at the lower of book value or fair value as determined by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources.
Uncollectible interest on loans that are contractually past due 90 days or
greater or not probable of collection is charged off. Income is subsequently
recognized when cash payments are received and collectibility is probable, in
which case the loan is returned to accrual status.
PROVISION FOR LOSSES--Provisions for losses on loans have been provided
based on amounts outstanding and historical experience. Provisions for losses
include charges to reduce the recorded balance of mortgage loans and real
estate to their estimated net realizable value or fair value less estimated
selling costs, as applicable. Such provisions are based on management's
estimate of the net realizable value or fair value of the collateral or real
estate, as applicable, considering current and currently anticipated future
operating or sales information which may be affected by changing economic
and/or operating conditions beyond the Bank's control, thereby causing these
estimates to be particularly susceptible to changes that could result in a
material adjustment to their carrying value in the future.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS--Real estate acquired in
settlement of loans is initially recorded at estimated fair value, less
estimated selling costs, and is subsequently carried at the lower of
depreciated cost or fair value, less estimated selling costs. Valuations are
periodically performed by management, and an allowance for losses is
established by a charge to operations if the carrying value of a property
exceeds its estimated fair value. The ability of the Bank to recover the
carrying value of real estate is based upon future sales of the land and the
projects. The ability to effect such sales is subject to market conditions and
other factors, many of which are beyond the Bank's control.
OFFICE PROPERTIES AND EQUIPMENT--Office properties and equipment are stated
at cost less accumulated depreciation. Depreciation is computed using
straight-line and accelerated methods over the respective estimated useful
lives of the assets of approximately 3 to 30 years.
ACCRETION AND AMORTIZATION OF VALUATION ACCOUNTS FROM ACQUISITION--Discounts
and premiums arising from fair value adjustments of assets and liabilities in
business combinations are being amortized over the remaining contractual lives
of the related assets or liabilities, using a method which approximates the
level-yield method adjusted for actual experience.
F-15
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
GOODWILL--Goodwill is being amortized on a straight-line basis over 25
years.
LOAN ORIGINATION AND COMMITMENT FEES--The Bank defers loan fees received and
certain incremental direct costs, and recognizes them as adjustments to
interest income over the estimated remaining life of the related loans. When a
loan is fully repaid or sold, the unamortized portion of the deferred fee and
cost is credited in income. Other loan fees, such as prepayment penalties,
late charges, and release fees are recorded as income when collected.
PENSION PLAN--Pension expense is computed on the basis of accepted actuarial
methods and pension costs are funded as incurred.
INCOME TAXES--The Bank is a member of a consolidated group of corporations
as defined by the Internal Revenue Code and the Bank files its federal income
tax return as part of a consolidated tax return. For financial reporting
purposes, however, the Bank computes its tax on a separate company basis.
Deferred tax assets and liabilities are recognized for the estimated tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
CORE DEPOSIT PREMIUM--The premium resulting from the valuation of core
deposits acquired in the purchase of the deposits of other financial
institutions is amortized over a period (generally ten years) not exceeding
the estimated average remaining life of the existing customer deposit base
acquired. Such amortization is provided at the same rate the related deposits
are expected to be withdrawn. The amortization period is periodically
evaluated to determine if events and circumstances require the period to be
reduced.
LOAN SERVICING RIGHTS--Purchased loan servicing rights represent the cost of
acquiring the rights to service mortgage loans owned by others, and such cost
is capitalized and amortized in proportion to, and over the period of,
estimated net servicing income. The Bank's carrying values of purchased loan
servicing rights and the amortization thereon are periodically evaluated in
relation to estimated future net servicing income to be received, and such
carrying values are adjusted for indicated impairments based on management's
best estimate of remaining cash flows, using a pool-by-pool method. Such
estimates may vary from the actual remaining cash flows due to prepayments of
the underlying mortgage loans, increases in servicing costs, and changes in
other factors. The Bank's carrying values of purchased loan servicing rights
do not purport to represent the amount that would be realized by a sale of
these assets in the open market. Loan servicing rights earned by the Bank
through the origination and subsequent sale of mortgages while retaining the
right to service those mortgages are considered by management to be
insignificant.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Bank using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. The basis for market information and
other valuation methodologies are significantly affected by assumptions used
including the timing of future cash flows, discount rates, judgments regarding
economic conditions, risk characteristics and other factors. Because
assumptions are inherently subjective in nature, the estimated fair values of
certain financial instruments cannot be substantiated by comparison to
independent market quotes and, in many cases, the estimated fair values could
not necessarily be realized in an immediate sale or settlement of the
instrument. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market exchange,
and the use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts. Potential tax
ramifications related to the realization of unrealized gains and losses that
would be incurred in an actual sale and/or settlement have not been taken into
consideration.
F-16
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
The estimated fair values of financial instruments at December 31, 1997,
consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents........................... $ 73,320,358 $ 73,320,358
Loans receivable, net............................... 693,208,982 697,912,280
Mortgage-backed securities.......................... 369,555,494 369,555,494
Accrued interest receivable......................... 6,257,386 6,257,386
Federal Home Loan Bank stock........................ 12,655,000 12,655,000
Financial liabilities:
Demand deposits..................................... 413,521,512 413,521,512
Time deposits....................................... 568,920,615 570,546,040
Federal Home Loan Bank borrowings................... 105,000,000 105,880,000
Off-balance sheet financial instruments.............. -- --
</TABLE>
The fair value of loans receivable is estimated based on present values
using applicable risk-adjusted spreads to the U. S. Treasury curve to
approximate current entry-level interest rates considering anticipated
prepayment speeds. The fair value of nonperforming loans with a recorded book
value net of allowance of approximately $4.7 million was not estimated, and
therefore is included in estimated fair value at carrying amount because it is
not practicable to reasonably assess the credit adjustment that would be
applied in the marketplace for such loans. The fair value of mortgage-backed
securities is based on quoted market prices, dealer quotes and prices obtained
from independent pricing services. The fair value of accrued interest
receivable and Federal Home Loan Bank ("FHLB") stock is considered to be
carrying value. The fair value of cash and cash equivalents is considered the
same as its carrying value.
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit and Federal Home Loan Bank
borrowings is estimated using the rates currently offered for liabilities of
similar remaining maturities.
The fair value of off-balance sheet financial instruments is estimated using
the fees currently charged to enter into similar agreements taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties at the
reporting date. The unrealized gain or loss for off-balance sheet items is not
significant.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since the reporting date and, therefore, current
estimates of fair value may differ significantly from the amounts presented
herein.
F-17
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
3. LOANS RECEIVABLE AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Loans receivable consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
First mortgage loans (principally conventional):
Collateralized by one-to-four family residences.................. $409,009,512
Collateralized by other properties............................... 38,749,475
Construction loans............................................... 18,927,643
Other............................................................ 1,507,524
------------
468,194,154
Undisbursed portion of construction loans........................ (6,194,146)
------------
Total first mortgage loans...................................... 462,000,008
Consumer and other loans:
Automobile....................................................... 183,393,741
Savings.......................................................... 7,305,044
Home equity and second mortgage.................................. 10,967,267
Commercial....................................................... 4,403,379
Other............................................................ 29,675,377
------------
Total consumer and other loans.................................. 235,744,808
Deferred loan costs, net.......................................... 124,115
Allowance for loan losses......................................... (4,659,949)
------------
Loans receivable, net........................................... $693,208,982
============
</TABLE>
Loans to directors and executive officers totaled $281,929 at December 31,
1997. Such loans are made on substantially the same terms as those for other
loan customers.
The Bank, through its normal lending activity, originates and maintains
loans receivable which are substantially concentrated in its lending territory
(primarily Arkansas and Oklahoma). The Bank's policy calls for collateral or
other forms of repayment assurance to be received from the borrower at the
time of loan origination. Such collateral or other form of repayment assurance
is subject to changes in economic value due to various factors beyond the
control of the Bank and such changes could be significant.
The Bank originates and purchases adjustable rate mortgage loans to hold for
investment. The Bank also originates 15 year and 30 year fixed rate mortgage
loans and sells substantially all new originations of the 30 year loans to
outside investors with servicing retained. Loans held for sale at December 31,
1997, are considered by management to be immaterial. Such loans bear interest
substantially equal to market rates.
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financial needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statement of financial
condition. The Bank does not use financial instruments with off-balance sheet
risk as part of its own asset/liability management program or for trading
purposes.
The Bank'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 amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
F-18
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. The amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation of the
counterparty. Such collateral consists primarily of residential properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Bank had outstanding loan commitments and lines of credit aggregating
approximately $9,814,300 at December 31, 1997. At December 31, 1997, the Bank
had an outstanding letter of credit to secure the payment of principal and
interest on a $970,000 municipal bond issue to finance the construction of a
nursing home. The letter is collateralized by the Bank's mortgage-backed
securities with an carrying value of approximately $801,000 at December 31,
1997.
4. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
statement of financial condition. The unpaid principal balances of these loans
at December 31, 1997, are summarized as follows:
<TABLE>
<S> <C>
Mortgage loans underlying pass-through securities:
FHLMC......................................................... $ 71,297,152
Ginnie Mae.................................................... 150,605,837
Mortgage loan portfolios serviced for other investors......... 17,304,803
------------
Total........................................................ $239,207,792
============
</TABLE>
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors and
processing foreclosures. Loan servicing income is recorded on the accrual
basis and includes servicing fees from investors and certain charges collected
from borrowers, such as late payment fees. In connection with these loans
serviced for others, the Bank held borrowers' escrow balances of approximately
$3,500,000 at December 31, 1997. Of the loans serviced by the Bank at December
31, 1997, approximately $4,834,000 were sold with recourse.
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable on loans and mortgage-backed securities
consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
Loans receivable................................................ $4,095,312
Mortgage-backed securities...................................... 2,162,074
----------
Total.......................................................... $6,257,386
==========
</TABLE>
F-19
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
6. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of pass-through mortgage-backed
securities are summarized as follows at December 31, 1997:
<TABLE>
<CAPTION>
PRINCIPAL UNAMORTIZED UNEARNED AMORTIZED
BALANCE PREMIUMS DISCOUNTS COST
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Ginnie Mae................... $105,944,794 $2,120,140 $ (1,356) $108,063,578
Fannie Mae................... 174,888,901 1,658,955 (633,797) 175,914,059
FHLMC........................ 80,875,349 1,527,681 (599,841) 81,803,189
------------ ---------- ----------- ------------
Total....................... $361,709,044 $5,306,776 $(1,234,994) $365,780,826
============ ========== =========== ============
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Ginnie Mae................... $108,063,578 $1,267,022 $ 0 $109,330,600
Fannie Mae................... 175,914,059 1,511,514 (320,863) 177,104,710
FHLMC........................ 81,803,189 1,319,115 (2,120) 83,120,184
------------ ---------- ----------- ------------
Total....................... $365,780,826 $4,097,651 $ (322,983) $369,555,494
============ ========== =========== ============
</TABLE>
Mortgage-backed securities with carrying values of approximately
$239,443,000 at December 31, 1997, had adjustable rates.
The carrying value of mortgage-backed securities pledged was approximately
$775,000 for letters of credit, $6,699,000 for treasury, tax and loan
accounts, and $9,544,000 for public fund deposits at December 31, 1997.
7. ALLOWANCE FOR LOAN LOSSES
Following is a summary of the activity in the allowance for losses on loans:
<TABLE>
<S> <C>
BALANCE, JANUARY 7, 1997......................................... $5,058,282
Provision for losses............................................ 2,154,998
Charge-offs, net of recoveries.................................. (2,553,331)
----------
BALANCE, DECEMBER 31, 1997....................................... $4,659,949
==========
</TABLE>
8.OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment consisted of the following at December 31,
1997:
<TABLE>
<S> <C>
Land............................................................ $ 4,897,408
Buildings and improvements...................................... 14,625,342
Furniture and equipment......................................... 6,723,858
-----------
Total.......................................................... 26,246,608
Accumulated depreciation........................................ (8,264,778)
-----------
Office properties and equipment, net........................... $17,981,830
===========
</TABLE>
F-20
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
9.DEPOSITS
Deposits consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
Demand and NOW accounts, including noninterest-bearing
deposits of $70,473,551 in 1997.............................. $255,092,537
Money market.................................................. 56,981,819
Statement and passbook savings................................ 101,447,156
Certificates of deposit....................................... 568,920,615
------------
Total deposits............................................ $982,442,127
============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $22,873,000 at December 31, 1997.
At December 31, 1997, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998........................................................... $426,615,681
1999........................................................... 109,051,452
2000........................................................... 19,395,789
2001........................................................... 3,268,776
2002........................................................... 9,928,328
Thereafter..................................................... 660,589
------------
Total....................................................... $568,920,615
============
</TABLE>
Interest expense on deposits for the period ended December 31, 1997, is
summarized below:
<TABLE>
<S> <C>
Demand, NOW, money market and statement and passbook savings... $ 8,135,897
Certificates accounts.......................................... 30,543,295
Early withdrawal penalties..................................... (245,273)
-----------
Total interest expense on deposits......................... $38,433,919
===========
</TABLE>
At December 31, 1997, the Bank had pledged mortgage-backed securities with a
carrying value of approximately $9,544,000 as collateral for public fund
deposits.
10.FEDERAL HOME LOAN BANK BORROWINGS
The Bank had advances from the FHLB as follows at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
RATE ADVANCES
-------- ------------
<S> <C> <C>
Maturing during year ending December 31:
1998................................................. 5.19% $ 15,000,000
1999................................................. 6.28% 30,000,000
2000................................................. 6.33% 30,000,000
2001................................................. 6.39% 30,000,000
------------
Total............................................. $105,000,000
============
</TABLE>
F-21
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
As a member of the FHLB, the Bank is required to maintain an investment in
capital stock of the FHLB of Dallas in an amount equal to the greater of 1% of
its outstanding home loans or 1/20 of its outstanding advances from the FHLB
of Dallas. No ready market exists for such stock and it has no quoted market
value. Pursuant to collateral agreements with the FHLB, advances are
collateralized by all stock in the FHLB and qualifying first mortgage loans.
11.REGULATORY MATTERS
The Bank is subject to various regulatory requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of tangible and core capital (as defined in the regulations) to
adjusted total assets (as defined), and of total capital (as defined) to risk
weighted assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is subject.
The most recent notification from the Office of Thrift Supervision ("OTS")
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total, tangible, and core capital ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table
(amounts in thousands):
<TABLE>
<CAPTION>
REQUIRED TO
BE
CATEGORIZED
AS WELL
CAPITALIZED
REQUIRED FOR UNDER PROMPT
CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
------------- ------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Tangible capital to adjusted total
assets........................... $87,861 7.40% $17,805 1.50% N/A N/A
Core capital to adjusted total
assets........................... $87,861 7.40% $35,609 3.00% $59,349 5.00%
Total capital to risk weighted
assets........................... $92,424 15.69% $47,119 8.00% $58,899 10.00%
Tier I capital to risk weighted
assets........................... $87,861 14.92% N/A N/A $35,340 6.00%
</TABLE>
F-22
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
12.REAL ESTATE OPERATIONS
Income from real estate operations consisted of the following for the period
from January 7, 1997 to December 31, 1997:
<TABLE>
<S> <C>
Rental income, net................................................. $400,505
Recognized net loss on sales of real estate........................ (138,745)
--------
Income from real estate operations, net........................ $261,760
========
</TABLE>
13.RETIREMENT BENEFITS
NationsBank provides a noncontributory defined benefit pension plan which
covers substantially all employees of NationsBank and its subsidiaries.
Pension benefits are based upon the employee's length of service and
compensation during the final years of employment. During the period from
January 7, 1997 to December 31, 1997, the Bank recognized $114,480 of cost
under the NationsBank plan. NationsBank also provides postemployment life and
contributory medical benefits to retired employees of NationsBank and its
subsidiaries including the Bank. NationsBank includes Bank employees in its
recorded liability. Amounts paid to NationsBank and costs recognized by the
Bank related to these benefits during 1997 were not significant.
14.INCOME TAXES
The income tax provision for the period from January 7, 1997 to December 31,
1997, consists of the following:
<TABLE>
<S> <C>
Current:
Federal....................................................... $ 9,984,211
State......................................................... 995,148
-----------
Total current provision.................................... 10,979,359
Deferred tax benefit........................................... (1,788,123)
-----------
Income tax provision....................................... $ 9,191,236
===========
</TABLE>
A reconciliation of federal income tax expense on pre-tax income at the
statutory rate with income tax expense reported is as follows:
<TABLE>
<S> <C>
Tax at the statutory rate....................................... $7,039,593
State income taxes, net of federal benefit...................... 991,484
Non-deductible goodwill......................................... 1,173,876
Other, net...................................................... (13,717)
----------
Income tax provision........................................ $9,191,236
==========
</TABLE>
The Bank is permitted under the Internal Revenue Code to deduct an annual
addition to a reserve for bad debts in determining taxable income, subject to
certain limitations. This addition differs from the bad debt expense used for
financial reporting purposes.
F-23
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
As of December 31, 1997, the Bank's deferred tax asset account was comprised
of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Intangible assets............................................... $4,258,626
Investment securities........................................... 1,047,905
Fixed assets.................................................... 342,595
Other, net...................................................... 7,157
----------
Total deferred tax assets.................................... 5,656,283
Deferred tax liabilities:
Mortgage-backed securities...................................... 1,887,334
Reserve for loan losses......................................... 1,589,812
Other, net...................................................... 373,660
----------
Total deferred tax liabilities............................... 3,850,806
----------
Net deferred tax asset....................................... $1,805,477
==========
</TABLE>
The Bank files a consolidated federal income tax return with NationsBank.
Income tax expense is allocated to the Bank and recorded in the Bank's
consolidated financial statements, generally on the basis of the tax which
would be payable if the Bank had filed a separate return.
15.COMMITMENTS
The Bank leases branch locations under operating leases with remaining terms
ranging from 2 to 12 years. These leases all contain renewal options with
varying periods. Rental expense amounted to approximately $546,442 for the
period from January 7, 1997 to December 31, 1997. A schedule of future minimum
rental payments under operating leases, as of December 31, 1997, follows:
<TABLE>
<S> <C>
Year ending December 31:
1998............................................................. $ 525,037
1999............................................................. 432,834
2000............................................................. 353,791
2001............................................................. 328,947
2002............................................................. 160,381
Thereafter....................................................... 567,503
----------
Total......................................................... $2,368,493
==========
</TABLE>
16.LOAN SERVICING RIGHTS
Following is a summary of the changes in purchased loan servicing rights:
<TABLE>
<S> <C>
BALANCE, JANUARY 7, 1997......................................... $2,268,198
Amortization.................................................... 276,968
----------
BALANCE, DECEMBER 31, 1997....................................... $1,991,230
==========
</TABLE>
F-24
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF NATIONSBANK, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 7, 1997 TO DECEMBER 31, 1997
Under OTS regulations, the lower of the amortized carrying value, 90% of the
fair market value or 90% of the original cost of purchased mortgage servicing
rights may be included in calculating capital standards. The amount to be
included as regulatory capital cannot exceed 50% of tangible capital.
17.CONTINGENCIES
In the normal course of the banking business, there are various commitments,
legal proceedings and contingencies which are not reflected in the
accompanying consolidated financial statements. In the opinion of management,
no material losses are expected to result from any such commitments, legal
proceedings or contingencies.
At periodic intervals, both the OTS and the FDIC routinely examine the
Bank's financial statements as part of their legally prescribed oversight of
the savings and loan industry. Based on these examinations, the regulators can
direct that the Bank's financial statements be adjusted in accordance with
their findings. A future examination by the OTS or the FDIC could include a
review of certain transactions or other amounts reported in the Bank's 1997
financial statements. In view of the uncertain regulatory environment in which
the Bank operates, the extent, if any, to which a forthcoming regulatory
examination may ultimately result in adjustments to the 1997 consolidated
financial statements cannot presently be determined.
The Bank's asset base is exposed to risk including the risk resulting from
changes in interest rates, market values of collateral for borrowings and
changes in the timing of cash flows. The Bank analyzes the effect of such
risks by considering the mismatch of the maturities of its assets and
liabilities in the current interest rate environment and the sensitivity of
assets and liabilities to changes in interest rates. Based on such analyses at
December 31, 1997, the Bank's management has considered the effect of
significant increases and decreases in interest rates and believes such
changes, if they occurred, would be manageable and would not affect the
ability of the Bank to hold its assets to maturity. However, the Bank is
exposed to significant market risk in the event of significant and prolonged
interest rate increases because certain fixed rate assets and certain variable
rate assets that are capped are funded with short-term liabilities.
* * * * * *
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Superior Federal Bank, F.S.B.:
We have audited the accompanying consolidated statement of financial condition
of Superior Federal Bank, F.S.B. (a wholly owned subsidiary of Boatmen's
Bancshares, Inc.) and subsidiary (the "Bank") as of December 31, 1996, and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Bank'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 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Bank at December
31, 1996, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Little Rock, Arkansas January 13, 1997
F-26
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
--------------
<S> <C>
ASSETS
Cash and cash equivalents................ $ 50,239,427
Loans receivable, net (Notes 3, 7, 10 and
18)..................................... 669,802,624
Mortgage-backed securities available for
sale (Notes 3, 6 and 9)................. 437,076,510
Accrued interest receivable (Note 5)..... 7,111,339
Federal Home Loan Bank stock (Note 10)... 11,929,000
Office properties and equipment, net
(Notes 8 and 18).......................... 19,061,546
Purchased loan servicing rights (Note
16)..................................... 2,268,197
Core deposit premium, net................ 4,564,110
Prepaid expenses and other assets (Note
14)..................................... 3,539,067
Real estate acquired in settlement of
loans, net.............................. 643,354
--------------
TOTAL.................................... $1,206,235,174
==============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Deposits (Notes 9 and 18)............... $ 990,202,926
Federal Home Loan Bank borrowings (Note
10).................................... 123,000,000
Advance payments by borrowers for taxes
and insurance.......................... 3,722,438
Other liabilities (Note 13)............. 4,788,955
--------------
Total liabilities...................... 1,121,714,319
COMMITMENTS AND CONTINGENCIES (Notes 3,
15 and 17)
STOCKHOLDER'S EQUITY (Note 11):
Common stock--$1 par value; 1,000 shares
authorized, issued and outstanding..... 1,000
Capital in excess of par value.......... 65,499,000
Retained earnings....................... 19,481,705
Net unrealized depreciation on
securities available for sale, net of
taxes of $297,501...................... (460,850)
--------------
Total stockholder's equity.............. 84,520,855
--------------
TOTAL.................................... $1,206,235,174
==============
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Loans:
First mortgage loans.................................. $33,163,113 $32,174,581
Consumer and other loans.............................. 18,633,674 12,941,766
Mortgage-backed securities............................. 31,222,981 36,448,476
Interest-bearing deposits.............................. 1,709,997 1,126,836
Other.................................................. 679,003 746,956
----------- -----------
Total interest income................................ 85,408,768 83,438,615
INTEREST EXPENSE:
Deposits (Note 9)...................................... 41,668,588 42,578,339
Other.................................................. 7,063,851 6,747,362
----------- -----------
Total interest expense............................... 48,732,439 49,325,701
----------- -----------
NET INTEREST INCOME..................................... 36,676,329 34,112,914
PROVISION FOR LOAN LOSSES (Note 7)...................... 1,125,000 1,050,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..... 35,551,329 33,062,914
OTHER INCOME:
Loan servicing fees, net (Notes 4 and 16).............. 1,330,380 1,241,647
Deposit accounts and other fees........................ 18,682,978 17,235,829
Income from real estate operations, net (Note 12)...... 650,156 933,049
Other.................................................. 2,706,256 1,161,052
----------- -----------
Total other income................................... 23,369,770 20,571,577
OTHER EXPENSES:
Salaries and employee benefits (Note 13)............... 16,352,091 14,721,125
Net occupancy expense of premises (Note 15)............ 2,889,919 2,821,510
Deposit insurance premium (Note 9)..................... 8,910,747 2,420,738
Data processing........................................ 3,113,584 2,462,056
Advertising and promotion.............................. 2,388,023 2,290,647
Amortization of core deposit premium................... 1,530,376 1,713,200
Postage and supplies................................... 2,700,683 2,384,162
Equipment expense...................................... 2,254,945 2,071,203
Other.................................................. 6,221,271 5,642,409
----------- -----------
Total other expenses................................. 46,361,639 36,527,050
----------- -----------
INCOME BEFORE INCOME TAX PROVISION...................... 12,559,460 17,107,441
INCOME TAX PROVISION (Note 14).......................... 4,925,537 6,710,394
----------- -----------
NET INCOME.............................................. $ 7,633,923 $10,397,047
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
NET UNREALIZED
DEPRECIATION ON
CAPITAL IN SECURITIES TOTAL
COMMON EXCESS OF RETAINED AVAILABLE STOCKHOLDER'S
STOCK PAR VALUE EARNINGS FOR SALE EQUITY
------ ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... $1,000 $65,499,000 $11,427,685 $76,927,685
Dividends............. (2,467,600) (2,467,600)
Net income............ 10,397,047 10,397,047
Effect of adoption of
A Guide to
Implementation of
Statement 115 on
Accounting for
Certain Debt and
Equity Securities
(Note 6)............. $(578,073) (578,073)
------ ----------- ----------- --------- -----------
BALANCE, DECEMBER 31,
1995................... 1,000 65,499,000 19,357,132 (578,073) 84,279,059
------ ----------- ----------- --------- -----------
Dividends............. (7,509,350) (7,509,350)
Net income............ 7,633,923 7,633,923
Net change in
unrealized
depreciation on
securities available
for sale............. 117,223 117,223
------ ----------- ----------- --------- -----------
BALANCE, DECEMBER 31,
1996................... $1,000 $65,499,000 $19,481,705 $(460,850) $84,520,855
====== =========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................ $ 7,633,923 $ 10,397,047
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses....................... 1,125,000 1,050,000
Depreciation.................................... 2,319,756 2,079,620
Accretion of valuation accounts from
acquisition.................................... 562,260 600,933
Amortization of purchased loan servicing rights. 789,958 1,008,429
Amortization of core deposit premium............ 1,530,376 1,713,200
Amortization of premiums on mortgage-backed
securities, net................................ 1,923,480 2,104,156
Gains on sales of real estate................... (26,227) (296,723)
Gain on sale of branch operations............... (1,284,259)
Proceeds from sales of loans held for sale...... 24,216,422 19,129,332
Decrease (increase) in accrued interest
receivable..................................... 612,269 (711,326)
Decrease in prepaid expenses and other assets... (861,859) 155,381
Decrease (increase) in other liabilities........ (750,163) 468,941
----------- ------------
Net cash provided by operating activities..... 37,790,936 37,698,990
INVESTING ACTIVITIES:
Increase in loans receivable, net................. (68,514,103) (131,942,911)
Principal payments on mortgage-backed securities.. 84,651,744 82,039,226
Purchase of Federal Home Loan Bank stock.......... (678,800) (851,600)
Proceeds from sales of real estate................ 346,573 1,203,365
Purchase of property and equipment................ (3,300,307) (3,262,880)
----------- ------------
Net cash provided (used) in investing
activities................................... 12,505,107 (52,814,800)
FINANCING ACTIVITIES:
Net change in deposits, net of the effect of the
sale of branch operations........................ (83,165,279) 23,695,823
Proceeds of Federal Home Loan Bank advances....... 8,000,000 90,000,000
Repayments of securities sold under agreements to
repurchase....................................... (80,000,000)
Payments of dividends............................. (7,509,350) (2,167,600)
Net (decrease) increase in advance payments by
borrowers for taxes and insurance................ (1,452,502) 1,229,595
----------- ------------
Net cash provided (used) by financing
activities................................... (84,127,131) 32,457,818
NET INCREASE (DECREASE) IN CASH..................... (33,831,088) 17,342,008
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.... 84,070,515 66,728,507
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......... $50,239,427 $ 84,070,515
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.......... $48,761,199 $ 49,235,429
=========== ============
Cash paid during the period for income taxes...... $ 5,384,437 $ 8,157,440
=========== ============
SUPPLEMENTAL NONCASH ACTIVITIES:
Additions to other real estate from settlement of
loans............................................ $ 625,615 $ 539,237
=========== ============
Transfer of securities to available for sale
portfolio........................................ $523,458,838
============
Transfer of assets in settlement of sale of branch
operations....................................... $ 9,929,516
===========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Superior Federal Bank, F.S.B. (the "Bank") is a
wholly-owned subsidiary of Boatmen's Bancshares, Inc. ("Boatmen's"). The Bank
is a federally chartered savings association which provides a broad line of
financial products to small to medium sized businesses and consumers. On
January 7, 1997, NationsBank Corporation ("NationsBank") completed acquisition
of Boatmen's. NationsBank has not informed Bank management of planned changes,
if any, in the operations of the Bank.
BASIS OF PRESENTATION--The accounting and reporting policies of the Bank
conform to generally accepted accounting principles and general practices
within the thrift and mortgage banking industries. The following summarizes
the more significant of these policies.
USE OF ESTIMATES--The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Bank and its wholly-owned subsidiary, SFS Corporation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and
cash equivalents includes cash on hand and amounts due from depository
institutions.
LIQUIDITY REQUIREMENTS--Regulations require the Bank to maintain an amount
equal to 5% of deposits (net of loans on deposits) and short-term borrowings
in cash and U. S. Government and other approved securities.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities ("MBSs") that the
Bank has the positive intent and ability to hold to maturity are classified as
held-to-maturity and recorded at cost, adjusted for the amortization of
premiums and the accretion of discounts, which are recognized in interest
income using the interest method over the period to maturity.
MBSs that the Bank intends to hold for indefinite periods of time are
classified as available-for-sale and are recorded at fair value. Unrealized
holding gains and losses are excluded from earnings and reported net of tax as
a separate component of stockholder's equity until realized. MBSs in the
available-for-sale portfolio may be used as part of the Bank's asset and
liability management practices and may be sold in response to changes in
interest rate risk, prepayment risk or other economic factors.
The overall return or yield earned on MBSs depends on the amount of interest
collected over the life of the security and the amortization of any premium or
discount. Premiums and discounts are recognized in income using the level-
yield method over the assets' remaining lives adjusted for anticipated
prepayments. Although the Bank receives the full amount of principal if
prepaid, the interest income that would have been collected during the
remaining period to maturity, net of any discount or premium amortization, is
lost. Accordingly, the actual yields and maturities of MBSs depend on when the
underlying mortgage principal and interest are repaid. Prepayments primarily
result when market interest rates fall below a mortgage's contractual interest
rate and it is to the borrower's advantage to prepay the existing loan and
obtain new, lower rate financing. In addition to changes in interest rates,
mortgage prepayments are affected by other factors such as loan types and
geographic location of the related properties.
F-31
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
If the fair value of a MBS for sale declines for reasons other than
temporary market conditions, the carrying value of such a MBS would be written
down to current value by a charge to operations. Gains and losses on the sale
of MBSs available-for-sale are determined using the specific-identification
method. The Bank did not hold any MBSs classified as trading securities during
1996 or 1995.
LOANS RECEIVABLE--Loans receivable are stated at unpaid principal balances
plus premium from acquisition less allowance for loan losses and deferred
fees. The premium arising from fair value adjustments of the loans in business
combinations is being accreted over the remaining contractual lives of the
loans using the level-yield method adjusted for actual experience. Loans held
for sale are carried at the lower of book value or fair value as determined by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources.
Uncollectible interest on loans that are contractually past due 90 days or
greater or not probable of collection is charged off. Income is subsequently
recognized when cash payments are received and collectibility is probable, in
which case the loan is returned to accrual status.
PROVISION FOR LOSSES--Provisions for losses on loans have been provided
based on amounts outstanding and historical experience. Provisions for losses
include charges to reduce the recorded balance of mortgage loans and real
estate to their estimated net realizable value or fair value less estimated
selling costs, as applicable. Such provisions are based on management's
estimate of the net realizable value or fair value of the collateral or real
estate, as applicable, considering current and currently anticipated future
operating or sales information which may be affected by changing economic
and/or operating conditions beyond the Bank's control, thereby causing these
estimates to be particularly susceptible to changes that could result in a
material adjustment to their carrying value in the future.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS--Real estate acquired in
settlement of loans is initially recorded at the lower of cost or estimated
fair value, less estimated selling costs, and is subsequently carried at the
lower of depreciated cost or fair value, less estimated selling costs.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated fair value. The ability of the Bank to recover
the carrying value of real estate is based upon future sales of the land and
the projects. The ability to effect such sales is subject to market conditions
and other factors, many of which are beyond the Bank's control.
OFFICE PROPERTIES AND EQUIPMENT--Office properties and equipment are stated
at cost less accumulated depreciation. Depreciation is computed using
straight-line and accelerated methods over the respective estimated useful
lives of the assets of approximately 3 to 30 years.
ACCRETION AND AMORTIZATION OF VALUATION ACCOUNTS FROM ACQUISITION--Discounts
and premiums arising from fair value adjustments of assets and liabilities in
business combinations are being amortized over the remaining contractual lives
of the related assets or liabilities, using a method which approximates the
level-yield method adjusted for actual experience.
LOAN ORIGINATION AND COMMITMENT FEES--The Bank defers loan fees received and
certain incremental direct costs, and recognizes them as adjustments to
interest income over the estimated remaining life of the related loans. When a
loan is fully repaid or sold, the unamortized portion of the deferred fee and
cost is credited in income. Other loan fees, such as prepayment penalties,
late charges, and release fees are recorded as income when collected.
F-32
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
PENSION PLAN--Pension expense is computed on the basis of accepted actuarial
methods and pension costs are funded as incurred.
INCOME TAXES--The Bank is a member of a consolidated group of corporations
as defined by the Internal Revenue Code and the Bank files its federal income
tax return as part of a consolidated tax return. For financial reporting
purposes, however, the Bank computes its tax on a separate company basis.
Deferred tax assets and liabilities are recognized for the estimated tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
CORE DEPOSIT PREMIUM--The premium resulting from the valuation of core
deposits acquired in the purchase of the deposits of other financial
institutions is amortized over a period (generally seven years) not exceeding
the estimated average remaining life of the existing customer deposit base
acquired. Such amortization is provided at the same rate the related deposits
are expected to be withdrawn. The amortization period is periodically
evaluated to determine if events and circumstances require the period to be
reduced.
PURCHASED LOAN SERVICING RIGHTS--Purchased loan servicing rights represent
the cost of acquiring the rights to service mortgage loans owned by others,
and such cost is capitalized and amortized in proportion to, and over the
period of, estimated net servicing income. The Bank's carrying values of
purchased loan servicing rights and the amortization thereon are periodically
evaluated in relation to estimated future net servicing income to be received,
and such carrying values are adjusted for indicated impairments based on
management's best estimate of remaining cash flows, using a pool-by-pool
method. Such estimates may vary from the actual remaining cash flows due to
prepayments of the underlying mortgage loans, increases in servicing costs,
and changes in other factors. The Bank's carrying values of purchased loan
servicing rights do not purport to represent the amount that would be realized
by a sale of these assets in the open market.
RECLASSIFICATION--Certain 1995 amounts have been reclassified to conform to
the 1996 presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Bank using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. The basis for market information and
other valuation methodologies are significantly affected by assumptions used
including the timing of future cash flows, discount rates, judgments regarding
economic conditions, risk characteristics and other factors. Because
assumptions are inherently subjective in nature, the estimated fair values of
certain financial instruments cannot be substantiated by comparison to
independent market quotes and, in many cases, the estimated fair values could
not necessarily be realized in an immediate sale or settlement of the
instrument. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market exchange,
and the use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts. Potential tax
ramifications related to the realization of unrealized gains and losses that
would be incurred in an actual sale and/or settlement have not been taken into
consideration.
F-33
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
The estimated fair values of financial instruments at December 31, 1996,
consist of the following:
<TABLE>
<CAPTION>
1996
-------------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents....................... $ 50,239,427 $ 50,239,427
Loans receivable................................ 669,802,624 650,471,000
Mortgage-backed securities...................... 437,076,510 437,076,510
Accrued interest receivable..................... 7,111,339 7,111,339
Federal Home Loan Bank stock.................... 11,929,000 11,929,000
Financial liabilities:
Demand deposits................................. 396,160,737 396,160,737
Time deposits................................... 594,042,189 591,862,000
Federal Home Loan Bank borrowings............... 123,000,000 122,934,000
Off-balance sheet financial instruments.......... -- --
</TABLE>
The fair value of loans receivable is estimated based on present values
using applicable risk-adjusted spreads to the U. S. Treasury curve to
approximate current entry-level interest rates considering anticipated
prepayment speeds. The fair value of nonperforming loans with a recorded book
value net of allowance of approximately $5.0 million was not estimated, and
therefore is included in estimated fair value at carrying amount because it is
not practicable to reasonably assess the credit adjustment that would be
applied in the marketplace for such loans. The fair value of mortgage-backed
securities is based on quoted market prices, dealer quotes and prices obtained
from independent pricing services. The fair value of accrued interest
receivable and Federal Home Loan Bank stock is considered to be carrying
value.
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit and Federal Home Loan Bank
borrowings is estimated using the rates currently offered for liabilities of
similar remaining maturities.
The fair value of off-balance sheet financial instruments is estimated using
the fees currently charged to enter into similar agreements taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties at the
reporting date. The unrealized gain or loss for off-balance sheet items is not
significant.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since the reporting date and, therefore, current
estimates of fair value may differ significantly from the amounts presented
herein.
F-34
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
3. LOANS RECEIVABLE AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Loans receivable consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
First mortgage loans (principally conventional):
Collateralized by one-to-four family residences.............. $410,653,231
Collateralized by other properties........................... 25,696,981
Construction loans........................................... 21,735,107
Other........................................................ 1,248,474
------------
459,333,793
Undisbursed portion of construction loans.................... (8,430,519)
------------
Total first mortgage loans.................................. 450,903,274
Consumer and other loans:
Automobile................................................... 167,097,018
Savings...................................................... 8,601,720
Home equity and second mortgage.............................. 10,967,267
Commercial................................................... 2,703,746
Other........................................................ 28,572,622
------------
Total consumer and other loans.............................. 217,942,373
Acquisition premium........................................... 7,004,946
Deferred loan fees, net....................................... (989,687)
Allowance for loan losses..................................... (5,058,282)
------------
Loans receivable, net....................................... $669,802,624
============
</TABLE>
Loans to directors and executive officers totaled $216,665 at December 31,
1996. Such loans are made on substantially the same terms as those for other
loan customers.
The Bank, through its normal lending activity, originates and maintains
loans receivable which are substantially concentrated in its lending territory
(primarily Arkansas and Oklahoma). The Bank's policy calls for collateral or
other forms of repayment assurance to be received from the borrower at the
time of loan origination. Such collateral or other form of repayment assurance
is subject to changes in economic value due to various factors beyond the
control of the Bank and such changes could be significant.
The Bank originates and purchases adjustable rate mortgage loans to hold for
investment. The Bank also originates 15 year and 30 year fixed rate mortgage
loans and sells substantially all new originations of the 30 year loans to
outside investors with servicing retained. Loans held for sale at December 31,
1996, are considered by management to be immaterial. Such loans bear interest
substantially equal to market rates.
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financial needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statement of financial
condition. The Bank does not use financial instruments with off-balance sheet
risk as part of its own asset/liability management program or for trading
purposes.
The Bank'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
F-35
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. The amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation of the
counterparty. Such collateral consists primarily of residential properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Bank had outstanding loan commitments and lines of credit aggregating
approximately $9,867,000 at December 31, 1996. At December 31, 1996, the Bank
had an outstanding letter of credit to secure the payment of principal and
interest on a $1,005,000 municipal bond issue to finance the construction of a
nursing home. The letter is collateralized by the Bank's mortgage-backed
securities with an amortized cost of approximately $829,000 and a market value
of approximately $886,000 at December 31, 1996.
4. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of these
loans at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Mortgage loans underlying pass-through securities:
FHLMC.......................................................... $ 78,838,130
GNMA........................................................... 172,587,628
Mortgage loan portfolios serviced for other investors.......... 20,469,512
------------
Total........................................................ $271,895,270
============
</TABLE>
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors and
processing foreclosures. Loan servicing income is recorded on the accrual
basis and includes servicing fees from investors and certain charges collected
from borrowers, such as late payment fees. In connection with these loans
serviced for others, the Bank held borrowers' escrow balances of approximately
$3,975,000 at December 31, 1996. Of the loans serviced by the Bank at December
31, 1996, approximately $6,549,000 were sold with recourse.
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Loans receivable................................................. $4,050,560
Mortgage-backed securities....................................... 3,060,779
----------
Total.......................................................... $7,111,339
==========
</TABLE>
F-36
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
6. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of pass-through mortgage-backed
securities are summarized as follows at December 31, 1996:
<TABLE>
<CAPTION>
PRINCIPAL UNAMORTIZED UNEARNED AMORTIZED
BALANCE PREMIUMS DISCOUNTS COST
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
GNMA..................... $127,161,269 $1,937,786 $ (138,184) $128,960,871
FNMA..................... 204,217,707 4,731,922 208,949,629
FHLMC.................... 98,468,815 1,888,985 (433,439) 99,924,361
------------ ---------- ----------- ------------
Total.................. $429,847,791 $8,558,693 $ (571,623) $437,834,861
============ ========== =========== ============
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
GNMA..................... $128,960,871 $1,841,090 $ (349,284) $130,452,677
FNMA..................... 208,949,629 193,778 (2,968,764) 206,174,643
FHLMC.................... 99,924,361 1,351,208 (826,379) 100,449,190
------------ ---------- ----------- ------------
Total.................. $437,834,861 $3,386,076 $(4,144,427) $437,076,510
============ ========== =========== ============
</TABLE>
Mortgage-backed securities with carrying values of approximately
$288,957,000 at December 31, 1996, had adjustable rates.
The amortized cost of mortgage-backed securities pledged was approximately
$829,000 for letters of credit, $8,080,000 for treasury, tax and loan
accounts, and $11,665,000 for public fund deposits at December 31, 1996.
In November 1995, the FASB issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities (the "Guide"). The Guide provides that an enterprise
may, concurrent with initial adoption of the Guide but no later than December
31, 1995, reassess the appropriateness of the classification of all securities
held at that time and account for any resulting reclassification from the
held-to-maturity category at fair value in accordance with SFAS 115, paragraph
15. Such reclassifications resulting from this one-time reassessment do not
call into question the intent of an enterprise to hold other debt securities
to maturity in the future. The Bank adopted the implementation guidance during
December 1995 and reclassified all mortgage-backed securities from held-to-
maturity to available-for-sale.
7. ALLOWANCE FOR LOAN LOSSES
Following is a summary of the activity in the allowance for losses on loans:
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1995......................................... $4,685,869
Provision for losses............................................ 1,050,000
Charge-offs, net of recoveries.................................. (805,711)
----------
BALANCE, DECEMBER 31, 1995....................................... 4,930,158
Provision for losses............................................ 1,125,000
Charge-offs, net of recoveries.................................. (996,876)
----------
BALANCE, DECEMBER 31, 1996....................................... $5,058,282
==========
</TABLE>
F-37
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
8. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment consisted of the following at December 31,
1996:
<TABLE>
<S> <C>
Land............................................................ $ 4,455,671
Buildings and improvements...................................... 14,464,347
Furniture and equipment......................................... 8,639,929
-----------
Total.......................................................... 27,559,947
Accumulated depreciation........................................ (8,498,401)
-----------
Office properties and equipment, net........................... $19,061,546
===========
</TABLE>
9. DEPOSITS
Deposits consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Demand and NOW accounts, including noninterest-bearing depos-
its of $58,684,705 in 1996................................... $235,695,222
Money market.................................................. 58,664,450
Statement and passbook savings................................ 101,801,065
Certificates of deposit....................................... 594,042,189
------------
Total deposits............................................... $990,202,926
============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $24,852,000 at December 31, 1996.
At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................... $476,934,190
1998........................................................... 64,948,594
1999........................................................... 39,587,131
2000........................................................... 3,767,901
2001........................................................... 2,258,185
Thereafter..................................................... 6,546,188
------------
Total......................................................... $594,042,189
============
</TABLE>
Interest expense on deposits for the years ended December 31, 1996 and 1995,
is summarized below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Demand, NOW, money market and statement and pass-
book savings.................................... $ 7,850,965 $ 7,962,556
Certificates accounts............................ 34,063,456 34,864,165
Early withdrawal penalties....................... (245,833) (248,382)
----------- -----------
Total interest expense on deposits.............. $41,668,588 $42,578,339
=========== ===========
</TABLE>
At December 31, 1996, the Bank had pledged mortgage-backed securities of
approximately $11,665,000, as collateral for public fund deposits.
F-38
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Eligible deposits of the Bank are insured up to $100,000 by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"). Both the SAIF and the Bank Insurance Fund ("BIF"), the
federal deposit insurance fund that covers commercial bank deposits, are
required by law to attain and thereafter maintain a reserve ratio of 1.25% of
insured deposits.
Legislation, passed by the U. S. House of Representatives and the Senate,
was signed into law by the President on September 30, 1996, to recapitalize
the SAIF. The special assessment was fully anticipated by the Bank because
legislation had been close to enactment on several occasions over the past
year. As a result of such legislation, the Bank was required to pay a one-time
special assessment of 65.7 cents for every $100 of deposits which amounted to
$6.7 million pre-tax with a $4.4 million after-tax effect.
The legislation also mandated that SAIF-insured institutions' (such as the
Bank) deposit insurance premiums decline to approximately 6.4 basis points,
effective January 1, 1997. The mandated decline in the premium rate is
expected to reduce the Bank's pre-tax annual SAIF premiums by approximately
$1,600,000 (based on current deposit levels).
10. FEDERAL HOME LOAN BANK BORROWINGS
The Bank had advances from the FHLB as follows at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
RATE ADVANCES
-------- ------------
<S> <C> <C>
Maturing during year ending December 31:
1997................................................. 5.80% $ 8,000,000
1997................................................. 4.93% 10,000,000
1998................................................. 5.19% 15,000,000
1999................................................. 6.28% 30,000,000
2000................................................. 6.33% 30,000,000
2001................................................. 6.39% 30,000,000
------------
Total............................................... $123,000,000
============
</TABLE>
As a member of the FHLB, the Bank is required to maintain an investment in
capital stock of the FHLB of Dallas in an amount equal to the greater of 1% of
its outstanding home loans or 1/20 of its outstanding advances from the FHLB
of Dallas. No ready market exists for such stock and it has no quoted market
value. Pursuant to collateral agreements with the FHLB, advances are
collateralized by all stock in the FHLB and qualifying first mortgage loans.
11. REGULATORY MATTERS
The Bank is subject to various regulatory requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
F-39
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of tangible and core capital (as defined in the regulations) to
adjusted total assets (as defined), and of total and Tier I capital (as
defined) to risk weighted assets (as defined). Management believes, as of
December 31, 1996 that the Bank meets all capital adequacy requirements to
which it is subject.
Prior to December 31, 1996, the most recent notification from the Office of
Thrift Supervision ("OTS") categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total, tangible, and core capital
ratios as set forth in the table below. There are no conditions or events
since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios as of December 31, 1996 are
presented in the following table (amounts in thousands):
<TABLE>
<CAPTION>
REQUIRED
TO BE WELL
CAPITALIZED
REQUIRED UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
------------- ------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Tangible capital to adjusted total
assets $80,191 6.60% $18,228 1.50% N/A N/A
Core capital to adjusted total as-
sets............................. $80,191 6.60% $36,456 3.00% $60,761 5.00%
Total capital to risk weighted as-
sets............................. $85,140 15.06% $45,230 8.00% $56,537 10.00%
Tier I capital to risk weighted
assets........................... $80,191 14.18% $22,615 4.00% $33,922 6.00%
</TABLE>
12. REAL ESTATE OPERATIONS
Income from real estate operations consisted of the following for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Rental income, net........................................ $623,929 $643,933
Recognized gross profit on sales of real estate........... 26,227 289,116
-------- --------
Total income............................................ $650,156 $933,049
======== ========
</TABLE>
13. RETIREMENT BENEFITS
Boatmen's provides a noncontributory defined benefit pension plan which
covers substantially all employees of Boatmen's and its subsidiaries. Pension
benefits are based upon the employee's length of service and compensation
during the final years of employment. During the years ended December 31, 1996
and 1995, the Bank recognized $486,000 and $224,400, respectively, of cost
under the Boatmen's plan. Boatmen's also provides postemployment life and
contributory medical benefits to retired employees of Boatmen's and its
subsidiaries including the Bank. Boatmen's includes Bank employees in its
recorded liability. Amounts paid to Boatmen's and costs recognized by the Bank
related to these benefits during 1996 and 1995 were not significant.
F-40
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
14. INCOME TAXES
Income tax provision for the years ended December 31, 1996 and 1995,
consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current:
Federal............................................. $4,636,123 $6,366,091
State............................................... 961,278 1,151,635
---------- ----------
Total current provision............................ 5,597,401 7,517,726
Deferred tax benefit................................. (671,864) (807,332)
---------- ----------
Income tax provision............................... $4,925,537 $6,710,394
========== ==========
</TABLE>
A reconciliation of federal income tax expense on pre-tax income at the
statutory rate with income tax expense reported is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Tax at the statutory rate............................ $4,395,811 $5,987,604
State income taxes, net of federal benefit........... 531,265 723,645
Other, net........................................... (1,539) (855)
---------- ----------
Income tax provision................................ $4,925,537 $6,710,394
========== ==========
</TABLE>
The Bank is permitted under the Internal Revenue Code to deduct an annual
addition to a reserve for bad debts in determining taxable income, subject to
certain limitations. This addition differs from the bad debt expense used for
financial reporting purposes.
As of December 31, 1996, the Bank's deferred tax asset account was comprised
of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Reserve for loan losses........................................ $ 270,388
Intangible assets.............................................. 2,397,881
Investment securities.......................................... 297,501
Other, net..................................................... 656,252
----------
Total deferred tax assets..................................... 3,622,022
Deferred tax liabilities:
Loans.......................................................... (312,856)
Mortgage-backed securities..................................... (410,135)
FHLB stock..................................................... (974,923)
Reserve for loan losses........................................ --
Other, net..................................................... (19,420)
----------
Total deferred tax liabilities................................ (1,717,334)
----------
Net deferred tax asset........................................ $1,904,688
==========
</TABLE>
The Bank files a consolidated federal income tax return with Boatmen's.
Income tax expense is allocated to the Bank and recorded in the Bank's
consolidated financial statements, generally on the basis of the tax which
would be payable if the Bank had filed a separate return.
F-41
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
15. COMMITMENTS
The Bank leases branch locations under operating leases with remaining terms
ranging from 2 to 12 years. These leases all contain renewal options with
varying periods. Rental expense amounted to approximately $490,025 and
$551,282 for the years ended December 31, 1996 and 1995, respectively. A
schedule of future minimum rental payments under operating leases, as of
December 31, 1996, follows:
<TABLE>
<S> <C>
Year ending December 31:
1997............................................................ $ 416,558
1998............................................................ 326,017
1999............................................................ 262,074
2000............................................................ 183,181
2001............................................................ 166,037
Thereafter...................................................... 673,814
----------
Total.......................................................... $2,027,681
==========
</TABLE>
16. PURCHASED LOAN SERVICING RIGHTS
Following is a summary of the changes in purchased loan servicing rights:
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1995....................................... $4,066,584
Amortization.................................................. (1,008,429)
----------
BALANCE, DECEMBER 31, 1995..................................... 3,058,155
Amortization.................................................. (789,958)
----------
BALANCE, DECEMBER 31, 1996..................................... $2,268,197
==========
</TABLE>
Under OTS regulations, the lower of the amortized carrying value, 90% of the
fair market value or 90% of the original cost of purchased mortgage servicing
rights may be included in calculating all three FIRREA capital standards. The
amount to be included as regulatory capital cannot exceed 50% of tangible
capital.
17. CONTINGENCIES
In the normal course of the banking business, there are various commitments,
legal proceedings and contingencies which are not reflected in the
accompanying consolidated financial statements. In the opinion of management,
no material losses are expected to result from any such commitments, legal
proceedings or contingencies.
At periodic intervals, both the OTS and the FDIC routinely examine the
Bank's financial statements as part of their legally prescribed oversight of
the savings and loan industry. Based on these examinations, the regulators can
direct that the Bank's financial statements be adjusted in accordance with
their findings. A future examination by the OTS or the FDIC could include a
review of certain transactions or other amounts reported in the Bank's 1996
financial statements. In view of the uncertain regulatory environment in which
the Bank operates, the extent, if any, to which a forthcoming regulatory
examination may ultimately result in adjustments to the 1996 consolidated
financial statements cannot presently be determined.
The Bank's asset base is exposed to risk including the risk resulting from
changes in interest rates, market values of collateral for borrowings, and
changes in the timing of cash flows. The Bank analyzes the effect of
F-42
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF BOATMEN'S BANCSHARES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
such risks by considering the mismatch of the maturities of its assets and
liabilities in the current interest rate environment and the sensitivity of
assets and liabilities to changes in interest rates. Based on such analyses at
December 31, 1996, the Bank's management has considered the effect of
significant increases and decreases in interest rates and believes such
changes, if they occurred, would be manageable and would not affect the
ability of the Bank to hold its assets to maturity. However, the Bank is
exposed to significant market risk in the event of significant and prolonged
interest rate increases, because certain fixed rate assets and certain
variable rate assets that are capped are funded with short-term liabilities.
18. SALE OF BRANCH OPERATIONS
In June of 1996, the Bank sold two branches located in Oklahoma in order to
comply with federal regulatory requirements relating to the concentration of
deposits. Deposits of approximately $53,388,000 were assumed by the purchaser,
and cash and other assets with carrying values of approximately $42,180,000
and $9,930,000, respectively, were transferred to the purchaser. This resulted
in a gain of $1,284,000 recorded by the Bank.
* * * * * *
F-43
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Consolidated Balance Sheet
Consolidated Balance Sheet.................................................. 2
Notes to Consolidated Balance Sheet......................................... 3
</TABLE>
F-44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of
Superior Financial Corp.
We have audited the accompanying consolidated balance sheet of Superior
Financial Corp. (the "Company") and its wholly owned subsidiary, Superior
Federal Bank, F.S.B. (the "Bank") as of June 30, 1998. This balance sheet is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Superior Financial Corp. at June
30, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
July 22, 1998
F-45
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
<S> <C>
ASSETS
Cash and cash equivalents...................................... $ 184,566,849
Loans receivable............................................... 692,619,472
Less: allowance for loan losses................................ (10,403,000)
--------------
Loans receivable, net.......................................... 682,216,472
Mortgage-backed securities available-for-sale, net............. 328,869,176
Accrued interest receivable.................................... 6,465,704
Federal Home Loan Bank stock................................... 8,273,900
Office properties and equipment, net........................... 18,453,503
Loan servicing rights, net..................................... 2,298,251
Prepaid expenses and other assets.............................. 8,114,950
Goodwill....................................................... 75,501,483
Real estate acquired in settlement of loans, net............... 427,342
--------------
Total assets................................................... $1,315,187,630
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits..................................................... $1,021,533,707
Federal Home Loan Bank borrowings............................ 105,000,000
Note payable--Colonial Bank.................................. 20,000,000
Senior Notes................................................. 60,000,000
Advance payments by borrowers for taxes and insurance........ 3,084,223
Other liabilities............................................ 6,445,868
--------------
Total liabilities.............................................. 1,216,063,798
Commitments and contingencies --
Stockholders' equity:
Preferred stock--$0.01 par value; 10 million shares autho-
rized, none issued and
outstanding................................................. --
Common stock--$0.01 par value; 20 million shares authorized,
10,079,703 issued
and outstanding 100,797
Capital in excess of par value............................... 94,974,934
Retained earnings............................................ 2,247,942
Net unrealized gains on securities available-for-sale, net of 1,800,159
taxes of $982,105........................................... --------------
Total stockholders' equity..................................... 99,123,832
--------------
Total liabilities and stockholders' equity..................... $1,315,187,630
==============
</TABLE>
See accompanying notes.
F-46
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Superior Financial Corp. ("SFC" or "Company") is a savings and loan holding
company organized under the laws of Delaware and headquartered in Fort Smith,
Arkansas. The Company was organized on November 12, 1997 as SFC Acquisition
Corporation for the purpose of acquiring Superior Federal Bank, F.S.B. (the
"Bank"), a federally chartered savings institution. The Bank provides a broad
line of financial products to small to medium sized businesses and consumers
primarily in Arkansas an Oklahoma. On April 1, 1998, SFC acquired the Bank
from NationsBank, Inc. for approximately $162.5 million. This purchase was
accounted for using the purchase method of accounting for business
combinations whereby the assets and liabilities of the Bank were recorded at
fair value at the date of acquisition and the difference between the net book
value of the Bank and the purchase price was recorded as goodwill of
approximately $76.4 million.
BASIS OF PRESENTATION
The accounting and reporting policies of the Bank conform to generally
accepted accounting principles ("GAAP") and general practices within the
thrift and mortgage banking industries. The following summarizes the more
significant of these policies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the balance
sheet. Actual results may differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
the Bank, and the Bank's wholly owned subsidiary, SFS Corporation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and amounts due from
depository institutions. At June 30, 1998, cash and cash equivalents includes
$159 million of interest bearing deposits at the Federal Home Loan Bank.
LIQUIDITY REQUIREMENTS
Regulations require the Bank to maintain an amount equal to 5% of deposits
(net of loans on deposits) and short-term borrowings in cash and U.S.
Government and other approved securities.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities ("MBSs") that the Bank has the positive intent
and ability to hold to maturity are classified as held-to-maturity and
recorded at cost, adjusted for the amortization of premiums and the accretion
of discounts, which are recognized in interest income using the interest
method over the period to maturity.
F-47
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MBSs that the Bank intends to hold for indefinite periods of time are
classified as available-for-sale and are recorded at fair value. Unrealized
holding gains and losses are excluded from earnings and reported net of tax as
a separate component of stockholders' equity until realized. MBSs in the
available-for-sale portfolio may be used as part of the Bank's asset and
liability management practices and may be sold in response to changes in
interest rate risk, prepayment risk or other economic factors.
The overall return or yield earned on MBSs depends on the amount of interest
collected over the life of the security and the amortization of any premium or
discount. Premiums and discounts are recognized in income using the level-
yield method over the assets' remaining lives adjusted for anticipated
prepayments. Although the Bank receives the full amount of principal if
prepaid, the interest income that would have been collected during the
remaining period to maturity, net of any discount or premium amortization, is
lost. Accordingly, the actual yields and maturities of MBSs depend on when the
underlying mortgage principal and interest are repaid. Prepayments primarily
result when market interest rates fall below a mortgage's contractual interest
rate and it is to the borrower's advantage to prepay the existing loan and
obtain new, lower rate financing. In addition to changes in interest rates,
mortgage prepayments are affected by other factors such as loan types and
geographic location of the related properties.
If the fair value of a MBS available-for-sale declines for reasons other
than temporary market conditions, the carrying value of such a MBS would be
written down to current value by a charge to operations. Gains and losses on
the sale of MBSs available-for-sale are determined using the specific-
identification method.
The Bank did not hold any MBSs classified as held-to-maturity or as trading
securities at June 30, 1998.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances plus premium from
acquisition less allowance for loan losses and deferred fees. The premium
arising from fair value adjustments of the loans in business combinations is
being accreted over the remaining contractual lives of the loans using the
level-yield method adjusted for actual experience. Loans held for sale are
carried at the lower of book value or fair value as determined by discounting
contractual cash flows adjusted for prepayment estimates using discount rates
based on secondary market sources.
Uncollectible interest on loans that are contractually past due 90 days or
greater and is not probable of collection is charged off. Income is
subsequently recognized when cash payments are received and collectibility is
probable, in which case the loan is returned to accrual status.
ALLOWANCE FOR LOAN LOSSES
Provisions for losses on loans have been provided based on amounts
outstanding, historical experience and industry norms. Provisions for losses
include charges to reduce the recorded balance of loans and real estate to
their estimated net realizable value or fair value less estimated selling
costs, as applicable. Such provisions are based on management's estimate of
the net realizable value or fair value of the collateral or real estate, as
applicable, considering current and currently anticipated future operating or
sales information which may be affected by changing economic and/or operating
conditions beyond the Bank's control, thereby causing these estimates to be
particularly susceptible to changes that could result in a material adjustment
to their carrying value in the future.
F-48
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is initially recorded at
estimated fair value, less estimated selling costs, and is subsequently
carried at the lower of depreciated cost or fair value, less estimated selling
costs. Valuations are periodically performed by management, and an allowance
for losses is established by a charge to operations if the carrying value of a
property exceeds its estimated fair value. The ability of the Bank to recover
the carrying value of real estate is based upon future sales of the land and
the projects. The ability to effect such sales is subject to market conditions
and other factors, many of which are beyond the Bank's control.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using straight-line and accelerated
methods over the respective estimated useful lives of the assets of
approximately 3 to 30 years.
GOODWILL
Goodwill (excess of purchase price of the Bank over the fair value of net
assets acquired) is being amortized on a straight-line basis over 20 years.
DEBT ISSUANCE COSTS
Costs associated with the issuance of the $20 million Colonial Bank debt and
the $60 million Senior Notes have been capitalized and are being amortized
over the life of the debt.
LOAN ORIGINATION AND COMMITMENT FEES
The Bank defers loan fees received and certain incremental direct costs, and
recognizes them as adjustments to interest income over the estimated remaining
life of the related loans. When a loan is fully repaid or sold, the
unamortized portion of the deferred fee and cost is credited in income. Other
loan fees, such as prepayment penalties, late charges, and release fees are
recorded as income when collected.
LOAN SERVICING RIGHTS
Purchased loan servicing rights represent the cost of acquiring the rights to
service mortgage loans owned by others, and such cost is capitalized and
amortized in proportion to, and over the period of, estimated net servicing
income. The Bank's carrying values of purchased loan servicing rights and the
amortization thereon are periodically evaluated in relation to estimated future
net servicing income to be received, and such carrying values are adjusted for
indicated impairments based on management's best estimate of remaining cash
flows, using a pool-by-pool method. Such estimates may vary from the actual
remaining cash flows due to prepayments of the underlying mortgage loans,
increases in servicing costs, and changes in other factors. The Bank's carrying
values of purchased loan servicing rights do not purport to represent the amount
that would be realized by a sale of these assets in the open market. Loan
servicing rights earned by the Bank through the origination and subsequent sale
of mortgages which retaining the right to service those mortgages are considered
by management to be insignificant.
F-49
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
2. PRIVATE PLACEMENT AND ACQUISITION
On April 1, 1998, the Company completed a private placement offering
totaling $175 million, consisting of $95 million in common stock, $60 million
in 8.65% Senior Notes due 2003, and $20 million in LIBOR plus 1.75% notes due
2000. The proceeds from the private placement offering were used to acquire,
in a purchase transaction, 100% of the common stock of the Bank. In connection
with the private placement offering, the Company entered into a Registration
Rights Agreement which requires that a Shelf Registration Statement to
register the common stock and senior notes be filed with the Securities and
Exchange Commission no later than July 29, 1998.
On April 1, 1998, the Company acquired the Bank for a purchase price of
$162.5 million. The transaction was accounted for as a purchase and resulted
in the recording of goodwill in the amount of $76.4 million. The Bank's
results of operations since the purchase date are included in retained
earnings of the Company.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. The basis for market information and
other valuation methodologies are significantly affected by assumptions used
including the timing of future cash flows, discount rates, judgments regarding
economic conditions, risk characteristics and other factors. Because
assumptions are inherently subjective in nature, the estimated fair values of
certain financial instruments cannot be substantiated by comparison to
independent market quotes and, in many cases, the estimated fair values could
not necessarily be realized in an immediate sale or settlement of the
instrument. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange, and the use of different market assumptions and /or estimation
methodologies may have a material effect on the estimated fair value amounts.
Potential tax ramifications related to the realization of unrealized gains and
losses that would be incurred in an actual sale and/or settlement have not
been taken into consideration.
The estimated fair values of financial instruments at June 30, 1998, consist
of the following:
<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
VALUE VALUE
------------ --------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents......................... $184,566,849 $184,566,849
Loans receivable, net............................. 682,216,472 686,845,188
Mortgage-backed securities........................ 328,869,176 328,869,176
Accrued interest receivable....................... 6,465,704 6,465,704
Federal Home Loan Bank stock...................... 8,273,900 8,273,900
FINANCIAL LIABILITIES:
Demand deposits................................... 330,842,243 330,842,243
Time deposits..................................... 690,691,464 692,664,792
Federal Home Loan Bank borrowings................. 105,000,000 105,880,000
Off-balance sheet financial instruments........... 3,274,000 3,274,000
</TABLE>
The fair value of loans receivable is estimated based on present values
using applicable risk-adjusted spreads to the U.S. Treasury curve to
approximate current entry-level interest rates considering anticipated
prepayment speeds. The fair value of nonperforming loans with a recorded book
value net of allowance of approximately $3.2 million was not estimated, and
therefore is included in estimated fair value at carrying amount because it is
not practicable to reasonably assess the credit adjustment that would be
applied in the marketplace for such loss.
F-50
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
3. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of mortgage-backed securities is based on quoted market prices,
dealer quotes and prices obtained from independent pricing services. The fair
value of accrued interest receivable and Federal Home Loan Bank ("FHLB") stock
is considered to be carrying value. The fair value of cash and cash
equivalents is considered the same as its carrying value.
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit and Federal Home Loan Bank
borrowings is estimated using the rates currently offered for liabilities of
similar remaining maturities.
The fair value of off-balance sheet financial instruments is estimated using
the fees currently charged to enter into similar agreements taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties at the
reporting date. The unrealized gain or loss for off-balance sheet items is not
significant.
The fair value estimates presented herein are based on pertinent information
available to management as of June 30, 1998. Although management is not aware
of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since the reporting date and, therefore, current
estimates of fair value may differ significantly from the amounts presented
herein.
4. LOANS RECEIVABLE AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Loans receivable consisted of approximately the following at June 30, 1998:
<TABLE>
<CAPTION>
First mortgage loans (principally conventional):
<S> <C>
Collateralized by one-to-four family residences................. $396,807,000
Collateralized by other properties.............................. 33,940,000
Construction loans.............................................. 22,912,000
Other........................................................... 1,578,000
------------
455,237,000
Undisbursed portion of construction loans....................... (10,081,000)
------------
Total first mortgage loans........................................ 445,156,000
Consumer and other loans:
Automobile...................................................... 176,207,000
Savings......................................................... 7,909,000
Home equity and second mortgage................................. 14,232,000
Commercial...................................................... 1,271,000
Other........................................................... 47,361,000
------------
Total consumer and other loans.................................... 246,980,000
Deferred loan costs, net.......................................... 483,000
Allowance for loan losses......................................... (10,403,000)
------------
Loans receivable, net............................................. $682,216,000
============
</TABLE>
F-51
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
4. LOANS RECEIVABLE AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
(CONTINUED)
Loans to directors and executive officers totaled $626,668 at June 30, 1998.
Such loans are made on substantially the same terms as those for other loan
customers.
The Bank, through its normal lending activity, originates and maintains
loans receivable which are substantially concentrated in its lending territory
(primarily Arkansas and Oklahoma). The Bank's policy calls for collateral or
other forms of repayment assurance to be received from the borrower at the
time of loan origination. Such collateral or other form of repayment assurance
is subject to changes in economic value due to various factors beyond the
control of the Bank and such changes could be significant.
The Bank originates and purchases adjustable rate mortgage loans to hold for
investment. The Bank also originates 15-year and 30-year fixed rate mortgage
loans and sells substantially all new originations of the 30-year loans to
outside investors with servicing retained. Loans held for sale at June 30,
1998, are considered by management to be immaterial. Such loans bear interest
substantially equal to market rates.
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financial needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated balance
sheet. The Bank does not use financial instruments with off-balance sheet risk
as part of its own asset/liability management program or for trading purposes.
The Bank'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 amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. The amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation of the
counterparty. Such collateral consists primarily of residential properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Bank had outstanding loan commitments and lines of credit aggregating
approximately $2,304,000 at June 30, 1998. At June 30, 1998, the Bank had an
outstanding letter of credit to secure the payment of principal and interest
on a $970,000 municipal bond issue to finance the construction of a nursing
home. The letter is collateralized by the Bank's mortgage-backed securities
with an carrying value of approximately $743,000 at June 30, 1998.
F-52
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
5. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of these loans at
June 30, 1998 are summarized as follows:
<TABLE>
<S> <C>
Mortgage loan underlying pass-through securities:
FHLMC........................................................... $ 65,404,918
GNMA............................................................ 135,728,337
Mortgage loan portfolios serviced for other investors........... 15,331,405
------------
$216,464,660
============
</TABLE>
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors, and
foreclosure processing. Loan servicing income is recorded on the accrual basis
and includes servicing fees from investors and certain charges collected from
borrowers, such as late payment fees. In connection with these loans serviced
for others, the Bank held borrowers' escrow balances of approximately
$3,084,000 at June 30, 1998. Of the loans serviced by the Bank at June 30,
1998, approximately $4,178,000 were sold with recourse.
Errors and omissions and fidelity bond insurance coverage under the
Company's loan servicing bond was $2,000,000 at June 30, 1998. Additionally,
at June 30, 1998, the Company was covered by an excess liability umbrella
policy in the amount of $20 million.
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consisted of the following as of June 30, 1998:
<TABLE>
<S> <C>
Loans receivable.................................................... $4,056,086
Mortgage-backed securities.......................................... 2,409,618
----------
$6,465,704
==========
</TABLE>
7. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of pass-through mortgage-backed
securities are summarized as follows at June 30, 1998:
<TABLE>
<CAPTION>
PRINCIPAL UNAMORTIZED UNEARNED AMORTIZED
BALANCE PREMIUMS DISCOUNTS COST
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
GNMA........................... $ 91,319,190 $2,642,712 $ -- $ 93,961,902
FNMA........................... 158,471,118 1,600,666 (137,890) 159,933,894
FHLMC.......................... 70,578,299 1,742,794 (129,977) 72,191,116
------------ ---------- --------- ------------
$320,368,607 $5,986,172 $(267,867) $326,086,912
============ ========== ========= ============
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
GNMA........................... $ 93,961,902 $ 336,361 $ (5,385) $ 94,292,878
FNMA........................... 159,933,894 1,818,251 (590) 161,751,555
FHLMC.......................... 72,191,116 841,782 (208,155) 72,824,743
------------ ---------- --------- ------------
$326,086,912 $2,996,394 $(214,130) $328,869,176
============ ========== ========= ============
</TABLE>
F-53
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
7. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE (CONTINUED)
Mortgage-backed securities with carrying values of approximately
$211,378,000 at June 30, 1998 were subject to adjustable rates.
The carrying value of mortgage-backed securities pledged was approximately
$15,327,000 for letters of credit, treasury, tax and loan accounts, and public
fund deposits at June 30, 1998.
8. ALLOWANCE FOR LOAN LOSSES
Following is a summary of the activity in the allowance for losses on loans:
<TABLE>
<S> <C>
Balance, January 1, 1998........................................... $ --
Allowance resulting from acquisition of Bank..................... 10,592,718
Provision for losses............................................. 290,000
Charge-offs, net of recoveries................................... (479,718)
-----------
Balance, June 30, 1998............................................. $10,403,000
===========
</TABLE>
9. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment consisted of the following at June 30, 1998:
<TABLE>
<S> <C>
Land............................................................... $ 4,813,499
Buildings and improvements......................................... 10,177,403
Furniture and equipment............................................ 3,748,459
-----------
18,739,361
Accumulated depreciation........................................... (285,858)
-----------
Office properties and equipment, net............................... $18,453,503
===========
</TABLE>
10. DEBT ISSUANCE COSTS
At June 30, 1998, debt issuance costs, which are included in prepaid
expenses and other assets in the consolidated balance sheet, consisted of the
following:
<TABLE>
<CAPTION>
$20 $60
MILLION MILLION
COLONIAL 8.65%
BANK NOTE SENIOR
PAYABLE NOTES
--------- ----------
<S> <C> <C>
Capitalized issuance costs............................... $ 404,742 $2,465,272
Amortization............................................. (135,000) (121,500)
--------- ----------
Net issuance costs....................................... $ 269,742 $2,343,772
========= ==========
</TABLE>
F-54
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
11. DEPOSITS
Deposits consisted of the following at June 30, 1998:
<TABLE>
<S> <C>
Demand and NOW accounts, including noninterest-bearing deposits
of $72,534,828 at
June 30, 1998.................................................. $271,826,071
Money market.................................................... 59,016,172
Statement and passbook savings.................................. 110,577,158
Certificates of deposit......................................... 580,114,306
--------------
$1,021,533,707
==============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $24,006,605 at June 30, 1998.
At June 30, 1998, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<S> <C>
Year ending June 30,
1999............................................................. $451,416,788
2000............................................................. 84,796,154
2001............................................................. 28,265,383
2002............................................................. 10,616,819
2003............................................................. 3,538,940
Thereafter....................................................... 1,480,222
------------
$580,114,306
============
</TABLE>
12. FEDERAL HOME LOAN BANK BORROWINGS
The Bank had advances from the FHLB as follows at June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INTEREST RATE ADVANCES
---------------- ------------
<S> <C> <C>
Maturing during year ending June 30, 1998:
1999........................................... 5.19% $ 15,000,000
2000........................................... -- --
2001........................................... -- --
2002........................................... -- --
Thereafter..................................... 5.467% 90,000,000
------------
$105,000,000
============
</TABLE>
As a member of the FHLB, the Bank is required to maintain an investment in
capital stock of the FHLB of Dallas in an amount equal to the greater of 1% of
its outstanding home loans or 1/20 of its outstanding advances from the FHLB
of Dallas. No ready market exists for such stock and it has no quoted market
value. Pursuant to collateral agreements with the FHLB, advances are
collateralized by all stock in the FHLB and qualifying first mortgage loans.
Additionally, at June 30, 1998, the Bank has unused commitments totaling $50
million which expire on March 31, 1999. There is no commitments fee to
maintain this credit line.
F-55
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
13. LONG TERM DEBT
At June 30, 1998, long term debt consisted of a $20 million note payable to
Colonial Bank ("Colonial Note") and $60 million of Senior Notes ("Senior
Notes").
The $20 million Colonial Note bears interest at LIBOR plus 1.75% (7.44% at
June 30, 1998) and requires quarterly interest payments. The entire principal
balance is due April 1, 2000. The note is secured by shares of the Bank in
such an amount that the book value of pledged stock will be equal to at least
two times the outstanding balance of the loan. The note contains certain
covenants of which the most restrictive includes a minimum total capital,
minimum return on assets and a maximum nonperforming assets to total loans and
other real estate ratio. At June 30, 1998, the Company was not in violation of
these covenants.
The $60 million Senior Notes bear interest at 8.65% and require semiannual
interest payments beginning October 1, 1998. The entire principal balance is
due April 1, 2003. The agreement requires the Company maintain an interest
rate reserve account with cash or permitted investments sufficient to pay
interest due on the next two succeeding interest payment dates. At June 30,
1998, the interest rate reserve account held a mortgage-backed security with a
carrying value of approximately $5.2 million. This account is classified in
mortgage-backed securities on the balance sheet. The loan agreement contains
certain covenants of which the most restrictive include minimum total capital
and minimum liquidity maintenance. Additionally, the agreement restricts
certain payments. At June 30, 1998, the Company was not in violation of these
covenants.
14. REGULATORY MATTERS
The Bank is subject to various regulatory requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank';s assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank;'s capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of tangible and core capital (as defined in the regulations) to
adjusted total assets (as defined), and of total capital (as defined) to risk
weighted assets (as defined). Management believes, as of June 30, 1998, that
the Bank meets all capital adequacy requirements to which it is subject.
The most recent notification from the Office of Thrift Supervision ("OTS")
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total, tangible, and core capital ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the institution's category.
F-56
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
14. REGULATORY MATTERS (CONTINUED)
The Bank's actual capital amounts and ratios are also presented in the table
(amounts in thousands):
<TABLE>
<CAPTION>
REQUIRED TO BE
CATEGORIZED AS
WELL CAPITALIZED
REQUIRED FOR UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------- ------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Tangible capital to ad-
justed total assets.... $90,203 7.3% $ 18,479 1.5% N/A N/A
Core capital to adjusted
total assets........... 90,203 7.3 36,960 3.0 $ 61,599 5.0%
Total capital to risk
weighted assets........ 100,590 16.8 47,853 8.0 59,817 10.0
Tier 1 capital to risk
weighted assets........ 90,203 15.1 N/A N/A 35,890 6.0
</TABLE>
15. INCOME TAXES
The Company and the Bank file consolidated tax returns. Income taxes are
allocated generally as if the Company and the Bank filed separate U.S. and
State income tax returns. The liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
16. COMMITMENTS
The Bank leases branch locations under operating leases with remaining terms
ranging from 2 to 12 years. These leases all contain renewal options with
varying periods. A schedule of future minimum rental payments under operating
leases, as of June 30, 1998 follows:
<TABLE>
<S> <C>
1999................................................................ $ 493,467
2000................................................................ 387,795
2001................................................................ 326,523
2002................................................................ 267,281
2003................................................................ 98,186
Thereafter.......................................................... 443,658
----------
$2,016,910
==========
</TABLE>
17. LOAN SERVICING RIGHTS
<TABLE>
<S> <C>
Following is a summary of the changes in purchased loan servicing
rights:
Balance, January 1, 1998.......................................... $ --
Acquired in Bank acquisition.................................... 2,343,239
Amortization.................................................... (44,988)
----------
Balance, June 30, 1998............................................ $2,298,251
==========
</TABLE>
Under OTS regulations, the lower of the amortized carrying value, 90% of the
fair market value, or 90% of the original cost of purchased mortgage servicing
rights may be included in calculating capital standards. The amount to be
included as regulatory capital cannot exceed 50% of tangible capital.
F-57
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
18. YEAR 2000 (UNAUDITED)
The Year 2000 issue relates to the ability or inability of computer systems
to properly process information and data containing or related to dates
beginning with the Year 2000 and beyond. The Year 2000 issue exists because,
historically, many computer systems that are in use today were developed years
ago when a year was identified using a two-digit field rather than a four-
digit field. As information and data containing or related to the century date
are introduced to computer hardware, software and other systems, date
sensitive systems may recognize the Year 2000 as "1900", or not at all, which
may result in computer systems processing information incorrectly. This, in
turn, may significantly and adversely affect the integrity and reliability of
information databases and may result in a wide variety of adverse consequences
to a company. In addition, Year 2000 problems that occur with third parties
with which a company does business, such as suppliers, computer vendors,
distributors and others, may also adversely affect any given company.
As a financial services company, SFC has thousands of individual and
business customers that have deposits, loans and other financial products of
Superior Federal Bank, F.S.B. Nearly all of these products contain date
sensitive data, such as maturity dates, interest and principal payment dates,
and the like. In addition, the Bank has business relationships with numerous
third parties that affect virtually all aspects of the Bank's business,
including, without limitation, suppliers, computer hardware and software
vendors, investors, other financial institutions and other distributors of
financial products.
In 1997, the Board of Directors established a Year 2000 committee to plan,
monitor and execute a program to ensure that all systems are Year 2000
compliant by June 1999. As of June 30, 1998, the Company has spent $30,000 and
expects to incur additional internal and third party costs totaling
approximately $170,000 related to assessing the status of the Company's
systems, defining its strategy to bring all systems in to Year 2000
compliance, and implementing this strategy. These costs have been and will
continue to be expensed as incurred and are not expected to be material to the
Company's on-going operating costs. Most of the Bank's applications are
processed by a third party. Management is working with this processor to
ensure that all applications are Year 2000 compliant.
In addition, as part of its Year 2000 program, the Bank is identifying third
parties with which it has significant business relations in order to attempt
to assess the potential impact on the Bank of their Year 2000 issues and
remediation plans. The Bank does not have control over these third parties
and, as a result, the Bank cannot currently determine to what extent future
operation results may be adversely affected by the failure of these third
parties to successfully address their Year 2000 issues. However, the Bank
expects to develop plans to attempt to minimize identified third party
exposures.
F-58
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Summary Consolidated Financial and Other Data............................. 6
Cautionary Statements for Purposes of the Private Securities Litigation
Reform Act............................................................... 9
Risk Factors.............................................................. 9
The Company............................................................... 13
The Private Placement..................................................... 17
Ratio of Earnings to Fixed Charges........................................ 18
Recent Developments....................................................... 18
Unaudited Pro Forma Combined Financial Information........................ 20
Use of Proceeds........................................................... 25
Dividends and Market for Superior Securities.............................. 25
Capitalization............................................................ 27
Selected Consolidated Financial Data--Bank................................ 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
Management................................................................ 41
Summary Compensation Table................................................ 43
Principal Shareholders.................................................... 44
Security Ownership of Management.......................................... 45
Regulation................................................................ 45
Taxation.................................................................. 54
Description of Senior Notes............................................... 55
Description of Capital Stock.............................................. 71
Registration Rights....................................................... 73
Selling Holders........................................................... 74
Plan of Distribution...................................................... 75
Shares Eligible for Future Sale........................................... 76
Change in Independent Public Accountants.................................. 76
Certain Legal Matters..................................................... 77
Experts................................................................... 77
Index to Financial Statements............................................. F-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following statement sets forth the estimated amount of expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the securities being registered. Except as
specifically indicated, all of such expenses are being borne by the Registrant.
SEC filing fees....................................... $ 47,435
Printing and distribution............................. 60,000
Legal fees and expenses............................... 75,000
Blue Sky fees and expenses............................ 20,000
Accounting fees and expenses.......................... 100,000
Miscellaneous fees and expenses....................... 45,000
------
Total................................................. $ 347,435
==========
Item 14. Indemnification of Directors and Officers.
Article 10 of the Registrant's Certificate of Incorporation provides as
follows:
The corporation shall indemnify its directors, officers, employees and
agents to the full extent permitted under the Delaware General Corporation Law.
Article IX of the Registrant's Bylaws provides as follows:
1. Definitions. As used in this Section the following terms shall have the
-----------
meanings set out below:
(a) "Board" - the Board of Directors of the Corporation.
(b) "Claim" - any threatened or pending or completed claim, action, suit,
or proceeding, whether civil, criminal, administrative or investigative and
whether made judicially or extra-judicially, or any separate issue or matter
therein, as the context requires.
(c) "Determining Body" - (i) those members of the Board who are not named
as parties to the Claim for which indemnification is being sought ("impartial
Directors"), if there are at least three Impartial Directors, or (ii) a
committee of at least three directors appointed by the Board (regardless whether
the members of the Board of Directors voting on such appointment are fewer than
three Impartial Directors or if the Board of Directors or the committee
appointed pursuant to clause (ii) of this paragraph so directs (regardless
<PAGE>
whether the members thereof are Impartial Directors), independent legal counsel,
which may be the regular outside counsel of the Corporation.
(d) "Disbursing Officer" - the Chief Executive Officer of the Corporation
or, if the Chief Executive Officer is a party to the Claim for which
indemnification is being sought, any officer not a party to such Claim who is
designated by the Chief Executive Officer to be the Disbursing Officer with
respect to indemnification request related to the Claim, which designation shall
be made promptly after receipt of the initial request for indemnification with
respect to such Claim.
(e) "Expenses" - any expenses or costs (including, without limitation,
attorney's fees, judgements, punitive or exemplary damages, fines and amounts
paid in settlement).
(f) "Indemnitee" - each person who is or was a director or officer of the
Corporation or the spouse of such person.
2. Indemnity.
---------
(a) To the extent such Expenses exceed the sum or amounts paid or due under
or pursuant to (i) policies of liability insurance maintained by the
Corporation, (ii) policies of liability insurance maintained by or on behalf of
the Indemnitee, and (iii) provisions for indemnification in the by-laws,
resolutions or other instruments of any entity other than the Corporation, the
Corporation shall indemnify Indemnitee against any Expenses actually and
reasonably incurred by him (as they are incurred) in connection with any Claim
either against him or as to which he is involved solely as a witness or person
required to give evidence, by reason of his position.
(i) as a director or officer of the Corporation,
(ii) as a director or officer of any subsidiary of the Corporation or
as a fiduciary with respect to any employee benefit plan of the Corporation,
(iii) as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other for profit or not for
profit entity or enterprise, if such position is or was held at the request of
the Corporation, or
(iv) as the spouse of any person who is or was a director or officer
of the Corporation with respect to any Claim involving the spouse arising by
reason of such person's position as described in clauses (i) , (ii) or (iii),
whether relating to service in such position before or after the effective date
of this Section, if he (i) is successful in his defense of the Claim on the
merits or otherwise or (ii) has been found by the Determining Body (acting in
good faith) to have met the Standard of Conduct; provided that (A) the amount
otherwise payable by the Corporation may be reduced by the Determining Body to
such amount as it deems proper if it determines that the Claim involved the
receipt of a personal benefit by Indemnitee, and (B) no indemnification shall be
made in respect of any Claim as to which Indemnitee shall have been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable for willful or intentional misconduct in the performance of his duty
to the Corporation or to have obtained an improper personal benefit, unless, and
only to the extent that, a court shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as
the court deems proper.
(b) The Standard of Conduct is met when the conduct by an Indemnitee with
respect to which a Claim is asserted was conduct that he reasonably believed to
be in, or not opposed to, the best interest of the Corporation, and, in the case
of a criminal action or proceeding, that he had no reasonable cause to believe
<PAGE>
was unlawful. The termination of any Claim by judgment, or order, settlement,
conviction, or upon a plea of nolo contendere or it equivalent, shall not, of
itself, create a presumption that Indemnitee did not meet the Standard of
Conduct.
(c) Promptly upon becoming aware of the existence of any Claim as to which
he may be indemnified hereunder, Indemnitee shall notify the Chief Executive
Officer of the Corporation of the Claim and whether he intends to seek
indemnification hereunder. If such notice indicates that Indemnitee does so
intend, the Chief Executive Officer shall promptly advise the Board thereof and
notify the Board that the establishment of the Determining Body with respect to
the Claim will be a matter presented at the next regularly scheduled meeting of
the Board. After the Determining Body has been established, the Chief Executive
Officer shall inform the Indemnitee thereof and Indemnitee shall immediately
provide the Determining Body with all facts relevant to the Claim known to him.
Within 60 days of the receipt of such information, together with such additional
information as the Determining Body may request of Indemnitee, the Determining
Body shall determine, and shall advise Indemnitee of its determination, whether
Indemnitee has met the Standard of Conduct. The Determining Body may extend
such 60 day period by no more than an additional 60 days.
(d) Indemnitee shall promptly inform the Determining Body upon his becoming
aware of any relevant facts not therefore provided by him to the Determining
Body, unless the Determining Body has obtained such facts by other means. If,
after determining that the Standard of Conduct has been met, the Determining
Body obtains facts of which it was not aware at the time it made such
determination, the Determining Body on its own motion, after notifying the
Indemnitee and providing him an opportunity to be heard, may, on the basis of
such facts, revoke such determination, provided that in the absence of actual
fraud by Indemnitee no such revocation may be made later than 30 days after
final disposition of the Claim.
(e) In the case of any Claim not involving a proposed, threatened or
pending criminal proceeding,
(i) If Indemnitee has, in the good faith judgment of the Determining
Body, met the Standard of Conduct, the Corporation may, in its sole discretion
after notice to Indemnitee, assume all responsibility for the defense of the
Claim, and, in any event, the Corporation and the Indemnitee each shall keep the
other informed as to the progress of the defense, including prompt disclosure of
any proposals for settlement; provided that if the Corporation is a party to the
Claim and Indemnitee reasonably determines that there is a conflict between the
positions of the Corporation and Indemnitee with respect to the Claim, then
Indemnitee shall be entitled to conduct his defense, with counsel of his choice;
and provided further that Indemnitee shall in any event be entitled at is
expense to employ counsel chosen by him to participate in the defense of the
Claim; and
(ii) The Corporation shall fairly consider any proposals by
Indemnitee for settlement of the Claim. If the Corporation (A) proposes a
settlement acceptable to the person asserting the Claim, or (B) believes a
settlement proposed by the person asserting the Claim should be accepted, it
shall inform Indemnitee of the terms thereof and shall fix a reasonable date by
which Indemnitee shall respond. If Indemnitee agrees to such terms, he shall
execute such documents as shall be necessary to effect the terms, he shall
execute such documents as shall be necessary to effect the settlement. If he
does not agree he may proceed with the defense of the Claim in any manner he
chooses, but if he is not successful on the merits or otherwise, the
Corporation's obligation to indemnify him for any Expenses incurred following
his disagreement shall be limited to the lesser of (A) the total Expenses
<PAGE>
incurred by him following his decision not to agree to such proposed settlement
or (B) the amount the Corporation would have paid pursuant to the terms of the
proposed settlement. If, however, the proposed settlement would impose upon
Indemnitee any requirement to act or refrain from acting that would materially
interfere with the conduct of his affairs, Indemnitee may refuse such settlement
and proceed with the defense of the Claim, if he so desires, at the
Corporation's expense without regard to the limitations imposed by the preceding
sentence. In no event, however, shall the Corporation be obligated to indemnify
Indemnitee for any amount paid in a settlement that the Corporation has not
approved.
(f) In the case of a Claim involving a proposed, threatened or pending
criminal proceeding, Indemnitee shall be entitled to conduct the defense of the
Claim, and to make all decisions with respect thereto, with counsel of his
choice; provided that the Corporation shall not be obligated to indemnify
Indemnitee for an amount paid in settlement that the Corporation has not
approved.
(g) After notifying the Corporation of the existence of a Claim, Indemnitee
may from time to time request the Corporation to pay the Expenses (other than
judgments, fines, penalties or amounts paid in settlement) that he incurs in
pursuing a defense of the Claim prior to the time that the Determining Body
determines whether the Standard of Conduct has been met. If the Disbursing
Officer believes the amount requested to be reasonable, he shall pay to
Indemnitee the amount requested (regardless of Indemnitee's apparent ability to
repay such amount) upon receipt of an undertaking by or on behalf of Indemnitee
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation under the circumstances. If the
Disbursing Officer does not believe such amount to be reasonable, the
Corporation shall pay the amount deemed by him to be reasonable and Indemnitee
may apply directly to the Determining Body for the remainder of the amount
requested.
(h) After it has been determined that the Standard of Conduct was met, for
so long as and to the extent that the Corporation is required to indemnify
Indemnitee under this Agreement, the provisions of Paragraph (g) shall continue
to apply with respect to Expenses incurred after such time, expect that (i) no
undertaking shall be required of Indemnitee and (ii) the Disbursing Officer
shall pay to Indemnitee such amount of any fines, penalties or judgments against
him which have become final as the Corporation is obligated to indemnify him.
(i) Any determination by the Corporation with respect to settlements of a
Claim shall be made by the Determining Body.
(j) The Corporation and Indemnitee shall keep confidential, to the extent
permitted by law and their fiduciary obligations, all facts and determinations
provided or made pursuant to or arising out of the operation of this Agreement,
and the Corporation and Indemnitee shall instruct it or his agents and employees
to do likewise.
3. Enforcement.
-----------
(a) The rights provided by this Section shall be enforceable by Indemnitee
in any court of competent jurisdiction.
(b) If Indemnitee seeks a judicial adjudication of his rights under this
Section, Indemnitee shall be entitled to recover from the Corporation, and shall
be indemnified by the Corporation against, any and all Expenses actually and
reasonably incurred by him in connection with such proceeding, but only if he
prevails therein. If it shall be determined that Indemnitee is entitled to
receive part but not all of the relief sought, then the Indemnitee shall be
entitled to be reimbursed for all Expenses incurred by him in connection with
<PAGE>
such judicial adjudication if the amount to which he is determined to be
entitled exceeds 50% of the amount of his claim. Otherwise, the Expenses
incurred by Indemnitee in connection with such judicial adjudication shall be
appropriately prorated.
(c) In any judicial proceeding described in this subsection, the
Corporation shall bear the burden of proving that Indemnitee is not entitled to
any Expenses sought with respect to any Claim.
4. Saving Clause. If any provision of this Section is determined by a court
-------------
having jurisdiction over the matter to require the Corporation to do or refrain
from doing any act that is in violation of applicable law, the court shall be
empowered to modify or reform such provision so that, as modified or reformed,
such provision provides the maximum indemnification permitted by law, and such
provision, as so modified or reformed, and the balance of this Section, shall be
applied in accordance with their terms. Without, the generality of the
foregoing, if any portion of this Section shall be invalidated on any ground,
the Corporation shall nevertheless indemnify an Indemnitee to the full extent
permitted by any applicable portion of this Section that shall not have been
invalidated and to the full extent permitted by law with respect to that portion
that has been invalidated.
5. Non-Exclusivity.
---------------
(a) The indemnification and advancement of Expenses provided by or granted
pursuant to this Section shall not be deemed exclusive of any other rights to
which Indemnitee is or may become entitled under any statue, article of
incorporation, by-law, authorization of shareholders or directors, agreement, or
otherwise.
(b) It is the intent of the Corporation by this Section to indemnify and
hold harmless Indemnitee to the full extent permitted by law, so that if
applicable law would permit the Corporation to provide broader indemnification
rights that are currently permitted, the Corporation shall indemnify and hold
harmless Indemnitee to the full extent permitted by applicable law
notwithstanding that the other terms of this Section would provide for lesser
indemnification.
6. Successors and Assigns. This Section shall be binding upon the Corporation,
----------------------
its successors and assigns, and shall inure to the benefit of the Indemnitee's
heirs, personal representatives, and assigns and to the benefit of the
Corporation, its successors and assigns.
7. Indemnification of Other Persons.
--------------------------------
(a) The Corporation may indemnify any person not covered by Section 1
through 6 to the extent provided in a resolution of the Board or a separate
Section of these By-laws.
(b) Nothing in this Section 11 shall obligate the Corporation to indemnify
or advance expenses to any person who was a director, officer or agent of any
corporation merged into this Corporation or otherwise acquired by this
Corporation. Any such person's right to indemnification or advancement of
expenses, if any, shall consist of those rights contained in the agreement
relating to such merger or acquisition.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
In accordance with Item 701 of Regulation S-K, the following information is
presented with respect to securities sold by the Registrant within the past
three years which were not registered under the Securities Act of 1933, as
amended ("Securities Act"):
(a) On April 1, 1998, the Registrant sold in a private placement an
aggregate of 10,079,703 million shares of its common stock, par value
$.01 per share ("Common Stock"), and $60.0 million of its Senior Notes
due 2003 ("Senior Notes").
(b) Keefe, Bruyette & Woods, Inc. ("KBW" or the "Placement Agent") acted
as Placement Agent for the Registrant in connection with the private
placement transaction. The securities were offered and sold to
institutional and accredited investors.
(c) The Registrant's Common Stock was sold for $9.60 per share and the
Senior Notes were sold for an aggregate principal amount of $50
million. KBW received $7.28 million as compensation in the transaction
(a transaction fee equal to 1.5% of the aggregate purchase price
paid in the Acquisition, a 4% commission on the Common Stock sold to
purchasers other than Founders, a 3.5% commission on the Senior Notes
sold and 1.5% of the aggregate proceeds of the Loan), plus
reimbursement of expenses. Additionally, the Placement Agent bought
100,000 shares of the Company's common stock for $5.00 per share.
(d) Based upon representations of the offerees and purchasers, the Common
Stock and the Senior Notes were offered and sold in reliance upon an
exemption from registration under Section 4(2) of the Securities Act
and in compliance with Rules 502 and 506 promulgated thereunder.
(e) Not applicable.
(f) Not applicable.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits
3.1 Amended and Restated Certificate of Incorporation of Superior Financial
Corp. ("Superior")
3.2 Bylaws of Superior
4.1 Form of Equity Subscription Agreement among Superior, KBW and various
investors, dated April 1, 1998
4.2 Form of Registration Rights Agreement between Superior, KBW and various
investors named therein, dated April 1, 1998
<PAGE>
4.3 Indenture between Superior and The Bank of New York ("BONY"), as Trustee,
dated April 1, 1998
4.4 Form of Common Stock certificate of Superior
4.5 Form of Senior Note (included in Exhibit 4.3)
5.0 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. re: legality
10.1 Custody and Security Agreement between Superior and BONY, as Trustee,
dated April 1, 1998
10.2 Securities Account Control Agreement between Superior, Trustee and BONY
dated April 1, 1998
10.3 Founders Agreement between Superior and C. Stanley Bailey, dated December
2, 1997.
10.4 Founders Agreement between Superior and KBW, dated December 2, 1997
10.5 Founders Agreement between Superior and the Lead Investor, dated December
2, 1997.
10.6 Agreement between C. Marvin Scott and Superior, dated January 1,
1998.
10.7 Superior Long Term Incentive Plan
21.0 Subsidiaries of the Registrant (see "Business--Subsidiaries" in the
Prospectus)
23.1 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
23.2 Consent of Ernst & Young LLP
24.0 Power of Attorney (included in Signature Page of this Registration
Statement)
25.0 Statement of Eligibility of Trustee
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) (1) to file, during any period in which offers or sales are being
made, a post- effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
<PAGE>
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Form S-1 Registration Statement to signed on its behalf by
the undersigned, thereunto duly authorized, in Fort Smith, Arkansas on July 29,
1998.
LOCAL FINANCIAL CORPORATION
By: /s/ C. STANLEY BAILEY
----------------------------------------
C. Stanley Bailey
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby constitutes and appoints C. Stanley Bailey and C. Marvin Scott, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting upon said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
Name Title Date
- ---- ----- ----
/s/ C. STANLEY BAILEY Chairman of the Board and **
- ---------------------- Chief Executive Officer
C. Stanley Bailey (principal executive officer)
<PAGE>
/s/ C. Marvin Scott President and Director **
- ----------------------
C. Marvin Scott
/s/ Boyd W. Hendrickson Director **
- -----------------------
Boyd W. Hendrickson
/s/ David E. Stubblefield Director **
- -------------------------
David E. Stubblefield
/s/ John M. Stein Director **
- ----------------------
John M . Stein
** July 29, 1998.
<PAGE>
EXHIBIT INDEX
Item
No. Description
- ---- -----------
3.1 Amended and Restated Certificate of Incorporation of Superior Financial
Corp. ("Superior")
3.2 Bylaws of Superior
4.1 Form of Equity Subscription Agreement among Superior, KBW and various
investors dated April 1, 1998
4.2 Form of Registration Rights Agreement between Superior, KBW and various
investors named therein, dated April 1, 1998
4.3 Indenture between Superior and The Bank of New York ("BONY"), as
Trustee, dated April 1, 1998
4.4 Form of Common Stock certificate of Superior
4.5 Form of Senior Note (included in Exhibit 4.3)
5.0 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. re: legality
10.1 Custody and Security Agreement between Superior and BONY, as Trustee,
dated April 1, 1998
10.2 Securities Account Control Agreement between Superior, Trustee and BONY
dated April 1, 1998
10.3 Founders Agreement between Superior and C. Stanley Bailey, dated
December 2, 1997.
10.4 Founders Agreement between Superior and KBW, dated December 2,
1997.
10.5 Founders' Agreement between Superior and the Lead Investor, dated
December 2, 1997.
10.6 Agreement between C. Marvin Scott and Superior, dated January 9,
1998.
10.7 Superior Long Term Incentive Plan
21.0 Subsidiaries of the Registrant (see "Business--Subsidiaries" in the
Prospectus)
23.1 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
<PAGE>
23.2 Consent of Ernst & Young LLP
24.0 Power of Attorney (included in Signature Page of this Registration
Statement)
25.0 Statement of Eligibility of Trustee
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SFC ACQUISITION CORP.
AMENDED AND RESTATED AS OF MARCH 23, 1998
The original certificate of incorporation was filed with the Secretary of
State of Delaware on November 12, 1997. The corporation has not yet issued any
capital stock or received any consideration therefor. This Restated Certificate
of Incorporation was duly adopted by the Board of Directors on March 23, 1998
pursuant to and in accordance with (S)241 and 245 of the General Corporation Law
of Delaware and restates, integrates and further amends the provisions of the
corporation's certificate of incorporation as heretofore stated.
ARTICLE 1
The name of the corporation is: SUPERIOR FINANCIAL CORP.
ARTICLE 2
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3
The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the Delaware General Corporation Law.
To manufacture, purchase or otherwise acquire, invest in, own, mortgage,
pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and
deal with goods, wares and merchandise and personal property of every class and
description.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage or otherwise dispose of letters patent of the United States of any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trademarks and trade names, relating to
or useful in connection with any business of this corporation.
<PAGE>
To acquire by purchase, subscription or otherwise, and to receive, hold,
own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise
dispose of or deal in and with any of the shares of the capital stock, or any
voting trust certificates in respect of the shares of capital stock, scrip,
warrants, rights, bonds, debentures, notes, trust receipts, and other
securities, obligations, choses in action and evidences of indebtedness or
interest issued or created by any corporations, joint stock companies,
syndicates, associations, firms, trusts or persons, public or private, or by the
government of the United States of America, or by any foreign government, or by
any state, territory, province, municipality or other political subdivision or
by any governmental agency, and as owner thereof to possess and exercise all the
rights, powers and privileges of ownership, including the right to execute
consents and vote thereon, and to do any and all acts and things necessary or
advisable for the preservation protection, improvement and enhancement in value
thereof.
To borrow or raise money for any of the purposes of the corporation and,
from time to time without limit as to amount, to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance or assignment in trust of the
whole or any part of the property of the corporation, whether at the time owned
or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds
or other obligations of the corporation for its corporate purposes.
To purchase, receive, take by grant, gift, devise, bequest or otherwise,
lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal
in and with real or personal property, or any interest therein, wherever
situated, and to sell, convey, lease, exchange, transfer or otherwise dispose
of, or mortgage or pledge, all or any of the corporation's property and assets,
or any interest therein, wherever situated.
In general, to posses and exercise all the powers and privileges granted by
the General Corporation Law of Delaware or by any other law of Delaware or by
this Certificate of Incorporation together with any powers incidental thereto,
so far as such powers and privileges are necessary or convenient to the conduct,
promotion or attainment of the business or purposes of the corporation.
The business and purposes specified in the foregoing clauses shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference from, the terms of any other clause in this Certificate of
Incorporation, but the business and purposes specified in each of the foregoing
clauses of this article shall be regarded as independent business and purposes.
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<PAGE>
ARTICLE 4
The total number of shares of all classes of stock which the corporation
shall have authority to issue is 30,000,000 shares, of which 10,000,000 shares
of the par value of $0.01 per share are to be Preferred Stock (hereinafter
called "Preferred Stock") and 20,000,000 shares of the par value of $0.01 per
share are to be Common Stock (hereinafter sometimes called "Common Stock").
PART A
(1) The Preferred Stock may be issued in such one or more series as shall
from time to time be created and authorized to be issued by the board of
directors as hereinafter provided.
(2) The board of directors is hereby expressly authorized, by resolution or
resolutions from time to time adopted providing for the issuance of Preferred
Stock, to fix and state, to the extent not fixed by the provisions hereinafter
set forth, the designations, powers, preferences and relative, participating,
optional and other special rights of the shares of each series of Preferred
Stock, and the qualifications, limitations and restrictions thereof, including
(but, unless otherwise stated below, without limiting the generality of the
foregoing) any of the following with respect to which the board of directors
shall determine to make affirmative provisions:
(a) the distinctive name and serial designation;
(b) the annual dividend rate or rates and the dividend payment dates;
(c) whether dividends are to be cumulative or non-cumulative and the
participating or other special rights, if any, with respect to the payment
of dividends;
(d) whether any series shall be subject to redemption and, if so, the
manner of redemption and the redemption price or prices;
(e) the amount or amounts of preferential or other payments to which
any series is entitled over any other series or over the Common Stock on
voluntary liquidation, dissolution or winding up of the corporation;
(f) any sinking fund or other retirement provisions and the extent to
which the charges therefor are to have priority over the payment of
dividends on or the making of sinking fund or other like retirement
provisions for shares of any other series or other dividends on the Common
Stock;
(g) any conversion, exchange, purchase or other privileges to acquire
shares of any other series or of the Common Stock;
(h) the number of shares of such series; and
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(i) the voting rights, if any, of such series, including the right of
such Preferred Stock to class voting or the right to vote together with the
Common Stock, with such number of votes per share, or fractions of a share,
as shall be determined by the board of directors, on any matter to be
presented to the stockholders.
(3) Each share of each series of Preferred Stock shall have the same
relative rights and be identical in all respects with all the other shares of
the same series.
(4) Before the corporation shall issue any shares of Preferred Stock of any
series authorized as hereinbefore provided, a certificate setting forth a copy
of the resolution or resolutions with respect to such series adopted by the
board of directors of the corporation pursuant to the foregoing authority vested
in the board of directors shall be made, filed and recorded in accordance with
the then applicable requirements, if any, of the laws of the State of Delaware,
or, if no certificate is then so required, such certificate shall be signed and
acknowledged on behalf of the corporation by its Chairman of the Board of
Directors, President or a Vice-President and its corporate seal shall be affixed
thereto and attested by its Secretary or an Assistant Secretary and such
certificate shall be filed and kept on file at the principal office of the
corporation in the State of Delaware and in such other places as the board of
directors shall designate.
(5) Shares of any series of Preferred Stock which shall be issued and
thereafter acquired by the corporation through purchase, redemption, conversion
or otherwise may, by resolution or resolutions of the board of directors, be
returned to the status of authorized but unissued Preferred Stock of the same
series. Unless otherwise provided in the resolution or resolutions of the board
of directors providing for the issue thereof, the number of authorized shares of
Preferred Stock of any such series may be increased or decreased (but not below
the number of shares thereof then outstanding) by resolution or resolutions of
the board of directors and the filing of a certificate complying with the
foregoing requirements. In case the number of shares of any such series of
Preferred Stock shall be decreased, the shares representing such decrease shall,
unless otherwise provided in the resolution or resolutions of the board of
directors providing for the issuance thereof resume the status of authorized but
unissued Preferred Stock, undesignated as to series.
PART B
(1) No holder of any of the shares of the Common Stock or the Preferred
Stock, or any series thereof, of the corporation shall be entitled as of right
to purchase or subscribe for any unissued shares of any such stock or series or
of any additional shares of any class of stock or series to be issued by reason
of any increase in the authorized capital stock of the corporation of any class,
or bonds, certificates of indebtedness, debentures or other securities
convertible into stock of any class or series of the corporation, or carrying
any rights to purchase stock of any class or series, but any such unissued or
such additional authorized issue of any stock of any class or series, or other
securities convertible into any stock of any class or series, or carrying any
right to purchase any stock of any class or series, may be issued and disposed
of pursuant to resolution of the board of directors of the corporation to such
persons, firms, corporations or associations, upon such terms, as may be deemed
advisable by the board of directors of the corporation in the exercise of its
discretion. The corporation may from time to time issue its shares of stock of
4
<PAGE>
any class or series for such consideration as may be fixed from time to time by
the board of directors and may receive in payment thereof, in whole or in part,
cash, labor done, personal property or real property, whether tangible or
intangible, or interests therein or leases thereof. In the absence of actual
fraud in the transaction the judgment of the board of directors as to the value
of such labor, personal property, real property or interests therein or leases
thereof shall be conclusive. Any and all shares so issued for which the
consideration so fixed shall have been paid or delivered shall be deemed fully
paid stock and shall not be liable to any further call or assessment thereon,
and the holders of such shares shall not be liable for any further payment in
respect thereof.
(2) The authority of the board of directors to provide for the issuance of
shares of the Common Stock, and one or more series of the Preferred Stock, shall
include, but shall not be limited to, authority to issue shares of the Common
Stock and shares of any series of the Preferred Stock in any manner (including
issuance pursuant to rights, warrants or other options) and for any purpose
permitted by law, including for delivery as all or part of the consideration for
or in connection with the acquisition of all or part of the stock of another
corporation or of all or part of the assets of another corporation or
enterprise, irrespective of the amount by which the issuance of such stock shall
increase the number of shares outstanding (but not in excess of the number of
shares authorized).
PART C
(1) Voting. Except as may be provided otherwise in this Restated
------
Certificate of Incorporation, at all meetings of stockholders of the
corporation, each holder of record of Common Stock shall be entitled to one vote
for each share of Common Stock held. Holders of Preferred Stock shall have such
voting rights, if any, as are designated by the board of directors of the
corporation in accordance with Article 4, Part A hereof.
(2) Dividends. Subject to Article 4, Part A hereof, dividends (payable in
---------
cash, shares or otherwise) may be paid on the Common Stock in such amounts and
at such times as the board of directors of the corporation may determine in
accordance with the Delaware General Corporation Law.
ARTICLE 5
The corporation is to have perpetual existence.
ARTICLE 6
In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
5
<PAGE>
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
To designate one or more committees, each committee to consist of one or
more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The by-laws may provide
that in the absence or disqualification of a member of a committee, the member
or members present at any meeting and not disqualified from voting, whether or
not such member or members constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the board of directors, or in the by-laws of the corporation,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to the following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval, or (ii) adopting,
amending or repealing any by-law of the corporation.
When and as authorized by the stockholders in accordance with law, to sell,
lease or exchange all or substantially all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interest of the corporation.
ARTICLE 7
Elections of directors need not be by written ballot unless the by-laws of
the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware as such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
Wherever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
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<PAGE>
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class or creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
ARTICLE 8
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE 9
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
ARTICLE 10
The corporation shall indemnify its directors, officers, employees and
agents to the full extent permitted under the Delaware General Corporation Law.
7
<PAGE>
WE, THE UNDERSIGNED, being the Chief Executive Officer and Secretary of the
corporation, for the purpose of amending and restating the certificate of
incorporation pursuant to '' 241 and 245 of the Delaware General Corporation
Law, do make this Certificate, hereby declaring and certifying that this is our
act and deed and the facts herein stated are true, and accordingly have hereunto
set our hands this 23rd day of March, 1998.
/s/ C. Stanley Bailey
--------------------------------
C. Stanley Bailey
Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Holly M. Hicks
- -------------------------------
Holly M. Hicks
Secretary
8
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EXHIBIT 3.2
BYLAWS
OF
SUPERIOR FINANCIAL CORP.
A DELAWARE CORPORATION
(ADOPTED MARCH 27, 1998)
ARTICLE I
Offices
-------
1. The address of its registered office in the State of Delaware is 1209
Orange Street, Wilmington, Delaware 19801, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The CT
Corporation.
2. The principal office of the corporation shall be in the State of
Arkansas and shall be located in the City of Fort Smith, County of Sebastian.
Directors' meetings (unless from time to time specifically otherwise ordered by
the Board of Directors) and appropriate corporate functions shall be held in
Fort Smith.
3. The Chief Executive Officer may, for his convenience, in discharging
his duties, locate at whatever place he deems desirable the necessary
secretarial and personal assistance for the efficient operation of his office.
The corporation may have such other offices, either within or without the State
of Arkansas, as the Board of Directors may designate or as the business of the
corporation may require from time to time. Specialized personnel, such as
auditors, examiners, public relation officers, etc., shall be located in such
cities as the Chief Executive Officer may from time to time order.
<PAGE>
ARTICLE II
Meetings of Stockholders
------------------------
1. Place of Meetings. The Board of Directors may designate any place,
-----------------
either within or without the State of Arkansas, as the place of meeting for any
annual meeting or for any special meeting of the stockholders called by the
Board of Directors.
2. Annual Meetings. Unless provided otherwise by the Board of Directors,
---------------
the annual meeting of stockholders shall be held in the City of Fort Smith,
Arkansas, on the third Wednesday in April of each year, if not a legal holiday,
but if a legal holiday, then on the next day that is not a legal holiday, for
the purpose of electing directors of the corporation and for the transaction of
such other business as may be properly brought before the meeting.
3. Substitute Annual Meetings. If the annual meeting shall not be held on
---------------------------
the day designated by these bylaws, a substitute annual meeting may be called in
accordance with the provisions of Section 4 of this Article. A meeting so
called shall be designated and treated for all purposes as the annual meeting.
4. Special Meetings. Special meetings of the stockholders may be called
----------------
at any time by the Chairman, and shall be called by the Chairman at the request
in writing of a majority of the entire Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting.
5. Notice of Meetings. (a) Written or printed notice stating the time
------------------
and place of the meeting shall be delivered not less than ten (10) nor more than
sixty (60) days before the date thereof, either personally or by mail, by or at
the direction of the Chairman, a Vice Chairman, the President, the Secretary or
other person calling the meeting, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the stockholder at his present
2
<PAGE>
address as it appears on the record of stockholders of the corporation, with
postage thereon prepaid.
(b) In the case of an annual or substitute annual meeting, the notice
of the meeting need not specifically state the business to be transacted
thereat. In the case of a special meeting the notice of meeting shall
specifically state the purpose or purposes for which the meeting is called.
(c) When a meeting is adjourned for thirty (30) days or more, notice
of the adjourned meeting shall be given as in the case of an original meeting.
When a meeting is adjourned for less than thirty (30) days in any one
adjournment, it is not necessary to give any notice of the adjourned meeting
other than by announcement of the time and place of the adjourned meeting at the
meeting at which the adjournment is taken.
6. Quorum. A majority of the shares entitled to vote, represented in
------
person or by proxy, shall constitute a quorum at meetings of stockholders. If
there is no quorum at the opening of a meeting of stockholders, such meeting may
be adjourned from time to time by a vote of a majority of the shares voting on
the motion to adjourn; and, at any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
original meeting. The stockholders at a meeting at which a quorum is present
may continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
7. Notice of Nominations and Other Business at Annual Meetings. (a)
-----------------------------------------------------------
Nominations of persons for election to the Board of Directors of the corporation
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (1) pursuant to the corporation's notice of
meeting, (2) by or at the direction of the Board of Directors, or (3) by any
stockholder of the corporation who was a stockholder of record at the time of
giving of the notice by the stockholder provided for in this Section, who is
3
<PAGE>
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section.
(b) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (3) of paragraph (a) of this
Section, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the corporation
not less than sixty (60) days nor more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth (1) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to be named in the proxy statement as a nominee and to serve as a
director if elected); (2) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (3) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
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behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(c) Notwithstanding anything in the second sentence of paragraph (b)
of this Section to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as directors and
only such business shall be conducted at an annual meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures set
forth in this section. The Chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in this
Section and, if any proposed nomination or business is not in compliance with
these Bylaws, to declare that such defective proposed business or nomination
shall be disregarded.
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(e) For the purpose of this Section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(f) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section. Nothing in this section shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
8. Conduct of Business. The date and time of the opening and the closing
-------------------
of the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting by the person presiding over the meeting. The
Board of Directors of the corporation may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with any such rules and
regulations as adopted by the Board of Directors, the Chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the Chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
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<PAGE>
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the Chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
ARTICLE III
Directors
---------
1. General Powers. The business and affairs of the corporation shall be
--------------
managed by the Board of Directors or by such executive committee as the Board
may establish in accordance with the Certificate of Incorporation.
2. Election of Directors of Subsidiaries. The nomination and election of
-------------------------------------
directors of each corporation which is or may in the future be a subsidiary of
the corporation shall be conducted in the manner prescribed in the certificate
of incorporation or bylaws of such subsidiary corporation. To the extent
considered feasible, stock held in a subsidiary by the corporation will be voted
for nominees for director of the subsidiary proposed by the board of directors
of the subsidiary. Unless provided otherwise by the Board of Directors, for
purposes of any annual or special meeting of stockholders of any corporation
which is wholly owned, the corporation waives notice of any such meeting and the
Chairman is authorized to appoint those persons who shall hold and vote the
corporation's proxy at such meetings.
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3. Chairman. There shall be a Chairman of the Board of Directors elected
--------
by the Directors from their number at any meeting of the Board. The Chairman
shall preside at all meetings of the Board of Directors.
4. Vice Chairman. There may be one or more Vice Chairmen of the Board of
-------------
Directors elected by the Directors from their number at any meeting of the
Board. In the absence of the Chairman, one of the Vice Chairmen, in the order
of their election unless otherwise designated by the Board, shall preside at all
meetings of the Board.
5. Compensation. The Board of Directors may compensate Directors for
------------
their services as such and may provide for the payment of all expenses incurred
by Directors in attending regular and special meetings of the Board.
ARTICLE IV
Meetings of Directors
---------------------
1. Regular Meetings. A regular meeting of the Board of Directors shall be
----------------
held immediately after, and at the same place as, the annual meeting of the
stockholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of Arkansas, for the
holding of additional regular meetings.
2. Special Meetings. Special meetings of the Board of Directors may be
----------------
called by or at the request of the Chairman, a Vice Chairman, the President, or
a majority of the Board of Directors. Such meetings may be held within or
without the State of Arkansas.
3. Notice of Meetings. Regular meetings of the Board of Directors may be
------------------
held without notice. The person or persons calling a special meeting of the
Board of Directors shall, at least two days before the meeting, give notice
8
<PAGE>
thereof by any usual means of communication. Such notice need not specify the
purpose for which the meeting is called. Attendance by a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the purpose of objecting to the transaction of any
business because the meeting is not lawfully called.
4. Quorum. A majority of the number of Directors of the corporation shall
------
constitute a quorum for the transaction of business at any meeting of the Board
of Directors.
5. Manner of Acting. Except as otherwise provided in these bylaws, an act
----------------
of the majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
6. Informal Action by Directors. Any action required or permitted to be
----------------------------
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
7. Committees of the Board of Directors. There shall be such committees
------------------------------------
as the Board of Directors may establish, in accordance with the provisions of
the Certificate of Incorporation, provided that the Chairman of the Board may
designate such committees and appoint members thereof if such designation and
appointment are ratified by the Board of Directors at the next regular meeting
of the Board.
9
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ARTICLE V
Officers
--------
1. Number. The Officers of the corporation shall be a Chairman, such
------
number of Vice Chairmen as may be created by the Board of Directors, a Chief
Executive Officer, a President, a Secretary, a Treasurer, and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect. Any two or more offices may
be held by the same person.
2. Election and Term. The officers of the corporation shall be elected by
-----------------
the Board of Directors, provided that any person may be designated an officer by
the Chairman if such designation is subsequently ratified by the Board of
Directors at the next regular meeting of the Board of Directors. Such election
may be held at any regular or special meeting of the Board of Directors. Each
officer shall hold office until his death, resignation, retirement, removal,
disqualification or until his successor is elected and qualified.
3. Compensation. The compensation of all officers of the corporation
------------
shall be fixed by the Board of Directors.
4. Chairman. The Chairman shall have general executive powers and shall
--------
be the Chief Executive Officer of the corporation and, subject to the control of
the Board of Directors, shall supervise and control the management of the
corporation. The Chairman shall, when present, preside at all meetings of the
stockholders or name another to preside. He or she may sign, with any other
proper officer, any deeds, mortgages, bonds, contracts or other instruments
which may lawfully be executed on behalf of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of
10
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Directors to some other officer or agent; and, in general, he or she shall
perform all duties incident to the office of chief executive officer and such
other duties as may be prescribed by the Board of Directors from time to time.
5. Vice Chairmen. The Vice Chairmen in the order of their election,
-------------
unless otherwise determined by the Board of Directors, shall, in the absence or
disability of the Chairman, perform the duties and exercise the powers that the
Board of Directors may have assigned the Chairman. In addition, they shall
perform such other duties and shall have such other powers as the Board of
Directors shall prescribe.
6. President. The President shall, in the absence or disability of the
---------
Chairman, and Vice Chairman, exercise the powers that the Board of Directors may
have assigned the Chairman. In addition, he or she shall perform such other
duties and shall have such other powers as the Board of Directors or Chief
Executive Officer shall prescribe.
7. Vice Presidents. The Vice Presidents in the order of their election,
---------------
unless otherwise determined by the Board of Directors, shall, in the absence or
disability of the President, exercise the powers that the Board of Directors may
have assigned the President. In addition, they shall perform such other duties
and shall have such other powers as the Board of Directors or Chief Executive
Officer shall prescribe.
8. Secretary. The Secretary shall keep accurate records of the acts and
---------
proceedings of all meetings of stockholders and all meetings of the Board of
Directors. He or she shall give all notices required by law, the Certificate of
Incorporation and these bylaws. He or she shall have general charge of the
corporate books and records and of the corporate seal and shall affix the
corporate seal to any lawfully executed instruments requiring it. He or she
shall have general charge of the stock transfer books of the corporation. He or
11
<PAGE>
she shall sign such instruments as may require his or her signature, and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may be assigned to him or her from time to time by the Chairman
of the Board or by the Board of Directors.
9. Treasurer. The Treasurer shall have custody of all funds and
---------
securities belonging to the corporation and shall receive, deposit or disburse
the same under the direction of the Board of Directors. He or she shall keep
full and accurate accounts of the finances of the corporation in books
especially provided for that purpose. The Treasurer shall, in general, perform
all duties incident to his or her office and such other duties as may be
assigned to him or her from time to time by the Chairman of the Board or by the
Board of Directors.
10. Assistant Secretaries and Treasurers. The Assistant Secretaries and
------------------------------------
Assistant Treasurers shall, in the absence or disability of the Secretary or the
Treasurer, respectively, perform the duties and exercise the powers of those
offices and shall, in general, perform such other duties as shall be assigned to
them by the Secretary or the Treasurer, respectively, or by the Chairman of the
Board or the Board of Directors.
11. Bonds. The Board of Directors may by resolution require that any or
-----
all officers, agents and employees of the corporation give bond to the
corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or position, and to comply with such
other conditions as may from time to time be required by the Board of Directors.
12. Certificate of Incorporation. The foregoing provisions of this
----------------------------
Article are subject to the Certificate of Incorporation.
12
<PAGE>
ARTICLE VI
Contracts, Checks and Deposits
------------------------------
1. Contracts. The Board of Directors may authorize any officer or
---------
officers, agent or agents, to enter into any contract or execute and deliver any
instrument on behalf of the corporation, and such authority may be general or
confined to specific instances.
2. Checks and Drafts. All checks, drafts or other orders for the payment
-----------------
of money issued in the name of the corporation shall be signed by such officer
or officers, agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
3. Deposits. All funds of the corporation not otherwise employed shall be
--------
deposited to the credit of the corporation in such depositories as the Board of
Directors shall direct.
4. Loans. No loans shall be contracted on behalf of the corporation and
-----
no evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
ARTICLE VII
Certificate for Shares, Issuance and Transfer Thereof
-----------------------------------------------------
1. Certificates for Shares. Certificates representing shares of the
-----------------------
corporation shall be issued, in such form as the Board of Directors shall
determine, to every stockholder for the fully-paid shares owned by him or her.
These certificates shall be signed by the Chairman of the Board of Directors, or
the President or any Vice President, and by the Secretary, Assistant Secretary,
Treasurer or Assistant Treasurer. The Board of Directors may authorize the use
of facsimile signatures. All certificates shall be consecutively numbered or
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<PAGE>
otherwise identified; and the name and address of the persons to whom they are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation.
2. Transfer of Shares. Transfer of shares shall be made on the stock
------------------
transfer books of the corporation only upon surrender of the certificates for
the shares sought to be transferred by the record holder thereof or by his duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be canceled before new certificates for the
transferred shares shall be issued.
3. Closing Transfer Books and Fixing Record Date. (a) For the purpose of
---------------------------------------------
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may provide that the stock transfer books
shall be closed for a stated period but not to exceed, in any case, sixty (60)
days. If the stock transfer books shall be closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.
(b) In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for such determination of
stockholders, such record date in any case to be not more than sixty (60) days
and, in case of a meeting of stockholders, not less than ten (10) days
immediately preceding the date on which the particular action, requiring such
determination of stockholders, is to be taken.
14
<PAGE>
(c) If the stock transfer books are not closed and no record date is
fixed for the determination of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of stockholders.
5. Voting Lists. The officer or agent having charge of the stock transfer
------------
books for shares of the corporation shall make, at least ten (10) days before
each meeting of stockholders, a complete list of the shareholders entitled to
vote at such meeting, or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
for a period of ten (10) days prior to such meeting, shall be kept on file at
the principal office of the corporation and shall be subject to inspection by
any stockholder at any time during usual business hours. Such list shall also
be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any stockholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer books or to
vote at any meeting of stockholders.
6. Lost Certificates. The corporation may authorize the issuance of a new
-----------------
certificate in place of a certificate claimed to have been lost or destroyed,
upon receipt of an affidavit of such fact from the person claiming the loss or
destruction. When authorizing such issuance of a new certificate, the
corporation may require the claimant to give the corporation a bond in such sum
as it may direct to indemnify the corporation against loss from any claim with
respect to the certificate claimed to have been lost or destroyed; or the
corporation may, by resolution reciting that the circumstances justify such
15
<PAGE>
action, authorize the issuance of a new certificate without requiring such a
bond.
ARTICLE VIII
General Provisions
------------------
1. Dividends. The Board of Directors may from time to time declare, and
---------
the corporation may pay, dividends in cash, stock or property on its outstanding
shares in the manner and upon the terms and conditions provided by law and by
its charter.
2. Waiver of Notice. Whenever any notice is required to be given to any
----------------
stockholder or director under the provisions of the laws of Delaware or under
the provisions of the Certificate of Incorporation or bylaws of this
corporation, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be equivalent to the giving of such notice.
3. Fiscal Year. The fiscal year of the corporation shall be as fixed by
-----------
the Board of Directors. If no fiscal year is fixed, then a calendar year will
be used.
4. Amendments. Except as otherwise provided herein, these bylaws may be
----------
amended or repealed by the affirmative vote of a majority of the Directors then
holding office at any regular or special meeting of the Board of Directors.
16
<PAGE>
ARTICLE IX.
Indemnification
---------------
1. Definitions. As used in this Section the following terms shall have the
-----------
meanings set out below:
(a) "Board" - the Board of Directors of the Corporation.
(b) "Claim" - any threatened or pending or completed claim, action, suit,
or proceeding, whether civil, criminal, administrative or investigative and
whether made judicially or extra-judicially, or any separate issue or matter
therein, as the context requires.
(c) "Determining Body" - (i) those members of the Board who are not named
as parties to the Claim for which indemnification is being sought ("impartial
Directors"), if there are at least three Impartial Directors, or (ii) a
committee of at least three directors appointed by the Board (regardless whether
the members of the Board of Directors voting on such appointment are fewer than
three Impartial Directors or if the Board of Directors or the committee
appointed pursuant to clause (ii) of this paragraph so directs (regardless
whether the members thereof are Impartial Directors), independent legal counsel,
which may be the regular outside counsel of the Corporation.
(d) "Disbursing Officer" - the Chief Executive Officer of the Corporation
or, if the Chief Executive Officer is a party to the Claim for which
indemnification is being sought, any officer not a party to such Claim who is
designated by the Chief Executive Officer to be the Disbursing Officer with
respect to indemnification request related to the Claim, which designation shall
be made promptly after receipt of the initial request for indemnification with
respect to such Claim.
(e) "Expenses" - any expenses or costs (including, without limitation,
attorney's fees, judgements, punitive or exemplary damages, fines and amounts
paid in settlement).
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<PAGE>
(f) "Indemnitee" - each person who is or was a director or officer of the
Corporation or the spouse of such person.
2. Indemnity.
---------
(a) To the extent such Expenses exceed the sum or amounts paid or due under
or pursuant to (i) policies of liability insurance maintained by the
Corporation, (ii) policies of liability insurance maintained by or on behalf of
the Indemnitee, and (iii) provisions for indemnification in the by-laws,
resolutions or other instruments of any entity other than the Corporation, the
Corporation shall indemnify Indemnitee against any Expenses actually and
reasonably incurred by him (as they are incurred) in connection with any Claim
either against him or as to which he is involved solely as a witness or person
required to give evidence, by reason of his position.
(i) as a director or officer of the Corporation,
(ii) as a director or officer of any subsidiary of the Corporation or
as a fiduciary with respect to any employee benefit plan of the Corporation,
(iii) as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other for profit or not for
profit entity or enterprise, if such position is or was held at the request of
the Corporation, or
(iv) as the spouse of any person who is or was a director or officer
of the Corporation with respect to any Claim involving the spouse arising by
reason of such person's position as described in clauses (i) , (ii) or (iii),
whether relating to service in such position before or after the effective date
of this Section, if he (i) is successful in his defense of the Claim on the
merits or otherwise or (ii) has been found by the Determining Body (acting in
good faith) to have met the Standard of Conduct; provided that (A) the amount
18
<PAGE>
otherwise payable by the Corporation may be reduced by the Determining Body to
such amount as it deems proper if it determines that the Claim involved the
receipt of a personal benefit by Indemnitee, and (B) no indemnification shall be
made in respect of any Claim as to which Indemnitee shall have been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable for willful or intentional misconduct in the performance of his duty
to the Corporation or to have obtained an improper personal benefit, unless, and
only to the extent that, a court shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as
the court deems proper.
(b) The Standard of Conduct is met when the conduct by an Indemnitee with
respect to which a Claim is asserted was conduct that he reasonably believed to
be in, or not opposed to, the best interest of the Corporation, and, in the case
of a criminal action or proceeding, that he had no reasonable cause to believe
was unlawful. The termination of any Claim by judgment, or order, settlement,
conviction, or upon a plea of nolo contendere or it equivalent, shall not, of
itself, create a presumption that Indemnitee did not meet the Standard of
Conduct.
(c) Promptly upon becoming aware of the existence of any Claim as to which
he may be indemnified hereunder, Indemnitee shall notify the Chief Executive
Officer of the Corporation of the Claim and whether he intends to seek
indemnification hereunder. If such notice indicates that Indemnitee does so
intend, the Chief Executive Officer shall promptly advise the Board thereof and
notify the Board that the establishment of the Determining Body with respect to
the Claim will be a matter presented at the next regularly scheduled meeting of
the Board. After the Determining Body has been established, the Chief Executive
Officer shall inform the Indemnitee thereof and Indemnitee shall immediately
19
<PAGE>
provide the Determining Body with all facts relevant to the Claim known to him.
Within 60 days of the receipt of such information, together with such additional
information as the Determining Body may request of Indemnitee, the Determining
Body shall determine, and shall advise Indemnitee of its determination, whether
Indemnitee has met the Standard of Conduct. The Determining Body may extend
such 60 day period by no more than an additional 60 days.
(d) Indemnitee shall promptly inform the Determining Body upon his becoming
aware of any relevant facts not therefore provided by him to the Determining
Body, unless the Determining Body has obtained such facts by other means. If,
after determining that the Standard of Conduct has been met, the Determining
Body obtains facts of which it was not aware at the time it made such
determination, the Determining Body on its own motion, after notifying the
Indemnitee and providing him an opportunity to be heard, may, on the basis of
such facts, revoke such determination, provided that in the absence of actual
fraud by Indemnitee no such revocation may be made later than 30 days after
final disposition of the Claim.
(e) In the case of any Claim not involving a proposed, threatened or
pending criminal proceeding,
(i) If Indemnitee has, in the good faith judgment of the Determining
Body, met the Standard of Conduct, the Corporation may, in its sole discretion
after notice to Indemnitee, assume all responsibility for the defense of the
Claim, and, in any event, the Corporation and the Indemnitee each shall keep the
other informed as to the progress of the defense, including prompt disclosure of
any proposals for settlement; provided that if the Corporation is a party to the
Claim and Indemnitee reasonably determines that there is a conflict between the
positions of the Corporation and Indemnitee with respect to the Claim, then
Indemnitee shall be entitled to conduct his defense, with counsel of his choice;
20
<PAGE>
and provided further that Indemnitee shall in any event be entitled at is
expense to employ counsel chosen by him to participate in the defense of the
Claim; and
(ii) The Corporation shall fairly consider any proposals by Indemnitee
for settlement of the Claim. If the Corporation (A) proposes a settlement
acceptable to the person asserting the Claim, or (B) believes a settlement
proposed by the person asserting the Claim should be accepted, it shall inform
Indemnitee of the terms thereof and shall fix a reasonable date by which
Indemnitee shall respond. If Indemnitee agrees to such terms, he shall execute
such documents as shall be necessary to effect the terms, he shall execute such
documents as shall be necessary to effect the settlement. If he does not agree
he may proceed with the defense of the Claim in any manner he chooses, but if he
is not successful on the merits or otherwise, the Corporation's obligation to
indemnify him for any Expenses incurred following his disagreement shall be
limited to the lesser of (A) the total Expenses incurred by him following his
decision not to agree to such proposed settlement or (B) the amount the
Corporation would have paid pursuant to the terms of the proposed settlement.
If, however, the proposed settlement would impose upon Indemnitee any
requirement to act or refrain from acting that would materially interfere with
the conduct of his affairs, Indemnitee may refuse such settlement and proceed
with the defense of the Claim, if he so desires, at the Corporation's expense
without regard to the limitations imposed by the preceding sentence. In no
event, however, shall the Corporation be obligated to indemnify Indemnitee for
any amount paid in a settlement that the Corporation has not approved.
(f) In the case of a Claim involving a proposed, threatened or pending
criminal proceeding, Indemnitee shall be entitled to conduct the defense of the
Claim, and to make all decisions with respect thereto, with counsel of his
21
<PAGE>
choice; provided that the Corporation shall not be obligated to indemnify
Indemnitee for an amount paid in settlement that the Corporation has not
approved.
(g) After notifying the Corporation of the existence of a Claim, Indemnitee
may from time to time request the Corporation to pay the Expenses (other than
judgments, fines, penalties or amounts paid in settlement) that he incurs in
pursuing a defense of the Claim prior to the time that the Determining Body
determines whether the Standard of Conduct has been met. If the Disbursing
Officer believes the amount requested to be reasonable, he shall pay to
Indemnitee the amount requested (regardless of Indemnitee's apparent ability to
repay such amount) upon receipt of an undertaking by or on behalf of Indemnitee
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation under the circumstances. If the
Disbursing Officer does not believe such amount to be reasonable, the
Corporation shall pay the amount deemed by him to be reasonable and Indemnitee
may apply directly to the Determining Body for the remainder of the amount
requested.
(h) After it has been determined that the Standard of Conduct was met, for
so long as and to the extent that the Corporation is required to indemnify
Indemnitee under this Agreement, the provisions of Paragraph (g) shall continue
to apply with respect to Expenses incurred after such time, expect that (i) no
undertaking shall be required of Indemnitee and (ii) the Disbursing Officer
shall pay to Indemnitee such amount of any fines, penalties or judgments against
him which have become final as the Corporation is obligated to indemnify him.
(i) Any determination by the Corporation with respect to settlements of a
Claim shall be made by the Determining Body.
22
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(j) The Corporation and Indemnitee shall keep confidential, to the extent
permitted by law and their fiduciary obligations, all facts and determinations
provided or made pursuant to or arising out of the operation of this Agreement,
and the Corporation and Indemnitee shall instruct it or his agents and employees
to do likewise.
3. Enforcement.
-----------
(a) The rights provided by this Section shall be enforceable by Indemnitee
in any court of competent jurisdiction.
(b) If Indemnitee seeks a judicial adjudication of his rights under this
Section, Indemnitee shall be entitled to recover from the Corporation, and shall
be indemnified by the Corporation against, any and all Expenses actually and
reasonably incurred by him in connection with such proceeding, but only if he
prevails therein. If it shall be determined that Indemnitee is entitled to
receive part but not all of the relief sought, then the Indemnitee shall be
entitled to be reimbursed for all Expenses incurred by him in connection with
such judicial adjudication if the amount to which he is determined to be
entitled exceeds 50% of the amount of his claim. Otherwise, the Expenses
incurred by Indemnitee in connection with such judicial adjudication shall be
appropriately prorated.
(c) In any judicial proceeding described in this subsection, the
Corporation shall bear the burden of proving that Indemnitee is not entitled to
any Expenses sought with respect to any Claim.
4. Saving Clause. If any provision of this Section is determined by a court
-------------
having jurisdiction over the matter to require the Corporation to do or refrain
from doing any act that is in violation of applicable law, the court shall be
empowered to modify or reform such provision so that, as modified or reformed,
such provision provides the maximum indemnification permitted by law, and such
provision, as so modified or reformed, and the balance of this Section, shall be
applied in accordance with their terms. Without, the generality of the
23
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foregoing, if any portion of this Section shall be invalidated on any ground,
the Corporation shall nevertheless indemnify an Indemnitee to the full extent
permitted by any applicable portion of this Section that shall not have been
invalidated and to the full extent permitted by law with respect to that portion
that has been invalidated.
5. Non-Exclusivity.
---------------
(a) The indemnification and advancement of Expenses provided by or granted
pursuant to this Section shall not be deemed exclusive of any other rights to
which Indemnitee is or may become entitled under any statue, article of
incorporation, by-law, authorization of shareholders or directors, agreement, or
otherwise.
(b) It is the intent of the Corporation by this Section to indemnify and
hold harmless Indemnitee to the full extent permitted by law, so that if
applicable law would permit the Corporation to provide broader indemnification
rights that are currently permitted, the Corporation shall indemnify and hold
harmless Indemnitee to the full extent permitted by applicable law
notwithstanding that the other terms of this Section would provide for lesser
indemnification.
6. Successors and Assigns. This Section shall be binding upon the Corporation,
----------------------
its successors and assigns, and shall inure to the benefit of the Indemnitee's
heirs, personal representatives, and assigns and to the benefit of the
Corporation, its successors and assigns.
7. Indemnification of Other Persons.
--------------------------------
(a) The Corporation may indemnify any person not covered by Section 1
through 6 to the extent provided in a resolution of the Board or a separate
Section of these By-laws.
(b) Nothing in this Section 11 shall obligate the Corporation to indemnify
or advance expenses to any person who was a director, officer or agent of any
corporation merged into this Corporation or otherwise acquired by this
24
<PAGE>
Corporation. Any such person's right to indemnification or advancement of
expenses, if any, shall consist of those rights contained in the agreement
relating to such merger or acquisition.
25
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EXHIBIT 4.1
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
among Superior Financial Corp., a Delaware corporation (the "Company"), Keefe,
Bruyette & Woods, Inc. (the "Placement Agent") and each of the Investors
identified in Schedules 1, 2 and 3 hereto (the "Investors").
WHEREAS, the Investors wish to subscribe for and purchase and the
Company wishes to issue and sell to each of the Investors (i) shares of common
stock of the Company, par value $0.01 per share (the "Common Shares"), (ii)
notes substantially in the form of Exhibit A hereto in an aggregate principal
amount of $60.0 million (the "Senior Notes") to be issued pursuant to an
indenture (the "Indenture") between the Company and The Bank of New York, as
trustee, and/or (iii) short term senior notes (the "Short Term Senior Notes")
substantially in the form of Exhibit B hereto in an aggregate principal amount
of $20.0 million to be issued pursuant to the Indenture, each on the terms set
forth herein; and
WHEREAS, the Company has entered into an agreement dated as of
December 3rd, 1997 (the "Acquisition Agreement") by and among the Company, NB
Holdings Corporation ("NBHC"), a wholly owned subsidiary of NationsBank
Corporation, and Superior Federal Bank, F.S.B. (the "Bank"), a wholly owned
subsidiary of NBHC, pursuant to which, among other things, the Company shall
acquire from NBHC (the "Acquisition") all of the issued and outstanding capital
stock (the "Bank Capital Stock") of the Bank; and
WHEREAS, the Company will use substantially all of the net proceeds of
the Investors' subscriptions to acquire the Bank Capital Stock from NBHC;
In consideration of the premises and mutual agreements herein
contained, the parties hereto hereby agree as follows:
1
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ARTICLE I
AUTHORIZATION; SUBSCRIPTION FOR SECURITIES
Section 1.1 The Securities. The Company has authorized the issuance
--------------
and sale pursuant to this Agreement of up to (i) ten million Common Shares, (ii)
$60.0 million in aggregate principal amount of Senior Notes and (iii) $20.0
million of Short Term Senior Notes (the Common Shares, the Senior Notes and the
Short Term Senior Notes being referred to herein collectively as the
"Securities"), each having such rights, restrictions, and privileges as are (or
are to be) contained in or accorded by (i) the Certificate of Incorporation of
the Company, (ii) the Bylaws of the Company, (iii) the Indenture and (iv) the
Registration Rights Agreement between the Company and each of the Investors (the
"Registration Rights Agreement") attached as Exhibit D to the Private Placement
Memorandum (as defined herein). Subject to the terms and conditions hereof, the
Securities will be issued on the Closing Date (as defined in Section 2.1). The
term "Private Placement Memorandum" means the Confidential Private Placement
Memorandum dated December 19, 1997, which has been delivered to each of the
Investors in connection with the offering of the Securities (the "Offering") and
includes all exhibits and appendices thereto and any amendments thereof and
supplements thereto.
Section 1.2 The Subscription for Securities. Subject to the terms
-------------------------------
and conditions of this Agreement, each of the Investors hereby irrevocably
subscribes for and agrees to purchase (i) the number of Common Shares set forth
opposite each such Investor's name on Schedule 1 hereto for the purchase price
specified in Section 2.1 hereof, (ii) the aggregate principal amount of Senior
Notes set forth opposite each such Investor's name on Schedule 2 hereto and
(iii) the aggregate principal amount of Short Term Senior Notes set forth
opposite each such Investor's name on Schedule 3 hereto. The Investors shall not
be obligated to purchase any Securities unless the conditions set forth in
Article V shall have been satisfied or waived. The Company shall not be
obligated
2
<PAGE>
to sell any Securities unless the conditions set forth in Article VI hereof
shall have been satisfied or waived.
Section 1.3 Use of Proceeds of the Offering. The Company shall use
-------------------------------
substantially all of the net proceeds of the Offering (after payment of
placement agent fees and other fees and expenses incurred in connection with the
Offering) to acquire the Bank Capital Stock such that, after such acquisition,
the Bank shall be a wholly owned subsidiary of the Company.
ARTICLE II
CLOSING
Section 2.1 Sale and Purchase of the Securities.
-----------------------------------
(i) Subject to the terms and conditions of this Agreement, a closing
(the "Closing") shall occur on a date to be selected by the Company within
twenty business days after the date on which the conditions set forth in Section
6.2 hereof shall have been satisfied, or on such later date as may be agreed
upon in writing by the Company and the Investors (the "Closing Date"), at which
the Company shall sell to each of the Investors, and each of the Investors shall
purchase from the Company (i) the number of Common Shares set forth opposite
each such Investor's name on Schedule 1 hereto at a purchase price of $10.00 per
Common Share, (ii) the aggregate principal amount of Senior Notes set forth
opposite each such Investor's name on Schedule 2 hereto and (iii) the aggregate
principal amount of Short Term Senior Notes set forth opposite each Investor's
name on Schedule 3 hereto. The Company shall provide the Investors with not
less than two business days' prior notice of the date on which the Closing is
scheduled to occur (the "Closing Notice"). The aggregate purchase price for the
number of Common Shares (the "Aggregate Common Share Purchase Price"), the
aggregate principal amount of Senior Notes and/or the aggregate principal amount
of Short Term Senior Notes set forth opposite the name of each Investor on
Schedules 1,
3
<PAGE>
2 and 3 hereto is such Investor's "Aggregate Purchase Price".
(ii) At the Closing, the Company shall deliver to each of the
Investors one or more certificates registered in the name of each such Investor
representing the aggregate number of Common Shares, one or more certificates
registered in the name of each such Investor representing the Senior Notes
and/or one or more certificates registered in the name of such Investor
representing the Short Term Senior Notes to be purchased by such Investor
against payment of such Investor's Aggregate Purchase Price by wire transfer of
immediately available funds to an account of the Company to be designated in the
Closing Notice.
Section 2.2. Time and Place of Closing. The Closing will take place
--------------------------
at the offices of____________ , or at such other location as shall be set forth
in the Closing Notice, at the close of business on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Investors as
follows:
Section 3.1 Due Organization, Valid Existence and Authority of the
------------------------------------------------------
Company. The Company is a corporation duly organized and validly existing under
- -------
the laws of the State of Delaware. The Company has the corporate power and
authority to carry on its business as proposed to be conducted and at the
Closing will be duly licensed or qualified to do business and in good standing
in each jurisdiction in which its ownership or leasing of property or the
conduct of its business requires such licensing or qualification, except where
the failure to be so licensed, qualified or in good standing would not have a
material adverse effect on the financial condition, business or results of
operations of the Company and its subsidiaries (including the Bank), taken as a
whole (a
4
<PAGE>
"Material Adverse Effect"). The Company has full right, power and authority to
enter into this Agreement and the Registration Rights Agreement and to perform
its obligations hereunder and thereunder. At the Closing, the Company will be
duly registered as a savings and loan holding company under the Home Owners'
Loan Act ("HOLA") and the regulations of the Office of Thrift Supervision (the
"OTS") thereunder. The Certificate of Incorporation of the Company attached as
Exhibit E to the Private Placement Memorandum is a true and complete copy of the
Certificate of Incorporation of the Company as in effect on the date of this
Agreement, and no amendment to such Certificate of Incorporation has been
proposed or adopted. The Bylaws of the Company attached as Exhibit F to the
Private Placement Memorandum are true and complete copies of the Bylaws of the
Company as in effect on the date of this Agreement, and no amendment to such
Bylaws has been proposed or adopted. Upon completion of the Closing, the Company
will own all of the issued and outstanding shares of capital stock of the Bank,
free and clear of any liens, equities, encumbrances (other than restrictions on
transfer imposed by applicable securities laws) or claims of third parties. Upon
completion of the Closing, the Company will not own any interest in or control,
directly or indirectly, any corporations, partnerships or entities other than
the Bank and the Bank's subsidiaries.
Section 3.2 Authorization and Validity of Agreements. This
----------------------------------------
Agreement and the Registration Rights Agreement have been duly authorized,
executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms.
Section 3.3 Capitalization. (a) The authorized capital stock of
--------------
the Company consists of (i) 20,000,000 shares of Common Stock, par value $.01
per share, of which not more than 10,000,000 shares will be issued and
outstanding immediately following the Closing and (ii) 10,000,000 shares of
Preferred Stock, par value $.01 per share, none of which will be issued and
outstanding immediately following the Closing, in each case having the rights,
preferences and privileges specified
5
<PAGE>
in the Certificate of Incorporation. The Company has reserved 200,000 shares of
Common Stock (the "Reimbursement Shares") for issuance to certain persons for
expenses incurred in connection with the formation of the Company, the issuance
of the Securities and the Acquisition. The Company has reserved a total of 5% of
the fully diluted shares (the "Option Shares") of Common Stock outstanding at
the Closing for issuance to the chief executive officer of the Company as
described in the Private Placement Memorandum; 20% of such Option Shares will be
issuable immediately following the Closing. Except as set forth above, there are
no outstanding securities of the Company evidencing the right to purchase or
subscribe for any shares of capital stock of the Company, there are no
outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating the Company to
issue any shares of its capital stock or any securities convertible into or
evidencing the right to purchase or subscribe for any shares of such stock, and
there are no agreements or understandings with respect to the voting, sale or
transfer of any shares of capital stock of the Company.
(b) All the Common Shares issued by the Company have been duly authorized,
validly issued, fully paid and nonassessable. All the Common Shares issuable by
the Company pursuant to this Agreement will be, when issued and paid for and
delivered in accordance with the terms of this Agreement, duly authorized,
validly issued, fully paid and nonassessable.
(c) At the Closing Date, the Senior Notes and the Short Term Senior Notes
will have been duly executed by the Company and, when authenticated in the
manner provided for in the Indenture and delivered by the Company to the
Investors against payment therefor, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency (including without limitation, all laws relating to
fraudulent transfers), moratorium and similar laws affecting creditors' rights
generally and enforcement thereof is subject to general
6
<PAGE>
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
Section 3.4 No Conflict with Other Instruments; No Approvals
------------------------------------------------
Required. (a) Neither the execution and delivery of this Agreement and the
- --------
Registration Rights Agreement, nor the consummation of the transactions
contemplated hereby or thereby, nor compliance by the Company with any of the
provisions hereof or thereof will (i) conflict with or result in a breach of any
provision of the Certificate of Incorporation or Bylaws of the Company, (ii)
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of the Company pursuant
to any note, bond, mortgage, indenture, license, agreement or other instrument
or obligation to which the Company is a party, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company,
except (in the case of clauses (ii) and (iii) above) for such violations,
rights, conflicts, breaches, creations or defaults which, either individually or
in the aggregate, will not have a Material Adverse Effect on the Company.
(b) Except for the receipt of regulatory approvals as described in the
Private Placement Memorandum, no consent, approval or authorization of, or
declaration, notice, filing or registration with, any governmental or regulatory
authority, or any other person, is required to be made or obtained by the
Company in connection with the execution and delivery by the Company of this
Agreement or the consummation by the Company of the transactions contemplated
hereby.
Section 3.5 Private Offering of the Securities.
----------------------------------
(a) The offer, issuance, sale and delivery of the Securities pursuant
to this Agreement is intended to be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities
7
<PAGE>
Act"). Neither the Company nor anyone acting on its behalf has taken or will
take any action with respect to the Securities or any securities similar to the
Securities, or otherwise, that would bring the issuance and sale of the
Securities within the registration requirements of the Securities Act or
comparable provisions of any applicable State securities laws.
(b) In the case of each offer or sale of the Securities, no form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) was used in connection with the Offering
by the Company or, to the best knowledge of the Company, any person authorized
to act on behalf of the Company, including, but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. Except for the issuance by the Company of
the Reimbursement Shares and the Option Shares, the Company has not issued and
sold Common Shares to any persons other than the Investors, and no shares of
capital stock of the Company have been issued and sold by the Company since the
date of its formation.
Section 3.6 Private Placement Memorandum.
----------------------------
(a) The Private Placement Memorandum does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(b) The projected financial statements of the Company (the "Projected
Financial Statements") contained in the Private Placement Memorandum are based
on the good faith estimates and assumptions of the management of the Company,
and the management of the Company has no reason to believe that the Projected
Financial Statements or the assumptions and estimates on which they are based
are not reasonable.
8
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE INVESTORS
Each of the Investors hereby represents and warrants to the Company as
follows:
Section 4.1 Due Organization, Good Standing and Authority of the
----------------------------------------------------
Investor. If such Investor is not a natural person, such Investor represents
- --------
and warrants that it is a corporation, partnership or trust duly organized,
validly existing and in good standing under the laws of such Investor's
jurisdiction of organization. If such Investor is a natural person, he or she
represents and warrants that (i) he or she is over 21 years of age, (ii) the
address set forth under his or her name on the signature page hereof is his or
her true and correct address and residence, and (iii) he or she has no current
intention of becoming a resident of any other state or jurisdiction in the
foreseeable future.
Section 4.2 Authorization and Validity of Agreements. This
----------------------------------------
Agreement and the Registration Rights Agreement have been duly authorized,
executed and delivered by such Investor and constitute valid and binding
obligations of such Investor enforceable against such Investor in accordance
with their terms.
Section 4.3 Investment Intent. (a) Each Investor, severally and not
-----------------
jointly, represents and warrants to, and covenants and agrees with, the Company
that the Securities to be acquired by it hereunder are being acquired either (i)
for its own account or (ii) for an account with respect to which it exercises
sole investment discretion and which account is either (A) a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) and such
account is aware that the sale to it is being made in reliance on Rule 144A or
(B) an Accredited Investor.
(b) Each Investor severally and not jointly, represents and warrants to,
and covenants and agrees with, the Company that the Securities being acquired by
it hereunder are being acquired for investment and with no
9
<PAGE>
intention of distributing or reselling such Securities or any part thereof or
interest therein in any transaction which would be in violation of the
securities laws of the United States or any State, without prejudice, however,
to an Investor's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities under an effective registration statement under
the Securities Act and other applicable State securities laws or under an
exemption from such registration requirements, and subject, nevertheless, to the
disposition of an Investor's property being at all times within its control.
Except with respect to transfers made in accordance with Section 4.3(a)(ii)
above, each Investor, severally and not jointly, further represents and warrants
to the Company that such Investor has no present agreement, understanding, plan
or intent to transfer the Securities to be purchased by it to any transferee.
Section 4.4 Transfer Restrictions. If an Investor should decide to
---------------------
dispose of any of the Securities, such Investor understands and agrees that it
may do so only pursuant to an effective registration statement under the
Securities Act or as set forth below: (i) to the Company, (ii) to any Person
reasonably believed by such Investor to be a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in compliance with Rule 144A
under the Securities Act, (iii) pursuant to an exemption from registration set
forth in Rule 144 under the Securities Act, (iv) to any Person who is reasonably
believed by such Investor to be an "accredited investor" (as defined in Rule
501(a) under the Securities Act) and who, prior to such transfer, furnishes to
the Investor and the Company a signed letter confirming its status as an
accredited investor and agreeing to the restrictions on transfer of the
Securities set forth in this Agreement or (v) to any Affiliate (as such term is
defined in Rule 144 under the Securities Act) of such Investor pursuant to an
applicable exemption under the Securities Act. In connection with any transfer
of any Securities other than (i) any transfer pursuant to an effective
registration statement or (ii) any transfer to a qualified institutional buyer,
the Company
10
<PAGE>
may require that the transferor of any such Securities provide to the Company an
opinion of counsel selected by the transferor (which may include in-house
counsel of a transferor), which counsel shall be and the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such Securities under the
Securities Act or any State securities laws. In connection with any transfer
pursuant to clause (ii) above, the Company may request reasonable certification
as to the status of the transferor's transferee as a qualified institutional
buyer.
Section 4.5 No Conflict with Other Instruments; No Approvals
------------------------------------------------
Required Except as Have Been Obtained. (a) Neither the execution and delivery
- -------------------------------------
of this Agreement and the Registration Rights Agreement, nor the consummation of
the transactions contemplated hereby or thereby, nor compliance by the Investor
with any of the provisions hereof or thereof shall (i) conflict with or result
in a breach of any provision of the Certificate of Incorporation or Bylaws of
such Investor (if such Investor is a corporation) or equivalent organizational
documents (if such Investor is not a corporation), (ii) constitute or result in
a breach of any term, condition or provision of, or constitute a default under,
or give rise to any right of termination, cancellation or acceleration with
respect to, or result in the creation of any lien, charge or encumbrance upon
any property or asset of such Investor pursuant to any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to such Investor, except (in the case of clauses (ii) and (iii)
above) for such violations, rights, conflicts, breaches, creations or defaults
which, either individually or in the aggregate, will not have a Material Adverse
Effect on such Investor.
(b) Except as previously disclosed in writing to the Company prior to
the date hereof, no consent, approval or authorization of, or declaration,
notice, filing or registration with, any governmental or regulatory authority,
or any other person, is required to be
11
<PAGE>
made or obtained by the Investor in connection with the execution and delivery
of this Agreement by the Investor or the consummation by the Investor of the
transactions contemplated hereby.
Section 4.6 Investor Awareness. Such Investor acknowledges, agrees
------------------
and is aware that:
(i) An investment in the Securities involves a high degree of
risk, including, without limitation, the risks identified under the caption
"Risk Factors" in the Private Placement Memorandum, and such Investor may
lose the entire amount of its investment;
(ii) The Company has only recently been organized and has no
financial or operating history;
(iii) The Company does not expect to pay dividends for at least
the first year of operation;
(iv) No federal or state agency or any foreign agency has passed
upon the accuracy, validity or completeness of the Private Placement
Memorandum, this Agreement or the Registration Rights Agreement or made any
finding or determination as to the fairness of an investment in the
Securities;
(v) The Securities are illiquid, and such Investor must bear
the economic risk of an investment in the Securities for an indefinite
period of time;
(vi) There is no existing public or other market for the
Securities, and it is not expected that any such market will develop.
There can be no assurance that such Investor will be able to sell or
dispose of such Investor's Securities. Without limiting the generality of
the foregoing, in order not to jeopardize the Offering's exempt status
12
<PAGE>
under the Securities Act, the transferee of such Securities may, among
other things, be required to fulfill the investor suitability requirements
thereunder;
(vii) The Securities have not been registered under the
Securities Act or under the securities laws of any other jurisdiction, and,
except as provided in the Registration Rights Agreement, the Company is
under no obligation to, and currently does not intend to, register or
qualify the Securities for resale by such Investor or assist such Investor
in complying with any exemption under the Securities Act or the securities
laws of any other jurisdiction; an offer or sale of Securities by such
Investor in the absence of registration under the Securities Act will
require the availability of an exemption thereunder; a restrictive legend
in substantially the form set forth in Section 7.1 hereof shall be placed
on the certificates representing the Securities; and a notation shall be
made in the appropriate records of the Company indicating that the
Securities are subject to restrictions on transfer;
(viii) Such Investor shall hold the Common Shares subject to,
and shall have voting rights with respect to the Common Shares as specified
in, the Certificate of Incorporation and Bylaws of the Company as the same
may be amended from time to time;
(ix) Such Investor shall hold the Senior Notes and/or the Short
Term Senior Notes subject to, and shall have the rights with respect to the
Senior Notes and/or the Short Term Senior Notes as specified in, the
Indenture.
Section 4.7 Accredited Investor. Such Investor qualifies as an
-------------------
"accredited investor" within the meaning of Rule 501 under the Securities Act
being:
13
<PAGE>
(i) a bank as defined in Section 3(a)(2) of the Securities Act
or a savings and loan association or other institution as defined in
Section (3)(a)(5)(A) of the Securities Act whether acting in its individual
or fiduciary capacity; a broker dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934; an insurance company as defined in
Section 2(13) of the Securities Act; an investment company registered under
the Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; a Small Business Investment
Company licensed by the U. S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political subdivisions, or an
agency or instrumentality of such state or its political subdivisions, for
the benefit of its employees, if such plan has total assets in excess of
U.S. $5,000,000; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such Act, which
is either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total
assets in excess of U.S. $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
(ii) a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iii) an organization described in Section 501(c)(3) of the
Internal Revenue Code, or a corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
Security, with total assets in excess of U.S. $5,000,000;
14
<PAGE>
(iv) a director or executive officer of the Company;
(v) a natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeds U.S.
$1,000,000;
(vi) a natural person who had an individual income in excess of
U.S. $200,000 in each of the two most recent years or joint income with
that person's spouse in excess of U.S. $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the
current year;
(vii) a trust with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the Security, whose purchase
is directed by a sophisticated person as described in Rule 506(b)(2)(ii)
under the Securities Act; or
(viii) an entity in which all of the equity owners are
accredited investors pursuant to any of the foregoing subsections (i)-
(vii).
Section 4.8 Receipt of Information, Access to Information. Such
---------------------------------------------
Investor:
(i) has been furnished with the Private Placement Memorandum,
this Agreement, the Registration Rights Agreement and any other documents
that may have been made available upon the Investor's request
(collectively, the "Other Documents"), and such Investor has carefully read
the Private Placement Memorandum and the Other Documents and understands
and has evaluated the risks of a purchase of the Securities, including the
risks set forth under the caption "Risk Factors" in the Private Placement
Memorandum;
15
<PAGE>
(ii) has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of
the Offering and other matters pertaining to this investment, has been
given the opportunity to obtain such additional information necessary to
evaluate the merits and risks of a purchase of the Securities to the extent
the Company possesses such information and has received all documents and
information that it has requested relating to an investment in the Company;
(iii) has not relied upon any representations or other
information (whether oral or written) from the Company, the Placement Agent
or their respective directors, officers, employees or affiliates, or from
any other persons, other than the representations contained in this
Agreement and the information contained in the Private Placement
Memorandum;
(iv) has carefully considered and has, to the extent such
Investor believes such discussion necessary, discussed with such Investor's
professional legal, financial and tax advisers, the suitability of an
investment in the Company for such Investor's particular financial and tax
situation and has determined that the Securities are a suitable investment
for such Investor; and
(v) acknowledges and agrees that it is a sophisticated investor
and is aware of the matters described in Section 4.6 and has received and
evaluated the information described in this Section 4.8 and is making an
independent decision to invest in the Securities.
16
<PAGE>
ARTICLE V
CONDITIONS TO OBLIGATIONS OF THE INVESTORS
The obligation of each Investor to purchase Securities under this
Agreement is subject to the satisfaction or waiver prior to the Closing Date of
each of the following conditions:
Section 5.1 Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties of the Company contained herein and of each other
Investor contained in Sections 4.2, 4.7 and 4.8 of this Agreement shall be true
in all material respects on and as of the Closing Date as if made on and as of
the Closing Date.
Section 5.2 Satisfaction of Conditions. (a) All of the conditions
--------------------------
contained in Article VI of the Acquisition Agreement shall have been satisfied
as of the Closing Date.
(b) The conditions set forth in section 6.2(a) and (b) shall have been
satisfied at the Closing Date.
Section 5.3 Aggregate Funding. The Company shall receive at the
-----------------
Closing gross proceeds from the sale of the Senior Notes and the Common Shares
of not less than $60.0 million and $95.0 million, respectively.
Section 5.4 Opinion of Company's Counsel. The Investors shall have
----------------------------
received from Miller, Hamilton, Snider & Odom, L.L.C., counsel to the Company,
an opinion addressed to the Investors, dated the Closing Date, in substantially
the form of Exhibit C hereto.
ARTICLE VI
CONDITIONS TO THE
COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Securities under
this Agreement is subject to the
17
<PAGE>
satisfaction at the Closing Date of each of the following conditions:
Section 6.1 Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties of each Investor contained herein shall be true
in all material respects on and as of the Closing Date as if made on and as of
the Closing Date.
Section 6.2 Regulatory Approvals. (a) Each Investor shall (i)
--------------------
have obtained all state and federal regulatory approvals required for it to
purchase Securities hereunder or (ii) shall have provided any required prior
notice to state and federal regulatory authorities of its proposed purchase of
Securities hereunder, and in either case all requisite waiting periods or the
deadline for receiving notice of disapproval shall have expired (and with
respect to clause (ii) hereof, no notice of disapproval shall have been
received).
(b) The Company shall have obtained all state and federal regulatory
approvals required for it to purchase the Bank Capital Stock.
Section 6.3 Compliance Certificate. Each Investor shall have
----------------------
delivered to the Company a certificate, dated the Closing Date, to the effect
that the conditions specified in Sections 6.1 and 6.2(a) above have been
fulfilled.
Section 6.4 Letter from Placement Agent. The Company shall have
---------------------------
received from the Placement Agent a letter dated the Closing Date reasonably
satisfactory to the Company, to the effect that neither the Placement Agent nor
any person authorized to act on its behalf has used any form of general
solicitation or general advertising in connection with the offer and sale of the
Securities, including, without limitation, any advertisement, article, notice or
other communication published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising with
respect to the offer and sale of the Securities.
18
<PAGE>
Section 6.5 Aggregate Funding. The Company shall receive at the
-----------------
Closing gross proceeds from the sale of the Senior Notes and the Common Shares
of not less than $60.0 million and $95.0 million, respectively.
ARTICLE VII
RESTRICTIONS ON TRANSFER
The Securities shall not be transferable except upon the conditions
specified in this Article VII, which are intended to insure compliance with the
provisions of the Securities Act in respect of the transfer of any Securities.
Section 7.1 Restrictive Legends. In addition to any other legend
-------------------
required by applicable law, each certificate representing Securities shall
(unless otherwise permitted by the provisions of this Article VII) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
ACCORDINGLY, MAY NOT BE TRANSFERRED, OFFERED, PLEDGED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
ISSUER THEREOF OR ANY SUBSIDIARY THEREOF, (B) TO A "QUALIFIED INSTITUTIONAL
BUYER" IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER)
19
<PAGE>
TO THE TRUSTEE OR THE ISSUER, AS APPLICABLE, A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
THE TRUSTEE OR THE ISSUER, AS APPLICABLE, FOR THIS SECURITY), (D) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE
PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE OR THE ISSUER, AS APPLICABLE, SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT."
Section 7.2 Notice of Proposed Transfers. The holder of Securities
----------------------------
bearing a restrictive legend set forth in Section 7.1 above ("Restricted
Securities"), by acceptance thereof, agrees that, unless such Restricted
Securities have been registered or qualified under the Securities Act and
applicable state securities laws, prior to any transfer or attempted transfer of
such Restricted Securities, such holder will give the Company (a) written notice
describing the proposed transfer of such Restricted Securities in reasonable
detail, (b) certification that the proposed transferee of such Restricted
Securities is either a "qualified institutional buyer" within the meaning of
Rule 144A under the Securities Act or an "accredited investor" within the
meaning of Rule 501 under the Securities Act, (c) such other information about
the proposed transfer of such Restricted Securities or the proposed transferee
of such
20
<PAGE>
Restricted Securities as the Company may request and (d) in connection with any
transfer of any Securities other than (i) any transfer pursuant to an effective
registration statement or (ii) any transfer to a qualified institutional buyer,
the Company may require that the transferor of any such Securities provide to
the Company an opinion of counsel selected by the transferor (which may include
in-house counsel of a transferor), which counsel shall be and the form and
substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that such transfer does not require registration of such Securities
under the Securities Act or any State securities laws. In addition, if the
holder of the Restricted Securities delivers to the Company an opinion of
counsel that subsequent transfers of such Restricted Securities will not require
registration under the Securities Act, the Company will cause the transfer agent
promptly after such contemplated transfer to deliver new certificates for such
Restricted Securities that do not bear the legend set forth in Section 7.1
above. If the foregoing conditions entitling the holder to effect a proposed
transfer of such Restricted Securities without registration under the Securities
Act have not been satisfied, the holder shall not transfer the Restricted
Securities, and the Company will cause the transfer agent not to transfer any
Restricted Securities on its books or issue any certificates representing such
Restricted Securities. Any purported transfer not in accordance with the terms
hereof shall be void. The restrictions imposed by this Section 7.2 upon the
transferability of any particular Restricted Securities shall cease and
terminate when such Restricted Securities have been sold pursuant to an
effective registration statement under the Securities Act or transferred
pursuant to Rule 144 promulgated under the Securities Act. The holder of any
Restricted Securities as to which such restrictions shall have terminated shall
be entitled to receive from the Company, without expense, a new certificate
representing Securities that does not bear the restrictive legend set forth
above and does not contain any other reference to the restrictions imposed by
this Section 7.2. As used in this Section 7.2, the term "transfer" encompasses
any sale, transfer, pledge or other disposition of any Securities referred to
herein.
21
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Termination of Agreement. This Agreement may be
------------------------
terminated and the transactions contemplated herein abandoned (i) by the written
agreement of the Company and each Investor or (ii) by any party if the Closing
has not occurred by June 30, 1998.
Section 8.2 Entire Agreement. This Agreement (including the
----------------
Schedules and Exhibits hereto) constitutes the entire agreement between the
parties hereto and supersedes all prior agreements and understandings, oral and
written, between the parties hereto with respect to the subject matter hereof.
Section 8.3 Severability. Any provision of this Agreement that is
------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or lack of authorization without invalidating the remaining
provisions hereof or affecting the validity, unenforceability or legality of
such provision in any other jurisdiction.
Section 8.4 Binding Effect; Benefit. This Agreement shall inure
-----------------------
to the benefit of and be binding upon the parties hereto, and their respective
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto, and their respective successors, legal representatives and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
Section 8.5 Assignability. This Agreement shall not be assignable
-------------
by any party without the prior written consent of each other party hereto.
Section 8.6 Amendment; Waiver. No provision of this Agreement may
-----------------
be amended, waived or otherwise
22
<PAGE>
modified except by an instrument in writing executed by the parties hereto.
Section 8.7 Headings. The headings contained in this Agreement are
--------
for convenience only and shall not affect the meaning or interpretation of this
Agreement.
Section 8.8 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
Section 8.9 Applicable Law. This Agreement shall be governed by,
--------------
and construed in accordance with, the laws of New York without giving effect to
the principles of conflicts of laws thereof.
Section 8.10 Notices and Payments. All notices, requests, demands
--------------------
and other communications hereunder shall be in writing and, except to the extent
otherwise provided in this Agreement, shall be deemed to have been duly given if
delivered by same day or next day courier or mailed, first class postage
prepaid, or transmitted by telegram, telex or facsimile (i) if to an Investor,
at such Investor's address appearing on Schedule 1 hereto or at any other
address such Investor may have provided in writing to the Company and (ii) if to
the Company, at One Commerce Street, Montgomery, Alabama 36104, attention:
Willard H. Henson, Esq., facsimile: (334) 265-4533 or such other address as the
Company may have furnished to the Investors in writing. A notice hereunder
shall be deemed to have been given on the day such notice is sent or
transmitted, provided, however, that if such notice is sent by next-day courier
-------- -------
it shall be deemed to have been given the day following sending and, if by
registered mail, five days following sending.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SUPERIOR FINANCIAL CORP.
By:
---------------------------
Name:
Title:
[NAME OF INVESTOR]
By:
---------------------------
Name:
Title:
24
<PAGE>
Schedule 1
List of Equity Investors
Number of Aggregate
Name, Address and Common Common Share
Account of Investors Shares Purchase Price
- -------------------- --------- --------------
[Name of Investor]
- -------------------------------
- -------------------------------
Attention:
--------------------
Telephone:
---------------------
Fax:
---------------------------
Account No.:
-------------------
- -------------------------------
- -------------------------------
- -------------------------------
[Name of Investor]
- -------------------------------
- -------------------------------
Attention:
--------------------
Telephone:
---------------------
Fax:
---------------------------
Account No.:
-------------------
- -------------------------------
- -------------------------------
25
<PAGE>
Schedule 2
List of Senior Note Investors
Name, Address and Aggregate Principal
Account of Investors Amount of Senior Notes
- -------------------- ----------------------
[Name of Investor]
- -------------------------------
- -------------------------------
Attention:
--------------------
Telephone:
---------------------
Fax:
--------------------------
Account No.:
-------------------
[Name of Investor]
- -------------------------------
- -------------------------------
Attention:
--------------------
Telephone:
---------------------
Fax:
--------------------------
Account No.:
-------------------
26
<PAGE>
Schedule 3
List of Short Term Senior Note Investors
Name, Address and Aggregate Principal
Account of Investors Amount of Short Term Senior Notes
- -------------------- ---------------------------------
[Name of Investor]
- -------------------------------
- -------------------------------
Attention:
--------------------
Telephone:
---------------------
Fax:
--------------------------
Account No.:
-------------------
[Name of Investor]
- -------------------------------
- -------------------------------
Attention:
--------------------
Telephone:
---------------------
Fax:
--------------------------
Account No.:
-------------------
27
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (the "Agreement"), dated as of April 1, 1998,
by and between Superior Financial Corp. (the "Company"), a Delaware corporation
and each of the undersigned Investors (hereinafter referred to individually as
an "Investor" and collectively as the "Investors").
WITNESSETH:
WHEREAS, the Company and each of the Investors have entered into a certain
Subscription Agreement providing for the purchase by the Investors of: (i) the
Company's Senior Notes due 2003 (the "Senior Notes"); or (ii) shares of the
Company's common stock, par value $.01 per share (the "Common Stock"); or (iii)
a combination of Senior Notes and Common Stock, in each case subject to the
terms and conditions set forth therein; and
WHEREAS, the Company desires to provide the Investors with certain
registration rights with respect to the Senior Notes and the shares of Common
Stock purchased pursuant to the Subscription Agreement;
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein and for other good and valuable consideration, the receipt and the
sufficiency of which are hereby acknowledged, the Company and the Investors
agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate" shall mean, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
when used with respect to any specified Person means the power to direct
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings corresponding to the
foregoing.
1
<PAGE>
(b) "Business Day" shall mean any day except a Saturday, Sunday or
other day on which commercial banks and savings institutions in the State
of Arkansas are authorized or obligated by law to close.
(c) "Commission" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
(d) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company.
(e) "Depository" shall mean The Depository Trust Company, or any
successor depository appointed by the Company.
(f) "Effectiveness Period" shall have the meaning set forth in Section
3 of this Agreement.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Holder" shall mean any holder of outstanding Registrable
Securities, including any Person to whom Registrable Securities have been
transferred in compliance with this Agreement.
(i) "Indenture" shall mean the Indenture dated as of April 1, 1998
between the Company and The Bank of New York, as trustee, as the same may
be amended from time to time in accordance with the terms thereof,
providing for the issuance of the Senior Notes.
(j) "Initiating Holders" shall mean one or more Holders of either: (i)
not less than 35% in aggregate principal amount of the Senior Notes or (ii)
not less than 35% of the shares of Common Stock then outstanding.
2
<PAGE>
(k) "Issue Date" shall mean the date of original issuance pursuant to
the Subscription Agreement of the Senior Notes and the shares of Common
Stock.
(l) "Noteholders" means a holder of the Senior Notes.
(m) "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
(n) "Prospectus" shall mean the prospectus included in a Shelf
Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement,
including a prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities, and by all other amendments
and supplements to a prospectus, including post-effective amendments, and
in each case including all material incorporated by reference therein.
(o) "Registrable Securities" shall mean (i) the Senior Notes and (ii)
the shares of Common Stock issued pursuant to the Subscription Agreement
and (iii) any shares of the capital stock (or rights to receive capital
stock) of the Company issued in respect of the Common Stock issued pursuant
to the Subscription Agreement by reason of, or in connection with, any
stock dividend, stock distribution, stock split, purchase in any rights
offering or in connection with any combination of shares, recapitalization,
merger or consolidation, or any other equity securities issued pursuant to
any other pro rata distribution with respect to the Common Stock issued
--------
pursuant to the Subscription Agreement. Notwithstanding the foregoing,
Registrable Securities shall not include otherwise Registrable Securities
(i) sold by an Investor to or through a broker or dealer or underwriter
3
<PAGE>
pursuant to a registered public offering or (ii) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof or Rule 144 thereunder, if in any
such case, all transfer restrictions and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale.
(p) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.
(q) "Senior Notes" shall mean the Senior Notes due 2003 of the Company
issued by the Company pursuant to the Subscription Agreement.
(r) "Shelf Registration" shall have the meaning set forth in Section 3
of this Agreement.
(s) "Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 3 of this
Agreement which covers all of the Registrable Securities required to be
registered on an appropriate form for purposes of an offering on a
continuous basis pursuant to Rule 415 under the Securities Act, or any
similar rule that may be adopted by the Commission.
(t) "Subscription Agreement" shall mean the Subscription Agreement
between and among the Company and the Investors, as amended, supplemented
or otherwise modified from time to time.
(u) "TIA" shall mean the Trust Indenture Act of 1939, as amended.
(v) "Trustee" shall mean the trustee under the Indenture.
SECTION 2. RESTRICTIONS ON TRANSFERABILITY.
The Registrable Securities shall not be sold, transferred or otherwise
disposed of, except in accordance with and subject to the provisions of the
Securities Act and the rules and regulations of the Commission promulgated
thereunder.
4
<PAGE>
SECTION 3. SHELF REGISTRATION RIGHTS.
(a) The Company shall, at the Company's cost, subject to Section 6
hereof,
(i) within 120 days after the Issue Date, file with the
Commission, and thereafter use its best efforts to cause to be declared
effective as promptly as practicable, a Shelf Registration Statement
relating to the offer and sale of the Registrable Securities by the Holders
from time to time;
(ii) use its best efforts to keep the Shelf Registration
Statement continuously effective, supplemented and amended under the
Securities Act in order to permit the Prospectus forming a part thereof to
be usable by Holders identified as selling security holders in such Shelf
Registration Statement for a period ending on the earliest of: (A) two
years from the date the Shelf Registration Statement is declared effective
by the Commission, (B) the date as of which all Registrable Securities
shall have been disposed of, (C) the date on which the entire amount of
Registrable Securities held by each Investor shall be saleable without
registration pursuant to Rule 144(k) (or any similar provision then in
effect)(the "Effectiveness Period"); and
(iii) notwithstanding any other provisions hereof, use its best
efforts to ensure that (A) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the Securities
Act and the rules and regulations thereunder, (B) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (C) any Prospectus forming a part of any Shelf
5
<PAGE>
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statement therein, in light of the circumstances under which they were
made, not misleading, except that the Company shall be entitled to rely on
the information provided to them in writing by the Holders with respect to
such Holders specifically included in such Prospectus.
(b) Any Holder desiring to sell Registrable Securities pursuant to the
Shelf Registration Statement shall provide not less than 30 days' prior
written notice to the Company. Any such notice shall specify the aggregate
principal amount of the Senior Notes or the number of shares of Common
Stock proposed to be sold and the intended method of disposition thereof.
The Company shall use its best efforts to promptly file any required
amendment(s) to the Shelf Registration Statement in order to facilitate any
sales of Senior Notes and/or Common Stock as described above.
(c) If Initiating Holders so elect at any time and from time to time
after the end of the second full calendar quarter following the purchase by
SFC Acquisition Corp. of Superior Federal Bank, an offering of such
Registrable Securities pursuant to such Shelf Registration shall be in the
form of an underwritten offering. If any offering pursuant to the Shelf
Registration is in the form of an underwritten offering, the Initiating
Holders will select and retain the investment banker or investment bankers
and manager or managers that will administer the offering; provided that
such investment bankers and managers must be reasonably satisfactory to the
Company. The right to participate in an underwritten offering shall be in
addition to, and not in limitation of, the right to sell Registrable
Securities pursuant to the Shelf Registration from time to time.
6
<PAGE>
SECTION 4. UNDERWRITTEN OFFERINGS.
(a) In connection with any underwritten offering of Company securities
pursuant to Section 3(c) hereof, the Holders of Registrable Securities to
be distributed by such underwriters shall be parties to the underwriting
agreement between the Company and such underwriters and any such
underwriting agreement shall require that the representations and
warranties by, and the other agreements on the part of, the Company to and
for the benefit of such underwriters also shall be made to and for the
benefit of such Holders and that the conditions precedent to the
obligations of such underwriters under such underwriting agreement shall be
conditions precedent to the obligations of such Holders.
(b) No Holder may participate in any underwritten offering under
Section 3(c) unless such Holder (i) agrees to sell its Registrable
Securities on the basis provided in any underwriting arrangement approved
by the Company and (ii) completes and executes all questionnaires, powers
of attorney, indemnities, securities escrow agreements, underwriting
agreements and other documents required under the terms of such
underwriting, and furnishes to the Company such information as the Company
may reasonably request in writing for inclusion in the Shelf Registration
Statement (and the Prospectus included therein); provided, however, that no
Holder shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Holder and such Holder's intended
method of distribution and any other representation required by law.
(c) In the case of any underwritten offering of Company securities
pursuant to Section 3(c) hereof, the Company shall provide written notice
to the Holders of all of the Registrable Securities of such underwritten
offering at least 30 days prior to the filing of a Prospectus supplement
for such underwritten offering. Such notice shall (i) offer each such
7
<PAGE>
Holder the right to participate in such underwritten offering, (ii) specify
a date, which shall be no earlier than 10 days following the date of such
notice, by which the Holder must inform the Company of its intent to
participate in such underwritten offering and (iii) include the
instructions such Holder must follow in order to participate in such
underwritten offering.
(d) In the case of any underwritten offering of Company securities
pursuant to Section 3(c) hereof, if the managing underwriter shall advise
the Company in writing (with a copy to each Holder of Registrable
Securities requesting registration) that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering within a price range acceptable to the
Initiating Holders, the Company will include in such registration, to the
extent of the number which the Company is so advised can be sold in such
offering, Registrable Securities requested to be included in such
registration, pro rata among such Holders requesting such registration on
--- ----
the basis of the number of such Registrable Securities requested to be
included by such Holders. In connection with any such registration, no
securities other than Registrable Securities shall be covered by such
registration.
SECTION 5. REGISTRATION EXPENSES.
The Company will pay all registration expenses in connection with any
registration pursuant to Section 1 of this Agreement, including, without
limitation, all registration and filing fees, fees with respect to filings
required to be made with the National Association of Securities Dealers, fees
and expenses of compliance with securities or blue sky laws, the cost of any
special audit required by the Securities Act or the rules and regulations of the
Commission thereunder as a result of the Company's obligation to maintain a
Shelf Registration Statement current, printing expenses, and fees and expenses
of counsel for the Company and of independent public accountants of the Company
(including the expenses of any "comfort" letters and updates thereof required by
8
<PAGE>
or incident to the foregoing) and reasonable fees of counsel incurred by the
Investors not to exceed $25,000 in the aggregate for Holders of Senior Notes and
$25,000 in the aggregate for purchasers of shares of Common Stock in connection
with such registration, except that underwriting discounts and commissions,
underwriting expenses and transfer taxes, if any (other than discounts,
commissions, expenses and transfer taxes relating to securities offered and sold
by the Company), and cost of liability insurance (except to the extent carried
by the Company on its own behalf) shall not be borne by the Company.
9
<PAGE>
SECTION 6. REGISTRATION PROCEDURES.
Pursuant to its obligations under Section 3 hereof, the Company agrees it
will, as expeditiously as possible, subject to the terms and conditions of such
section:
(a) prepare and file with the Commission the requisite Shelf
Registration Statement to effect such registration, use its best efforts to
cause such Shelf Registration Statement to become effective and remain
effective in accordance with Section 3 and promptly notify each Holder of
Registrable Securities and any managing underwriter of the effectiveness
thereof; provided, however, that before filing any Registration Statement
or Prospectus or any amendments or supplements thereto, the Company, if
requested, shall furnish to and afford the Holders of Registrable
Securities, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein and all
exhibits thereto) proposed to be filed at least five business days prior to
such filing. The Company shall not file any Registration Statement or
Prospectus or any amendments or supplements thereto in respect of which the
Holders, pursuant to this Agreement, must be afforded an opportunity to
review prior to the filing of such document, if the Initiating Holders,
their counsel or the managing underwriters, if any, shall reasonably
object;
(b) prepare and file with the Commission such amendments and
supplements to such Shelf Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Shelf Registration
Statement effective or as may be reasonably requested by the Initiating
Holders, notify each Holder of Registrable Securities and any managing
underwriter as promptly as practicable of any request by the Commission or
the Initiating Holders for amendments or supplements to such Shelf
Registration Statement or related Prospectus or for additional information
10
<PAGE>
and comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities until such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such Shelf Registration Statement;
(c) (i) furnish without charge to each selling Holder of Registrable
Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, such number of conformed copies of such
Shelf Registration Statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
Prospectus contained in such Shelf Registration Statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents as such
selling Holder may reasonably request, in order to facilitate the public
sale or other disposition of the Registrable Securities and (ii) subject to
the penultimate paragraph of this Section 6, consent to the use of the
Prospectus or any amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement
thereto, provided that such use complies with all applicable laws and
regulations;
(d) use its best efforts to register or qualify all Registrable
Securities under all applicable state securities or blue sky laws of such
jurisdictions as any Holder of Registrable Securities and each underwriter
of an underwritten offering of Registrable Securities shall reasonably
request, to keep such registration or qualification in effect for so long as
such Shelf Registration Statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such Holder
and underwriter to consummate the disposition in such jurisdictions of the
securities owned by such Holder and underwriter, except that the Company
11
<PAGE>
shall not for any such purpose be required to (i) qualify generally to do
business as a foreign corporation or as a dealer in securities in any
jurisdiction wherein it would not but for the requirements of this Section
6(d) be obligated to be so qualified, (ii) subject itself to taxation in any
such jurisdiction if it is not then so subject or (iii) consent to general
service of process in any jurisdiction where it would not otherwise be
subject to such service of process;
(e) (i) cooperate with the selling Holders to facilitate the timely
preparation and delivery of certificates, if any, representing Registrable
Securities to be sold, which certificates shall not bear any restrictive
legends and shall be in a form eligible for deposit with the Depository and
(ii) cause such Registrable Securities to be in such denominations and
registered in such names as the selling Holders or the managing underwriters
may reasonably request at least two business days prior to the closing of
any sale of Registrable Securities;
(f) use its best efforts to cause all securities covered by such Shelf
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such securities;
(g) upon the occurrence of any circumstance contemplated by paragraphs
(b), (m), (n) or (o)(ii) of this Section 6, use its best efforts to prepare
a supplement or post-effective amendment to the Registration Statement and
the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company agrees to notify
each Holder to suspend use of the Prospectus as promptly as practicable
12
<PAGE>
after the occurrence of any such circumstance, and each Holder hereby agrees
to suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
(h) obtain a CUSIP number for all Registrable Securities which are
Senior Notes, not later than the effective date of a Registration Statement,
and provide the Trustee with printed certificates for the Senior Notes in a
form eligible for deposit with the Depository;
(i) cause the Indenture to be qualified under the TIA in connection
with the registration of the Registrable Securities that are Senior Notes,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts
to cause the Trustee to execute, all documents as may be required to effect
such changes, and all other forms and documents required to be filed with
the Commission to enable the Indenture to be so qualified in a timely
manner;
(j) enter into customary agreements (including, in the case of an
underwritten offering, an underwriting agreement in customary form) and take
all such other appropriate actions as are reasonably requested in order to
expedite or facilitate the registration or the disposition of such
Registrable Securities, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration
is an underwritten registration: (i) make such representations and
warranties to Holders of such Registrable Securities and the underwriters,
if any, with respect to the business of the Company and its subsidiaries and
the Registration Statement, the Prospectus and all documents, if any,
incorporated or deemed to be incorporated by reference therein, in each
case, as are customarily made by issuers to underwriters in underwritten
public offerings, and confirm the same if and when reasonably requested; and
(ii) if an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those set
13
<PAGE>
forth in Section 7 hereof (or such other provisions and procedures
acceptable to the Initiating Holders and the managing underwriters or
agents) with respect to all parties to be indemnified pursuant to said
section. The above shall be done at each closing under such underwriting
agreement, as and to the extent required thereunder;
(k) make available for inspection by any selling Holder of such
Registrable Securities being sold, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, accountant
or other agent retained by any such selling Holder or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable
them to exercise any applicable due diligence responsibilities, and cause
the officers, directors and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such
Inspector in connection with such Registration Statement;
(l) use its best efforts to furnish to each Holder of Registrable
Securities a signed counterpart, addressed to such Holder (and, in the case
of an underwritten offering by the Company, the underwriters), of
(i) an opinion of counsel for the Company, dated the
effective date of such Shelf Registration Statement (and, in case of an
underwritten offering by the Company, dated the date of each closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such Holder, and
(ii) a "comfort" letter, dated the effective date of such
Shelf Registration Statement (and, in the case of an underwritten
offering, dated the date of each closing under the underwriting
14
<PAGE>
agreement), signed by the independent public accountants who have
certified the Company's financial statements included in such Shelf
Registration Statement, covering substantially the same matters with
respect to such Shelf Registration Statement (and the Prospectus
included therein) and with respect to events subsequent to the date of
such financial statements, as are customarily covered in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and such other financial matters as such Holder (or the
underwriters) may reasonably request;
(m) immediately notify each Holder of Registrable Securities and any
managing underwriter, at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event or the failure of any event to occur or the discovery of any facts or
otherwise as a result of which such Shelf Registration Statement, as then in
effect, or any related Prospectus, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances under which they were made, and at the request of any
such Holder or any such managing underwriter, promptly prepare and furnish
to such Holder or managing underwriter a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
Shelf Registration Statement or Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(n) notify each Holder of Registrable Securities and any managing
underwriter as promptly as practicable after becoming aware of the issuance
by the Commission or any state securities authority of any stop order
15
<PAGE>
suspending the effectiveness of such Shelf Registration Statement or the
initiation of any proceedings for that purpose or the receipt by the Company
of any notification with respect to the suspension of qualification of any
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and make all reasonable
efforts to obtain as promptly as practicable the withdrawal of any order or
other action suspending the qualification of the Registrable Securities for
sale in any jurisdiction;
(o) notify each Holder of Registrable Securities, such Holder's counsel
and the managing underwriters, if any, (i) when a Registration Statement has
become effective and when any post-effective amendments and supplements
thereto become effective and (ii) if between the effective date of the Shelf
Registration Statement and the closing of any sale of Registrable
Securities, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct in
all material respects;
(p) (i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, (ii) make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such Shelf Registration Statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act, and (iii) not file
any Shelf Registration Statement or Prospectus or amendment or supplement to
such Shelf Registration Statement or Prospectus to which any such Holder of
Registrable Securities shall have reasonably objected on the grounds that
such amendment or supplement does not comply in all material respects with
the requirements of the Securities Act, such Holder having been furnished
with a copy thereof at least five (5) Business Days prior to the filing
thereof;
16
<PAGE>
(q) cause the Indenture to be qualified under the TIA in connection
with the registration of the Senior Notes, and effect such changes to the
Indenture as may be required for it to be so qualified in accordance with
the terms of the TIA and execute, and use its reasonable best efforts to
cause the trustee under the Indenture to execute, all documents as may be
required to effect such changes, and all other forms and documents required
to be filed with the Commission to enable the Indenture to be so qualified
in a timely manner; and
(r) to file all reports required to be filed by it under the Exchange
Act and the rules and regulations adopted by the Commission thereunder in a
timely manner and, to the extent the Company's obligation to file such
reports pursuant to Section 15(d) of the Exchange Act expires prior to the
expiration of the Effectiveness Period, the Company shall register the
Registrable Securities under the Exchange Act and shall maintain such
registration through the Effectiveness Period.
Subject to Section 4(b) hereof, the Company may require each Holder of
Registrable Securities to furnish the Company with such information and
undertakings regarding such Holder and the distribution of such securities as
the Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees (i) that upon receipt of any
written notice from the Company of the happening of any event of the kind
described in paragraphs (b),(m),(n) or (o)(ii) of this Section 6, such Holder
will forthwith discontinue such Holder's disposition of Registrable Securities
pursuant to the Shelf Registration Statement relating to such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by this Section 6 or until it is advised in
17
<PAGE>
writing by the Company that the use of the applicable Prospectus may be resumed,
and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies (which shall be
conspicuously marked as such), then in such Holder's possession of the
Prospectus relating to such Registrable Securities current at the time of
receipt of such notice and (ii) that it will immediately notify the Company, at
any time when a Prospectus relating to the registration of such securities is
required to be delivered under the Securities Act, of the happening of any event
as a result of which information previously furnished by such Holder to the
Company in writing specifically for inclusion in such Prospectus contains an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made. If the Company shall
give any such notice to suspend the disposition of Registrable Securities as a
result of the happening of any event of the kind described in paragraphs (b),
(m), (n) or (o)(ii) of this Section 6, the Company shall use its best efforts to
file and have declared effective (if an amendment) as soon as practicable an
amendment or supplement to the Registration Statement and shall extend the
period during which such Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days in the period from and
including the date of the giving of such notice to and including the date when
the Company shall have made available to the Holders copies of the supplemented
or amended Prospectus necessary to resume such dispositions or shall have
advised the Holders in writing that the use of the applicable Prospectus may be
resumed.
No Holder of Registrable Securities may include any of its Registrable
Securities in any Shelf Registration Statement pursuant to this Agreement unless
and until such Holder furnishes to the Company in writing, within 15 days after
receipt of a request therefor, such information as the Company may, after
conferring with counsel with regard to information relating to Holders that
would be required by the Commission to be included in such Shelf Registration
Statement or Prospectus included therein, reasonably request for inclusion in
any Shelf Registration Statement or Prospectus included therein. Each Holder
agrees to furnish promptly to the Company all information required to be
18
<PAGE>
disclosed in the applicable Shelf Registration Statement or Prospectus included
therein by the rules and regulations of the Commission applicable to the Shelf
Registration Statement in order to make the information previously furnished to
the Company by such Holder not materially misleading. The Company may exclude
from such registration the Registrable Securities of any seller who unreasonably
fails to furnish such information within 15 days after receiving such request.
SECTION 7. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless each Holder of
Registrable Securities (a "Selling Holder"), its directors, each underwriter
and each controlling Person of any Selling Holder, if any, against any
losses, claims, damages or liabilities, joint or several (or actions in
respect thereof), including attorneys' fees and costs, to which such Selling
Holder, underwriter or controlling Person may be subject under the
Securities Act, under any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement (or alleged untrue
statement) of any material fact contained in any Shelf Registration
Statement under which such securities were registered under the Securities
Act, any Prospectus contained therein, including all documents incorporated
therein by reference, any other document used to sell the securities
(including an illegal prospectus) (collectively, the "Selling Documents"),
or any amendment or supplement thereto (an "Amended Selling Document"), or
(ii) any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances in which they were made with respect to any
Prospectus) not misleading, and shall reimburse each such Selling Holder,
its directors, underwriter or controlling Person for any legal or other
expenses reasonably incurred by such Selling Holder, its directors,
underwriter or controlling Person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable to any Selling Holder, its
directors, underwriter or controlling Person in any such event to the extent
that any loss, claim, damage or liability arises out of or is based upon any
19
<PAGE>
untrue statement or omission made in such Selling Document, Amended Selling
Document, or any other document, in reliance upon and in conformity with
written information furnished to the Company by such Selling Holder, its
directors, underwriter or controlling Person, respectively, specifically for
use therein; and provided further that the Company shall not be liable under
this paragraph (a) with respect to any misstatement or omission or alleged
misstatement or omission in any Selling Document to the extent that any such
loss, claim, damage or liability results from the fact that the Selling
Holder, underwriter or controlling Person sold securities to a Person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of any Amended Selling Document if the Company had
previously furnished copies thereof to such Selling Holder, underwriter or
controlling Person and if the misstatement or omission or alleged
misstatement or omission was corrected in the Amended Selling Document. The
indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of such Selling Holder,
its directors, underwriter or controlling Person; provided, however that any
amounts advanced by the Company to an indemnified party pursuant to this
Section 7 as a result of such losses shall be returned to the Company if it
shall be finally judicially determined by such a court in a judgment not
subject to appeal or final review that such indemnified party was not
entitled to indemnification by the Company.
(b) As set forth in Section 6 hereof, each Selling Holder shall furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with the Shelf Registration
Statement and agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, each underwriter and each controlling
Person of the Company, if any, against any losses, claims, damages or
20
<PAGE>
liabilities, joint or several (or actions in respect thereof), to which the
Company, its directors, such Selling Holder, underwriter or controlling
Person may be subject under the Securities Act or under any other statute or
at common law, insofar as such losses, claims, damages or liabilities, joint
or several (or actions in respect thereof), arise out of or are based upon
(i) any untrue statement (or alleged untrue statement) of any material fact
contained in such Shelf Registration Statement under which such securities
were registered under the Securities Act, any Selling Document or any
Amended Selling Document, or (ii) any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein (in light of the circumstances in which they
were made with respect to any prospectus) not misleading, and shall
reimburse the Company, its directors, such underwriter and controlling
Person for any legal or other expenses reasonably incurred by such Persons
in connection with investigating or defending any such loss, claim, damage,
liability or action; in each case, to the extent, and only to the extent,
that each untrue statement or omission (or alleged untrue statement or
omission) is made in reliance upon and in strict conformity with written
information furnished to the Company by such Selling Holder specifically for
inclusion in a Selling Document as to which the Company has not received
from the Selling Holder a written request that such information be
corrected, amended or supplemented prior to the use thereof in connection
with a sale of Registrable Securities.
(c) If the indemnification provided for in paragraph (a) or (b) above
is unavailable to an indemnified party in accordance with its terms in
respect of any losses, claims, damages or liabilities referred to therein,
then the obligations of each indemnitor thereunder shall be limited to such
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities, in such proportion as is appropriate to
reflect the relative fault of such indemnitor on the one hand and of the
21
<PAGE>
indemnified parties on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of
each indemnitor and of the indemnified parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such indemnitor, or by the
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--------
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expense reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 7, no Selling
Holder shall have any liability for an indemnity or contribution obligation
hereunder to the extent that such liability would exceed the amount by which the
total price at which the Registrable Securities sold by it exceeds the amount of
any damages which such person has otherwise been required to pay and has
actually paid by reason of such untrue or alleged untrue statement or omission
or alleged omission.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnitor under paragraph (a) or
(b) above, as the case may be, notify the indemnitor in writing of the
commencement thereof; but the omission so to notify the indemnitor shall not
22
<PAGE>
relieve it from any liability which it may have to any indemnified party
under such subsection unless the failure to provide such notice results in
the forfeiture by the indemnitor of substantial rights or defenses. In case
any such action shall be brought against any indemnified party, and it shall
notify the indemnitor of the commencement thereof, the indemnitor shall be
entitled to participate therein and, to the extent that it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnitor and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are in
addition to or in conflict with those available to the indemnitor, the
indemnified party or parties shall have the right to select separate counsel
to assert such legal defenses (in which case the indemnitor shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties). Upon the permitted assumption by the indemnitor of the
defense of such action, and approval by the indemnified party of counsel,
the indemnitor shall not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof (other than
reasonable costs of investigation) unless (i) the indemnified party shall
have employed separate counsel in connection with the assertion of legal
defenses in accordance with the proviso to the next preceding sentence, (ii)
the indemnitor shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time, (iii) the indemnitor and its counsel do not actively and vigorously
pursue the defense of such action, or (iv) the indemnitor has authorized the
employment of counsel for the indemnified party at the expense of the
indemnitor. The indemnitor shall not be liable for any settlement of any
action or proceeding effected without its written consent, which consent
shall not be unreasonably withheld.
23
<PAGE>
SECTION 8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
under the internal substantive laws of the State of New York.
(b) SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the parties and their respective
successors, assigns, heirs, executors and administrators. The rights and
obligations of any Holder hereunder may be assigned by such Holder to any
Person acquiring Registrable Securities from such Holder contemporaneously
with such assignment, provided that the rights so assumed shall apply only
to the Registrable Securities so acquired. The rights and obligations of
the Company hereunder may not be assigned by it without the prior written
consent of the Holders.
(c) ENTIRE AGREEMENT. This Agreement, the Subscription Agreement and,
with respect to the Senior Notes, the Indenture, constitute the full and
entire understanding and agreement among the parties with regard to the
subject matter hereof and no party shall be liable or bound to any other
party in any manner by any representations, warranties, covenants or
agreements except as specifically set forth herein or therein. Nothing in
this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto and their respective successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
(d) SEPARABILITY. Any invalidity, illegality or limitation of the
enforceability of any one or more of the provisions of this Agreement, or
any part thereof, shall in no way affect or impair the validity, legality
or enforceability of the other provisions of this Agreement. In case any
provision of this Agreement shall be invalid, illegal or unenforceable, it
shall, to the extent practicable, be modified so as to make it valid, legal
24
<PAGE>
and enforceable and to retain as nearly as practicable the intent of the
parties, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
(e) AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended and the observance of any provision of this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely),
with the written consent of the Company and the holders of not less than
two thirds of the both the aggregate principal amount of the Senior Notes
and the shares of Common Stock issued pursuant to the Subscription
Agreement; provided, however, that no such amendment or waiver shall reduce
the aforesaid percentage of aggregate principal amount of the Senior Notes
or shares of Common Stock issued pursuant to the Subscription Agreement
which are required to consent to any waiver or supplemental agreement
unless the consent of the holders of all outstanding Registrable Securities
are obtained. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Company and each Holder under this
Agreement. Upon the effectuation of each such amendment or waiver, the
Company shall promptly give written notice thereof to the Holders who have
not previously consented thereto in writing.
(f) DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any Holder upon any breach, default or
noncompliance of the Company under this Agreement shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of
any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent or approval of any kind or
character on the Holders' part of any breach, default or noncompliance
under this Agreement or any waiver on the Holders' part of any provisions
or conditions of this Agreement must be in writing and shall be effective
only to the extent specifically set forth in such writing, and that all
remedies afforded to the Holders under this Agreement shall be cumulative
and not alternative.
25
<PAGE>
(g) NOTICES, ETC. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing by hand-
delivery, registered first-class mail, telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to any Holder, initially at the address set forth below
its name on the Holder's signature page to this Agreement, and thereafter
at such other address, notice of which is given in accordance with this
Section 8(g); and
(ii) if to the Company, initially at One Commerce Street,
Montgomery, Alabama 36104, Attention: Willard H. Henson, Esq., facsimile:
(334) 265-4533, and thereafter at such other address notice of which is
given in accordance with this Section 8(g).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
(h) TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SUPERIOR FINANCIAL CORP.
By: ________________________
Name: C. Stanley Bailey
Title: Chairman of the Board
and Chief Executive Officer
27
<PAGE>
Investor Signature Page to Registration Agreement
------------------------
Name
By:________________________
Name:
Title:
Address: _______________
------------------------
------------------------
28
<PAGE>
EXHIBIT 4.3
================================================================================
INDENTURE
Dated as of April 1, 1998
between
SUPERIOR FINANCIAL CORP., as Issuer
and
THE BANK OF NEW YORK, as Trustee
_____________________
$60,000,000
8.65% Senior Notes due 2003
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE.................. 1
SECTION 1.01. Definitions......................................... 1
SECTION 1.02. Incorporation by Reference of TIA................... 25
SECTION 1.03. Rules of Construction............................... 25
ARTICLE TWO THE SENIOR NOTES............................................ 26
SECTION 2.01. Form and Dating..................................... 26
SECTION 2.02. Execution and Authentication; Aggregate Principal
Amount.............................................. 27
SECTION 2.03. Registrar and Paying Agent.......................... 29
SECTION 2.04. Paying Agent To Hold Assets in Trust................ 29
SECTION 2.05. Holder Lists........................................ 30
SECTION 2.06. Transfer and Exchange............................... 30
SECTION 2.07. Replacement Notes................................... 32
SECTION 2.08. Outstanding Notes................................... 32
SECTION 2.09. Treasury Notes...................................... 33
SECTION 2.10. Temporary Notes..................................... 34
SECTION 2.11. Cancellation........................................ 34
SECTION 2.12. Defaulted Interest.................................. 35
SECTION 2.13. CUSIP Numbers....................................... 35
SECTION 2.14. Deposit of Moneys................................... 36
SECTION 2.15. Book-Entry Provisions for Global Notes.............. 36
SECTION 2.16. Special Transfer Provisions......................... 38
ARTICLE THREE REDEMPTION................................................ 42
SECTION 3.01. Notices to Trustee.................................. 42
SECTION 3.02. Selection of Senior Notes To Be Redeemed............ 42
SECTION 3.03. Notice of Redemption................................ 43
SECTION 3.04. Effect of Notice of Redemption...................... 44
SECTION 3.05. Deposit of Redemption Price......................... 45
SECTION 3.06. Notes Redeemed in Part.............................. 45
ARTICLE FOUR COVENANTS.................................................. 45
SECTION 4.01. Payment of Notes.................................... 45
SECTION 4.02. Maintenance of Office or Agency..................... 46
SECTION 4.03. Corporate Existence................................. 46
i
<PAGE>
SECTION 4.04. Limitations on Restricted Payments.................. 47
SECTION 4.05. Payment of Taxes and Other Claims................... 48
SECTION 4.06. Maintenance of Depository Institution Subsidiary
and Minimum Total Capital of Bank................... 49
SECTION 4.07. Maintenance of Properties........................... 49
SECTION 4.08. Maintenance of Insurance............................ 50
SECTION 4.09. Compliance Certificate; Notice of Default........... 50
SECTION 4.10. Compliance with Laws................................ 51
SECTION 4.11. Reports to Holders.................................. 52
SECTION 4.12. Waiver of Stay, Extension or Usury Laws............. 53
SECTION 4.13. Limitations on Transactions with Affiliates......... 53
SECTION 4.14. Liquidity Maintenance............................... 54
SECTION 4.15. Interest Reserve Account............................ 55
SECTION 4.16. Limitations on Indebtedness......................... 56
SECTION 4.17. Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries................. 57
SECTION 4.18. Restrictions on Issuance and Sale or Disposition
of Capital Stock of Subsidiaries.................... 59
SECTION 4.19. Change of Control................................... 59
SECTION 4.20. Prohibition on Incurrence of Senior Subordinated
Debt................................................ 62
SECTION 4.21. Limitation on Preferred Stock of Subsidiaries....... 62
SECTION 4.22. Limitations on Liens and Guarantees................. 63
SECTION 4.23. Maintenance of Business............................. 64
SECTION 4.24. Registration Rights................................. 64
ARTICLE FIVE SUCCESSOR CORPORATION...................................... 65
SECTION 5.01. Merger, Consolidation and Sale of Assets............ 65
ARTICLE SIX DEFAULT AND REMEDIES........................................ 67
SECTION 6.01. Events of Default................................... 67
SECTION 6.02. Acceleration........................................ 70
SECTION 6.03. Other Remedies...................................... 71
SECTION 6.04. Waiver of Past Defaults............................. 71
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<PAGE>
SECTION 6.05. Control by Majority................................. 72
SECTION 6.06. Limitation on Suits................................. 72
SECTION 6.07. Rights of Holders To Receive Payment................ 73
SECTION 6.08. Collection Suit by Trustee.......................... 73
SECTION 6.09. Trustee May File Proofs of Claim.................... 74
SECTION 6.10. Priorities.......................................... 74
SECTION 6.11. Undertaking for Costs............................... 75
ARTICLE SEVEN TRUSTEE................................................... 75
SECTION 7.01. Duties of Trustee................................... 75
SECTION 7.02. Rights of Trustee................................... 77
SECTION 7.03. Individual Rights of Trustee........................ 79
SECTION 7.04. Trustee's Disclaimer................................ 79
SECTION 7.05. Notice of Default................................... 79
SECTION 7.06. Reports by Trustee to Holders....................... 80
SECTION 7.07. Compensation and Indemnity.......................... 81
SECTION 7.08. Replacement of Trustee.............................. 82
SECTION 7.09. Successor Trustee by Merger, Etc.................... 83
SECTION 7.10. Eligibility; Disqualification....................... 84
SECTION 7.11. Preferential Collection of Claims Against the
Company............................................. 84
SECTION 7.12. Trustee's Application for Instructions from the
Company............................................. 84
ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE........................ 85
SECTION 8.01. Termination of the Company's Obligations............ 85
SECTION 8.02. Acknowledgment of Discharge by Trustee.............. 89
SECTION 8.03. Application of Trust Money; Miscellaneous........... 89
SECTION 8.04. Repayment to the Company............................ 90
SECTION 8.05. Reinstatement....................................... 90
ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS........................ 91
SECTION 9.01. Without Consent of Holders.......................... 91
SECTION 9.02. With Consent of Holders............................. 92
SECTION 9.03. Compliance with TIA................................. 93
SECTION 9.04. Revocation and Effect of Consents................... 93
SECTION 9.05. Notation on or Exchange of Notes.................... 94
SECTION 9.06. Trustee to Sign Amendments, Etc..................... 95
iii
<PAGE>
ARTICLE TEN MISCELLANEOUS............................................... 95
SECTION 10.01. TIA Controls........................................ 95
SECTION 10.02. Notices............................................. 95
SECTION 10.03. Communications by Holders with Other Holders........ 97
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.. 97
SECTION 10.05. Statements Required in Certificate or Opinion....... 97
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar........... 98
SECTION 10.07. Legal Holidays...................................... 98
SECTION 10.08. Governing Law....................................... 98
SECTION 10.09. No Adverse Interpretation of Other Agreements....... 99
SECTION 10.10. No Recourse Against Others.......................... 99
SECTION 10.11. Successors.......................................... 99
SECTION 10.12. Duplicate Originals................................. 99
SECTION 10.13. Severability........................................ 100
SECTION 10.14. Independence of Covenants........................... 100
SIGNATURES............................................................... 96
iv
<PAGE>
Exhibit A-1 - Form of Initial Note
Exhibit A-2 - Form of Exchange Note
Exhibit B - Form of Legend for Global Notes
Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers
to Non-QIB Accredited Investors
Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers
Pursuant to Regulation S
Exhibit E - Form of Custody and Security Agreement
Exhibit F - Form of Securities Account Control Agreement
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of this Indenture.
v
<PAGE>
INDENTURE, dated as of April 1, 1998, between SUPERIOR FINANCIAL
CORP., a Delaware corporation (the "Company"), and The Bank of New York, a New
-------
York banking corporation, as trustee (the "Trustee").
-------
The Company has duly authorized the creation of an issue of 8.65%
Series A Senior Notes due 2003 (the "Initial Notes") and an issue of 8.65%
-------------
Series B Senior Notes due 2003 (the "Exchange Notes", and together with the
--------------
Initial Notes, the "Senior Notes"). All things necessary to make the Senior
------------
Notes, when duly issued and executed by the Company and authenticated and
delivered hereunder, the valid and binding obligations of the Company and to
make this Indenture a valid and binding agreement of the Company, have been
done.
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's
Senior Notes:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"Acceleration Notice" has the meaning provided in Section 6.02.
------------------- ------------
"Acquired Indebtedness" means Indebtedness of a Person or any of its
---------------------
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Subsidiary of the
Company or such acquisition, merger or consolidation.
"Acquisition Agreement" means the Stock Purchase Agreement by and
---------------------
among SFC Acquisition Corp., NB Holdings Corporation and Superior Federal Bank,
F.S.B., dated as of
-1-
<PAGE>
December 3, 1997 providing for the acquisition of the stock of Superior Federal
Bank, F.S.B. by SFC Acquisition Corp.
"Affiliate" of any specified Person means any other Person directly
---------
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings corresponding to the
foregoing.
"Agent" means any Registrar, Paying Agent or Co-registrar.
-----
"Bank" means Superior Federal Bank, F.S.B.
----
"Bankruptcy Law" means Title 11, United States Code or any similar
--------------
federal, state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
------------------
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means a day that is not a Legal Holiday.
------------
"Capitalized Leases" [has the meaning set forth herein].
------------------
"Capital Stock" means (i) with respect to any Person that is a
-------------
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of
-2-
<PAGE>
such Person and any rights (other than debt securities convertibles into an
equity interest), warrants or options to acquire an equity interest on such
Person and (ii) with respect to any Person that is not a corporation, any and
all partnership or other equity interests of such Person.
"Capitalized Lease Obligation" of any Person means any obligations of
----------------------------
such Person under any capital lease for real or personal property which, in
accordance with GAAP, is required to be recorded as a capitalized lease
obligation; and, for the purpose of the Indenture, the amount of such obligation
at any date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Cash Equivalents" shall include: (i) cash; (ii) any of the following
----------------
instruments that have a remaining term to maturity not in excess of 90 days from
the determination date: (a) repurchase agreements on obligations of, or which
are guaranteed as to timely receipt of principal and interest by, the United
States or any agency or instrumentality thereof when such obligations are backed
by the full faith and credit of the United States, provided that the party
agreeing to repurchase such obligations is a primary dealer in U.S. government
securities, (b) federal funds and deposit accounts, including but not limited to
certificates of deposit, time deposits and bankers' acceptances of any U.S.
depository institution or trust company incorporated under the laws of the
United States or any state, provided that the debt of such depository
institution or trust company at the date of acquisition thereof has been rated
by Standard & Poor's Corporation in the highest short-term rating category or
has an equivalent rating from another nationally recognized rating agency, or
(c) commercial paper of any corporation incorporated under the laws of the
United States or any state thereof that on the date of acquisition is rated
investment grade by Standard & Poor's Corporation or has an equivalent rating
from another nationally recognized rating agency; (iii) any debt instrument
which is an obligation of, or is guaranteed as to the receipt of principal and
interest by the United States, its agencies or any U.S. government sponsored
enterprise, or (iv) any mortgage-backed or mortgage-related security issued by
the United States, its agencies, or any U.S. government sponsored enterprise, as
to which the
-3-
<PAGE>
payment of principal and interest from the mortgages underlying such securities
will be passed through to the holder thereof and which has a remaining weighted
average maturity of 15 years or less. Notwithstanding the foregoing, Cash
Equivalents shall not include any debt instruments, securities or collateralized
mortgage obligations that would be classified as a "High-Risk Mortgage Security"
pursuant to the policy statement adopted by the Federal Financial Institutions
Examination Counsel on February 10, 1992, as reflected in Volume I of the
Federal Reserve Report Service, Part 3-1562.
"Change of Control" means the occurrence of any of the following
-----------------
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 25% of the total
Voting Stock of the Company, (ii) the Company consolidates with, or merges into,
another person, or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any person
consolidates with, or merges into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction between the Company and a Wholly-Owned Subsidiary, (iii) the
Company, the Board of Directors or any executive officer of the Company enters
into or approves any agreement, transaction or proposal that would result in the
occurrence of any event described in clauses (i) and (ii) (including without
limitation any agreement, transaction or proposal that would have such result
with the passage of time, upon the payment of money or other consideration, or
upon the occurrence of any contingency or contingencies), or (iv) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new directors
whose elections by the Company's Board of Directors or whose nomination for
elections by the stockholders of the Company was approved by a vote of a
majority of the directors then
-4-
<PAGE>
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the directors then in office.
"Change of Control Date" has the meaning provided in Section 4.19.
---------------------- ------------
"Change of Control Offer" has the meaning provided in Section 4.19.
----------------------- ------------
"Change of Control Payment Date" has the meaning provided in Section
------------------------------ -------
4.19.
- ----
"Commission" or "SEC" means the Securities and Exchange Commission.
---------- ---
"Common Stock" of any Person means any and all shares, interests or
------------
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
-------
successor replaces it pursuant to this Indenture and thereafter means such
successor and also includes for the purposes of any provision contained herein
and required by the TIA any other obligor on the Senior Notes.
"Consolidated Net Income (Loss)" of any Person means, for any period
------------------------------
the consolidated net income (or loss) of such Person and its consolidated
Subsidiaries for such period determined in accordance with GAAP; provided,
--------
however, that there shall be excluded therefrom:
- -------
(a) any net income (or loss) of any Person if such Person is not
a Subsidiary, except that (A) the Company's equity in the net income
of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to
-5-
<PAGE>
the Company or a Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a
Subsidiary, to the limitations contained in clause (c) below) and (B)
the Company's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
(b) any net income (but not loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
(c) any net income (or loss) of any Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such
Subsidiary, directly or indirectly, to the Company, except that (A)
the Company's equity in the net income of any such Subsidiary for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Subsidiary
during such period to the Company or another Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in
this clause) and (B) the Company's equity in a net loss of any such
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(d) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or its
consolidated Subsidiaries (including pursuant to any sale-and-
leaseback arrangement) and any gain (but not loss) realized upon the
sale or other disposition of any Capital Stock of any Person;
(e) the cumulative effect of a change in accounting principles;
and
-6-
<PAGE>
(f) the gain (but not the loss) from the sale, transfer,
conveyance or other disposition (other than to the Company or any of
its Subsidiaries) in a single transaction or in a series of related
transactions, in either case occurring outside the ordinary course of
business, of more than 75% of the assets of the Bank shown on a
balance sheet of the Bank as of the end of the most recent fiscal
quarter ending at least 45 days prior to such transaction (or the
first transaction in such related series of transactions).
"Consolidated Net Worth" of any Person means, at any date, all
----------------------
amounts which would, in conformity with GAAP, be included under stockholders'
equity on a consolidated balance sheet of such Person as at such date.
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
sequestrator or similar official under any Bankruptcy Law.
"Custody and Security Agreement" means the Custody and Security
------------------------------
Agreement to be entered into by the company and a bank or trust Company pursuant
to Section 4.15 hereof, which shall be substantially in the form of the Custody
and Security Agreement attached as Exhibit E to this Indenture.
"Default" means an event or condition that upon the giving of notice
-------
or the passage of time or both would be an Event of Default.
"Depository" means, with respect to the Senior Notes issued in the
----------
form of one or more Global Notes, The Depository Trust Company or another Person
designated as depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Discharged" means that the Company shall be deemed to have paid and
----------
discharged the entire indebtedness represented by, and obligations under, the
Senior Notes and to have satisfied all the obligations under this Indenture
relating to the Senior Notes (and the Trustee, at the expense of the Company,
shall execute proper instruments
-7-
<PAGE>
acknowledging the same upon compliance by the Company with the provisions of
Article Eight), except (i) the rights of the Holders of Senior Notes to receive,
- -------------
from the trust fund described in Article Eight, payment of the principal of and
-------------
the interest on such Senior Notes when such payments are due, (ii) the Company's
obligations with respect to the Senior Notes under Sections 2.03 through 2.07,
------------- ----
6.07 and 6.08 and (iii) the rights, powers, trusts, duties and immunities of the
- ---- ----
Trustee hereunder.
"Disqualified Capital Stock" means that portion of any Capital Stock
--------------------------
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof, in whole or in part, on or prior to, or is exchangeable for debt
securities of the Company or its Subsidiaries with a maturity prior to, the
final Stated Maturity of principal of the Senior Notes.
"DTC" means The Depository Trust Company.
---
"Event of Default" has the meaning provided in Section 6.01.
---------------- ------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor statute or statutes thereto.
"Exchange Notes" means the Company's __% Series B Senior Notes due
--------------
2003 issued in exchange for the Initial Notes pursuant to the terms of the
Registration Rights Agreement.
"Exchange Offer" has the meaning set forth in the Registration Rights
--------------
Agreement.
"Excluded Indebtedness" with respect to any Subsidiary of the Company
---------------------
shall mean any liability or obligation of any Subsidiary of the Company with
respect to (i) any deposits with or funds collected by it, (ii) any banker's
acceptance or letter of credit issued by it, (iii) any check, note, certificate
of deposit, money order, traveler's check, draft or bill of exchange, issued,
-8-
<PAGE>
accepted or endorsed by it, (iv) any discount with, borrowing from, or other
obligation to any Federal Reserve Bank, the FDIC or any Federal Home Loan Bank
(or successor organization), (v) any agreement, made by it in the ordinary
course of its banking business, to purchase or repurchase securities, loans or
federal funds or to participate in any such purchase or repurchases, (vi) any
transactions in the nature of an extension of credit, whether in the form of
commitment, guaranty or otherwise, undertaken by it for account of a third party
with the application by it of the same banking considerations and legal lending
limits that would be applicable if the transaction were a loan to such party,
(vii) any transaction in which it acts solely in a fiduciary or agency capacity,
(viii) any pledge of mortgage assets to the Federal Home Loan Bank, (ix) any
Liens incurred in the ordinary course of making payments by and transferring
securities by, wire, (x) Liens incurred in connection with the acquisition of
property or assets acquired in the ordinary course of business pursuant to
foreclosure proceedings or pursuant to an acquisition of such property or assets
in lieu of foreclosure, (xi) other obligations to customers of a bank
Subsidiary, (xii) other obligations incurred by it in the ordinary course of its
banking, mortgage banking or trust business to its customers solely in their
capacities as such, (xiii) any other liability or obligation of such Subsidiary
incurred in the ordinary course of its banking business not involving any
obligation for borrowed money, (xiv) Capitalized Lease Obligations for property
acquired after the date hereof in an amount not to exceed the cost of the
property so acquired, (xv) any borrowings under warehousing lines of credit,
(xvi) any borrowings under unsecured revolving lines of credit with a maturity
date of less than one year up to an aggregate amount for all Subsidiaries at any
time outstanding equal to 10% of Consolidated Net Worth, and (xvii) drafts
outstanding or official bank checks outstanding used to fund mortgage loan
volume.
"Fair Market Value" means, with respect to any asset, the price which
-----------------
could be negotiated in an arm's length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue compulsion to complete the transaction. Fair market value shall be
determined by the Board of
-9-
<PAGE>
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"FDIC" means the Federal Deposit Insurance Corporation or any
----
successor thereto.
"Funds" means the aggregate amount of U.S. Legal Tender and/or U.S.
-----
Government Obligations deposited with the Trustee pursuant to Article Eight.
-------------
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Notes" means one or more IAI Global Notes, Regulation S Global
------------
Notes and 144A Global Notes.
"Guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any Person and any obligation, direct or indirect, contingent or otherwise,
of such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other matter the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
-------- -------
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
-10-
<PAGE>
"Guaranteed Indebtedness" of any Person means, without duplication,
-----------------------
all Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness; (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss;
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring that
such property be received or such services be rendered); (iv) to maintain
working capital or equity capital of the debtor, or otherwise to maintain the
net worth, solvency or other financial condition of the debtor; or (v) otherwise
to assure a creditor with respect to Indebtedness against loss; provided that
the term "guarantee" shall not include endorsements for collection of deposit,
in the ordinary course of business.
"Holder" or "Noteholder" means the Person in whose name a Note is
------ ----------
registered on the Registrar's books.
"IAI Global Note" means a permanent global note in registered form
---------------
representing the aggregate principal amount of Senior Notes sold to
Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, without duplication,
------------
(i) all the principal of and premium (if any) in respect of indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services, excluding any trade payables and other accrued current liabilities
arising in the ordinary course of business, but including, without limitation,
all obligations, contingent or otherwise, of such Person in connection with any
letters of credit issued under letter of credit facilities, and in connection
with any agreement by such Person to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person now or hereafter
outstanding; (ii) all obligations of such Person evidenced by bonds, notes,
debentures or
-11-
<PAGE>
other similar instruments; (iii) all indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade payables arising in
the ordinary course of business; (iv) all obligations under interest rate swap
agreements of such Person; (v) all Capitalized Lease Obligations of such Person;
(vi) any agreement to purchase or repurchase securities, loans or federal funds,
except to the extent that such agreement is made by such Person in the ordinary
course of its banking business; (vii) all Indebtedness referred to in clauses
(i) through (vi) above of other Persons and all dividends payable by other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness (the amount of
such obligations being deemed to be the lesser of the value of such property or
asset or the amount of the obligations so secured); (viii) all guarantees by
such Person of Guaranteed Indebtedness; (ix) all Disqualified Capital Stock
(valued at the greater of book value and voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends) of such Person; and (x) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing or any liability of the types referred to in clauses (i) through
(ix) above. For purposes hereof, (x) the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value is to be determined reasonably and in good
faith by the board of directors of the issuer of such Disqualified Capital Stock
and (y) Indebtedness is deemed to be incurred pursuant to a
-12-
<PAGE>
revolving credit facility each time an advance is made thereunder.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (i) which does not, and
-----------------------------
whose directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2) (3) or (7)
under the Securities Act.
"Initial Notes" means the Company's 8.65% Series A Senior Notes due
-------------
2003.
"Interest Payment Date" means the stated maturity of an installment of
---------------------
interest on the Senior Notes.
"Interest Reserve Account" shall have the meaning specified in Section
------------------------ -------
4.15 hereof.
- ----
"Interest Swap Obligations" means the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Issue Date" means April 1, 1998.
----------
"Junior Indebtedness" means any Indebtedness of the Company
-------------------
subordinated in right of payment of either
-13-
<PAGE>
principal, premium (if any) or interest thereon to the Senior Notes.
"Legal Holiday" has the meaning provided in Section 10.07.
------------- -------------
"Letter of Transmittal" means the letter of transmittal to be prepared
---------------------
by the Company and sent to all Holders of the Senior Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means any mortgage, charge, pledge, lien (statutory or
----
otherwise), security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Loan Agreement" means the Loan Agreement, dated as of April 1, 1998
--------------
among the Company and Colonial Bank, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such Loan Agreement and related documents may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing (whether or not contemporaneously) or
otherwise restructuring (including adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Maturity Date" means April 1, 2003.
-------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Net Cash Proceeds" means, with respect to any issuance or sale of
-----------------
Capital Stock, or options, warrants or rights to purchase Capital Stock, or debt
securities or Capital Stock that have been converted into or exchanged for
Capital Stock, or any capital contribution in respect of Capital Stock, the
proceeds of such issuance or sale or capital contribution in the form of cash or
cash equivalents, including payments in respect of deferred
-14-
<PAGE>
payment obligations when received in the form of, or stock or other assets when
disposed for, cash or cash equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any Subsidiary
of the Company), net of attorney's fees, accountant's fees and brokerage,
consulting, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale or capital contribution and net of taxes
paid or payable by the Company as a result thereof.
"Non-U.S. Person" has the meaning assigned to such term in
---------------
Regulation S.
"Non-Payment Default" has the meaning provided in Section 10.02(b).
------------------- ----------------
"Obligations" means all obligations for principal, premium, interest,
-----------
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
-------
Board, the Chief Executive Officer, the President, the Chief Financial Officer,
the Treasurer, the Controller, or the Secretary of such Person, or any other
officer designated by the Board of Directors serving in a similar capacity.
"Officers' Certificate" means, with respect to any Person, a
---------------------
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of such Person and otherwise complying with
the requirements of Sections 10.04 and 10.05, as they relate to the making of an
-------------- -----
Officers' Certificate, and delivered to the Trustee.
"144A Global Note" means a permanent global note in registered form
----------------
representing the aggregate principal amount of Senior Notes sold in reliance on
Rule 144A under the Securities Act.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee complying with the requirements of Sections
--------
10.04 and
- -----
-15-
<PAGE>
10.05, as they relate to the giving of an Opinion of Counsel, and delivered to
- -----
the Trustee.
"OTS" means the Office of Thrift Supervision or any successor thereto.
---
"Participant" has the meaning provided in Section 2.15.
----------- ------------
"Paying Agent" has the meaning provided in Section 2.03, except that,
------------ ------------
during the continuance of a Default or Event of Default and for the purposes of
Articles Three and Eight and Sections 4.9, the Paying Agent shall not be the
- -------------- ----- ------------
Company or any Affiliate of the Company.
"Permitted Investments" means (i) a marketable obligation, maturing
---------------------
within two years after issuance thereof, issued or guaranteed by the United
States of America or an instrumentality or agency thereof, (ii) a certificate of
deposit or banker's acceptance, maturing within one year after issuance thereof,
issued by a national or state bank or trust Company having capital, surplus and
undivided profits of at least $100,000,000 and whose long-term unsecured debt
has a rating of "A" or better by S&P or A2 or better by Moody's or the
equivalent rating by any other nationally recognized rating agency, (iii) open
market commercial paper, maturing within 270 days after issuance thereof, which
has a rating of A1 or better by S&P or P1 or better by Moody's, or the
equivalent rating by any other nationally recognized rating agency, (iv)
repurchase agreements and reverse repurchase agreements with a term not in
excess of one year with any financial institution which has been elected a
primary government securities dealer by the Federal Reserve Board or whose
securities are rated AA- or better by S&P or Aa3 or better by Moody's or the
equivalent rating by any other nationally recognized rating agency relating to
marketable direct obligations issued or unconditionally guaranteed by the United
States of America or any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America and (v) "Money Market"
preferred stock maturing within six months after issuance thereof or municipal
bonds issued by a corporation organized under the laws of any state of the
United States, which has a rating of "A" or better by S&P or Moody's or
-16-
<PAGE>
the equivalent rating by any other nationally recognized rating agency;
provided, that, notwithstanding anything to the contrary contained herein,
- -------- ----
Permitted Investments shall not include any of the foregoing investments to the
extent that any such investment, in the good faith business judgment of the
Board of Directors of the Company, evidenced by a Board Resolution delivered to
the Trustee, involves at the time of acquisition or thereafter a reasonable
likelihood of a loss of principal.
"Permitted Liens" shall mean the following Liens so long as such Liens
---------------
do not in the aggregate materially and adversely affect the conduct of the
business of the Company or the Bank: (i) Liens securing taxes, assessments,
fees or other governmental charges or levies or the claims of materialmen,
mechanics, carriers, warehousemen, landlords and other similar persons; (ii)
Liens incurred or deposits made in the ordinary course of business (x) in
connection with workmen's compensation, unemployment insurance, social security
or other similar laws, or (y) to secure the performance of letters of credit
issued by persons other than the Company or any Subsidiary, bids, tenders,
contracts, leases, public or statutory obligations, surety, customs, appeal and
performance bonds and other similar obligations not incurred in connection with
indebtedness for money borrowed;(iii) attachment, judgment and other similar
Liens arising in connection with court proceedings; provided, however, that the
execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are currently being contested in good faith by
appropriate proceedings; (iv) easements, rights of way, restrictions, and other
similar encumbrances affecting real or tangible personal property, which do not
in the aggregate materially detract form the value of said property or
materially impair its use in the operation of the business of the Company or the
Bank; (v) Liens outstanding on the date hereof with respect to property then
owned by the Company or the Bank; (vi) capitalized leases not otherwise
prohibited by any provision of this Agreement; (vii) Liens on real or tangible
personal property owned and used by the Company or the Bank in the ordinary
course
-17-
<PAGE>
of its business and incurred to secure the payment of the cost of such property
or any improvement thereof; (viii) Liens on tangible personal property acquired
by the Company or the Bank in the ordinary course of its business and securing
the purchase price of such property; (ix) Liens on property owned and used by
any person in the ordinary course of its business existing prior to the time
such person becomes a Subsidiary; (x) Liens on property owned and used by any
Subsidiary in the ordinary course of its business existing prior to the time of
acquisition of such property by such Subsidiary through purchase, merger,
consolidation or otherwise, whether or not such Liens are assumed by such
Subsidiary; (xi) any extensions or renewals of any of the foregoing Liens; (xii)
pledges, assignments, or security devices entered into in connection with the
financing and refinancing of customers' leases, mortgages, conditional sales
contracts, accounts receivable, credit cards and other loans which arise in the
ordinary course of the banking or trust business; (xiii) pledges of securities
against deposits of municipalities or other governmental agencies created or
incurred in the ordinary course of business in order to receive deposits from
such entities; (xiv) Liens securing Excluded Indebtedness (other than revolving
lines of credit pursuant to clause (xvi) of the definition thereof); and (xv)
other Liens; provided that the aggregate indebtedness of the Company and the
Bank secured thereby does not at any time exceed $1,000,000.
"Permitted Payment" means, so long as no Default or Event of Default
-----------------
is continuing,
(a) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Capital Stock of the Company or any Affiliate of the
Company, or any Junior Indebtedness of the Company which may be incurred
pursuant to the covenant described in Section 4.16 (Limitations on Indebtedness)
------------
in exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege where, in connection therewith, cash is paid in
lieu of the issuance of fractional shares or scrip), or out of the Net Cash
Proceeds or Fair Market Value of property not constituting Net Cash Proceeds of,
a substantially concurrent issue and sale (other than to a Subsidiary of the
Company or to an employee benefit plan of the Company or any of its
Subsidiaries) of Qualified Capital Stock of the Company; provided that the Net
Cash Proceeds or Fair Market Value of such property received by the Company from
the issuance of such shares of Qualified
-18-
<PAGE>
Capital Stock, to the extent so utilized, shall be excluded from clause (d)(iii)
of the covenant described in Section 4.04 (Limitations on Restricted Payments);
------- ----
and
(b) the repurchase, redemption, defeasance or other acquisition or
retirement for value of any Junior Indebtedness of the Company which may be
incurred pursuant to the covenant described in Section 4.16 (Limitations on
------------
Indebtedness) in exchange for, or out of the Net Cash Proceeds of, a
substantially concurrent issue and sale (other than to a Subsidiary of the
Company) of new Indebtedness to the Company (such a transaction, a
"refinancing"); provided, that (i) any such new Indebtedness of the Company
shall be in a principal amount that does not exceed an amount equal to the sum
of (A) the principal amount of the Junior Indebtedness so refinanced less any
discount from the face amount of such Junior Indebtedness to be refinanced
expected to be deducted from the amount payable to the holders of such Junior
Indebtedness in connection with such refinancing, (B) the amount of any premium
expected to be paid in connection with such refinancing pursuant to the terms of
any Junior Indebtedness of the Company which may be incurred pursuant to the
covenant described in Section 4.16 (Limitations on Indebtedness) refinanced or
------------
the amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer, privately negotiated
repurchase or otherwise and (C) the amount of legal, accounting, printing and
other similar expenses of the Company incurred in connection with such
refinancing; provided, further, that for purposes of this clause (i), the
principal amount of any Indebtedness shall be deemed to mean the principal
amount thereof or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination; (ii)
each stated maturity of principal (or any required repurchase, redemption,
defeasance or sinking fund payments) of such new Indebtedness shall be after the
final Stated Maturity of principal of the Senior Notes then outstanding; and
(iii) any such new Indebtedness of the Company is made expressly subordinated to
the Senior Notes to substantially the same extent as the Junior Indebtedness
being refinanced or expressly subordinate to such refinanced Indebtedness.
-19-
<PAGE>
"Person" means any natural person, corporation, partnership, joint
------
venture, association, joint-stock Company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Notes" shall have the meaning provided in Section 2.01.
-------------- ------------
"Preferred Stock" of any Person means any Capital Stock of such Person
---------------
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Senior Notes) means the
---------
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Placement Legend" means the legend set forth on the Initial
------------------------
Notes in the form set forth on Exhibit A-1.
-----------
"pro forma" means, unless otherwise provided herein, with respect to
---------
any calculation made or required to be made pursuant to the terms of this
Indenture, a calculation in accordance with Article 11 of Regulation S-X
promulgated under the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital
-----------------------
Stock of such Person other than Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
----------------------------- ---
specified in Rule 144A under the Securities Act.
"Record Date" has the meaning provided in Section 2.05.
----------- ------------
"Redemption Date" means, with respect to any Senior Notes, the
---------------
Maturity Date of such Note or the earlier date on which such Note is to be
redeemed by the Company pursuant to paragraph 5 of the Senior Notes.
-20-
<PAGE>
"Redemption Price" has the meaning provided in Section 3.03.
---------------- ------------
"Refinance" means, in respect of any security or Indebtedness, to
---------
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
------------------------
Subsidiary of the Company of Indebtedness incurred in accordance with Section
-------
4.16, in each case that does not (1) result in an increase in the aggregate
- ----
principal amount of Indebtedness of such Person as of the date of such proposed
Refinancing (plus the amount of any premium required to be paid under the terms
of the instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing) or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; provided that (x) if such Indebtedness being Refinanced is
--------
Indebtedness of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company, and (y) if such Indebtedness being
Refinanced is subordinate or junior to the Senior Notes, then such Refinancing
Indebtedness shall be subordinate to the Senior Notes at least to the same
extent and in the same manner as the Indebtedness being Refinanced.
"Registrar" has the meaning provided in Section 2.03.
--------- ------------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of April 1, 1998 between the Company and certain investors
set forth therein.
"Regulation S" means Regulation S under the Securities Act.
------------
-21-
<PAGE>
"Regulation S Global Note" means a permanent global note in registered
------------------------
form representing the aggregate principal amount of Senior Notes sold in
reliance on Regulation S under the Securities Act.
"Regulatory Capital Requirements" means (i) the minimum amount of
-------------------------------
capital required to meet each of the industry-wide regulatory capital
requirements applicable to the Bank pursuant to 12 U.S.C. Section 1464(t) and 12
C.F.R. Part 567 (and any amendment to either thereof) or any successor law or
regulation, and (ii) such higher amount of capital as the Bank is required to
maintain in order to meet any individual minimum capital standard applicable to
it pursuant to 12 U.S.C. Section 1464(s) and 12 C.F.R. Section 567.3 (and any
amendment to either thereof) or any successor law or regulation.
"Restricted Note" means a Note that constitutes a "Restricted
---------------
Security" within the meaning of Rule 144(a)(3) under the Securities Act;
provided, however, that the Trustee shall be entitled to request and
- -------- -------
conclusively rely on an Opinion of Counsel with respect to whether any Note
constitutes a Restricted Note.
"Restricted Payment" means
------------------
(a) the declaration, payment or setting apart of any funds for the
payment of any dividend on, or making of any distribution to holders of, the
Capital Stock of the Company or any Subsidiary of the Company (other than (i)
dividends or distributions in Qualified Capital Stock of the Company, and (ii)
dividends or distributions payable on or in respect of any class or series of
Capital Stock of a Wholly-Owned Subsidiary of the Company);
(b) the purchase, redemption or other acquisition or retirement for
value, directly or indirectly, of any Capital Stock of the Company or any
Affiliate of the Company (other than a Wholly-Owned Subsidiary); or
(c) the making of any principal payments on, or repurchase,
redemption, defeasance, retirement or other acquisition for value, directly or
indirectly, of any Junior Indebtedness, prior to the Stated Maturity of
-22-
<PAGE>
principal or scheduled redemption or defeasance of, or any scheduled sinking
fund payment on, such Junior Indebtedness.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill
---
Companies.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Security Account Control Agreement" means the Securities Control
----------------------------------
Agreement to be entered into by the Company and a bank or trust company pursuant
to Section 4.15 hereof, which shall be substantially in the form of the
Securities Control Agreement attached as Exhibit F to this Indenture.
"Senior Notes" means, collectively, Initial Notes and the Exchange
------------
Notes, treated as a single class of securities under this Indenture, except as
set forth herein.
"Stated Maturity" when used with respect to any Senior Note or any
---------------
installment of interest thereon means the date specified in such Senior Note as
the fixed date on which the principal of such Senior Note or such installment of
interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
----------
outstanding stock having ordinary voting power to elect a majority of the
directors of such corporation, irrespective of whether or not at the time stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency, is at the time
directly or indirectly owned by the Company, by one or more Subsidiaries of the
Company, or by the Company and one or more Subsidiaries.
-23-
<PAGE>
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (SS) 77aaa-
---
77bbbb), as amended, as in effect on the date hereof, except as otherwise
provided in Section 9.03.
------------
"Total Capital" shall mean, without duplication, the Bank's
-------------
consolidated total equity capital surplus and retained earnings at the time of
determination thereof plus net income or loss less the sum of cash dividends on
stock, plus the net effect of the on-going retirement of capital stock plus loan
loss reserves.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer or assistant officer of the Trustee
-------------
assigned by the Trustee to administer its corporate trust matters or, in the
case of a successor trustee, an officer assigned to the department, division or
group performing the corporate trust work of such successor.
"Unrestricted Notes" means one or more Senior Notes that do not and
------------------
are not required to bear the Private Placement Legend in the form set forth in
Exhibit A-1, including, without limitation, the Exchange Notes.
- -----------
"U.S. Government Obligations" means direct obligations (or
---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"U.S. Legal Tender" means such coin or currency of the United States
-----------------
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Voting Stock" means Capital Stock of any class or classes, however
------------
designated, having ordinary voting power for the election of a majority of the
board of
-24-
<PAGE>
directors, other than stock having such power only by reason of the occurrence
of a contingency.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the
-----------------------
outstanding Capital Stock (other than directors' qualifying shares) is at the
time directly or indirectly owned by the Company, or by one or more Wholly-Owned
Subsidiaries or by the Company and one or more Wholly-Owned Subsidiaries.
SECTION 1.02. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, that portion
of such provision that is required to be incorporated for this Indenture to be
qualified under the TIA is incorporated by reference in, and made a part of,
this Indenture. The following TIA terms used in this Indenture have the
following meanings:
"Commission" means the SEC.
----------
"indenture securities" means the Senior Notes.
--------------------
"indenture security holder" means a Holder or a Noteholder.
-------------------------
"indenture to be qualified" means this Indenture.
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee.
----------------- ---------------------
"obligor" on the indenture securities means the Company or any other
-------
obligor on the Senior Notes.
-25-
<PAGE>
All other TIA terms used in this Indenture that are defined by the
TIA, defined by the TIA by reference to another statute or defined by SEC rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP as in effect on the Issue Date;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(6) all references to Articles, Sections and Exhibits shall mean,
unless they clearly indicate otherwise, the Article and Sections hereof and
the Exhibits attached hereto, the terms of which Exhibits are hereby
incorporated into this Indenture.
ARTICLE TWO
THE SENIOR NOTES
SECTION 2.01. Form and Dating.
---------------
The Initial Notes and the Exchange Notes and the Trustee's certificate
of authentication relating thereto shall be substantially in the form of
Exhibits A-1 and A-2 hereto, respectively. The Senior Notes may have notations,
- --------------------
legends or endorsements required by law, stock exchange rule or usage. The
Company shall approve the
-26-
<PAGE>
form of the Senior Notes and any notation, legend or endorsement thereon. Each
Senior Note shall be dated the date of issuance and shall show the date of its
authentication.
The terms and provisions contained in the Senior Notes annexed hereto
as Exhibits A-1 and A-2, shall constitute, and are hereby expressly made, a part
--------------------
of this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Senior Notes offered and sold in reliance on Rule 144A and Senior
Notes offered and sold to institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and Senior Notes
offered and sold in reliance on Regulation S of the Securities Act shall be
issued initially in the form of one or more Global Notes, substantially in the
form set forth in Exhibit A-1 in the case of the Initial Notes and Exhibit A-2
----------- -----------
in the case of the Exchange Notes, deposited with the Trustee, as custodian for
the Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in Exhibit B. The
---------
aggregate principal amount of the Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided.
Senior Notes issued in exchange for interests in a Global Note
pursuant to Section 2.16 may be issued in the form of permanent certificated
------------
Notes in registered form in substantially the form set forth in Exhibits A-1 or
---------------
A-2, as applicable (the "Physical Notes").
- --- --------------
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.
--------------------------------------------------------
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign, and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite
-27-
<PAGE>
corporate actions) shall attest to, the Senior Notes for the Company by manual
or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a Senior
Note was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Senior Note, the Senior Note shall nevertheless be valid.
A Senior Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Senior Note.
The signature of such representative of the Trustee shall be conclusive evidence
that the Senior Note has been authenticated under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue in
an aggregate principal amount of $60 million and (ii) Exchange Notes for issue
only in a registered exchange offer, pursuant to the Registration Rights
Agreement, for Initial Notes for a like principal amount of Initial Notes
exchanged pursuant thereto, in each case, upon a written order of the Company in
the form of an Officers' Certificate of the Company. Each such written order
shall specify the amount of Senior Notes to be authenticated and the date on
which the Senior Notes are to be authenticated and whether (subject to Section
-------
2.01) the Senior Notes are to be issued as Physical Notes or Global Notes and
- ----
such other information as the Trustee may reasonably request. The aggregate
principal amount of Senior Notes outstanding at any time may not exceed $60
million, except as provided in Sections 2.07 and 2.08.
------------- ----
Notwithstanding the foregoing, all Senior Notes issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Senior Notes may vote or consent) as one class and no series of Senior
Notes will have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Senior Notes. Unless otherwise provided in the
appointment, an authenticating agent may authenticate
-28-
<PAGE>
Senior Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
and Affiliates of the Company.
The Senior Notes shall be issuable in fully registered form only,
without coupons, in denominations of $100,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency which shall be located
in the Borough of Manhattan in the City of New York, State of New York, where
(a) Senior Notes may be presented or surrendered for registration of transfer or
for exchange ("Registrar"), (b) Senior Notes may be presented or surrendered for
---------
payment ("Paying Agent") and (c) notices and demands to or upon the Company in
------------
respect of the Senior Notes and this Indenture may be served. The Registrar
shall keep a register of the Senior Notes and of their transfer and exchange.
The Company, upon notice to the Trustee, may have one or more co-Registrars and
one or more additional paying agents reasonably acceptable to the Trustee. The
term "Paying Agent" includes any additional paying agent. The Company may
change the Paying Agent or Registrar without notice to any Holder.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee, in advance, of the name
and address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed. Any of the Registrar, the Paying Agent or any other Agent may resign
upon 30 days' notice to the Company.
-29-
<PAGE>
SECTION 2.04. Paying Agent To Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, premium, if any, or interest on, the Senior Notes (whether such
assets have been distributed to it by the Company or any other obligor on the
Senior Notes), and shall notify the Trustee of any default by the Company (or
any other obligor on the Senior Notes) in making any such payment. The Company,
upon written request to a Paying Agent, at any time may require a Paying Agent
to distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have
been delivered by the Company to the Paying Agent and the completion of any
accounting required to be made hereunder, the Paying Agent shall have no further
liability for such assets.
SECTION 2.05. Holder Lists.
------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders and shall otherwise comply with TIA ' 312(a). If the Trustee is not
the Registrar, the Company shall furnish to the Trustee five (5) Business Days
before each Interest Payment Date and at such other times as the Trustee may
request in writing a list as of the applicable Record Date and in such form as
the Trustee may reasonably require of the names and addresses of the Holders,
which list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
---------------------
Subject to Sections 2.15 and 2.16, when Senior Notes are presented to
------------- ----
the Registrar or a co-Registrar with a request to register the transfer of such
Senior Notes or to exchange such Senior Notes for an equal
-30-
<PAGE>
principal amount of Senior Notes of other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; provided, however,
-------- -------
that the Senior Notes presented or surrendered for transfer or exchange shall be
duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registrations of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Senior Notes at the Registrar's or co-Registrar's
written request. No service charge shall be made 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 Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Senior Note (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption
pursuant to Section 3.03 and paragraph 5 of the Senior Notes and ending at the
------------
close of business on the day of such mailing, (ii) selected for redemption in
whole or in part pursuant to Article Three, except the unredeemed portion of any
-------------
Senior Note being redeemed in part and (iii) during a Change of Control Offer if
such Senior Note is tendered pursuant to such Change of Control Offer and not
withdrawn.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such beneficial interest, agree that transfers of beneficial
interests in such Global Notes may be effected only through a book entry system
maintained by the Holder of such Global Note (or its agent), and that ownership
of a beneficial interest in the Senior Note shall be required to be reflected in
a book entry system.
Upon the occurrence of the Exchange Offer in accordance with the
Registration Rights Agreement, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal
-31-
<PAGE>
amount of the beneficial interests in the Restricted Global Notes tendered for
acceptance by Persons that certify in the applicable Letter of Transmittal that
they are not (x) broker-dealers, (y) Persons participating in the distribution
of the Exchange Notes or (z) Persons who are affiliates (as defined in Rule 144)
of the Company and accepted for exchange in the Exchange Offer and (ii) Physical
Notes in an aggregate principal amount equal to the principal amount of the
Restricted Physical Notes accepted for exchange in the Exchange Offer.
Concurrent with the issuance of such Senior Notes, the Trustee shall cause the
aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Physical
Notes so accepted Physical Notes in the appropriate principal amount.
SECTION 2.07. Replacement Notes.
-----------------
If a mutilated Senior Note is surrendered to the Trustee or if the
Holder of a Senior Note claims that such Senior Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Senior Note. Such Holder must provide an indemnity bond or other
indemnity, sufficient in the reasonable judgment of the Company and the Trustee,
to protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Senior Note is replaced. Each of the Company and the Trustee
may charge such Holder for its reasonable out-of-pocket expenses in replacing a
Senior Note, including reasonable fees and expenses of counsel. Every
replacement Senior Note shall constitute an additional obligation of the
Company.
SECTION 2.08. Outstanding Notes.
-----------------
Senior Notes outstanding at any time are all the Senior Notes that
have been authenticated by the Trustee except those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. Subject to Section 2.09, a Senior Note does not cease to be
------------
outstanding because the Company or any of its Affiliates holds the Senior Note.
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If a Senior Note is replaced pursuant to Section 2.07 (other than a
------------
mutilated Senior Note surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser. A mutilated Senior Note ceases to be outstanding
---- ----
upon surrender of such Senior Note and replacement thereof pursuant to Section
-------
2.07.
- ----
If on a Redemption Date or the Maturity Date the Paying Agent holds
U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the
principal, premium, if any, and interest due on the Senior Notes payable on that
date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such Senior
Notes cease to be outstanding and interest on them ceases to accrue.
If on any date which is no earlier than 60 days prior to a Redemption
Date, the Company has irrevocably deposited in trust with the Trustee U.S. Legal
Tender, U.S. Government Obligations or a combination thereof in an amount
sufficient to pay all of the principal, premium, if any, and interest due on the
Senior Notes payable on such Redemption Date, together with irrevocable
instructions from the Company directing the Trustee to apply such funds to the
payment thereof on such Redemption Date pursuant to the terms of this Indenture,
then and after the date of such deposit such Senior Notes shall be deemed to be
not outstanding for purposes of determining whether the Holders of the required
aggregate principal amount of Senior Notes have concurred in any direction,
waiver, consent or notice which requires the consent of at least a majority in
aggregate principal amount of Senior Notes then outstanding.
SECTION 2.09. Treasury Notes.
--------------
In determining whether the Holders of the required aggregate principal
amount of Senior Notes have concurred in any direction, waiver, consent or
notice, Senior Notes owned by the Company or an Affiliate shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall
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be protected in relying on any such direction, waiver or consent, only Senior
Notes which a Trust Officer actually knows are so owned shall be so considered.
The Company shall notify the Trustee, in writing, when it or any of its
Affiliates repurchases or otherwise acquires Senior Notes, of the aggregate
principal amount of such Senior Notes so repurchased or otherwise acquired.
SECTION 2.10. Temporary Notes.
---------------
Until Physical Notes are ready for delivery, the Company may prepare
and execute and the Trustee shall authenticate temporary Notes upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of Physical Notes but may
have variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and execute, and the
Trustee shall authenticate, definitive Senior Notes upon receipt of a written
order of the Company pursuant to Section 2.02, upon surrender of Physical Notes
------------
at the office or agency of the Company in exchange for temporary Notes, without
charge to the Holder.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Senior Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Senior Notes surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel and, at the written direction of the Company,
shall dispose and deliver evidence of disposal of all Senior Notes surrendered
for transfer, exchange, payment or cancellation; provided, however, that in no
-------- -------
event shall the Trustee be required to destroy any such Senior Notes. Subject
to Section 2.07, the Company may not issue new Senior Notes to replace Senior
------------
Notes that the Company has paid or delivered to the Trustee for cancellation.
If the Company shall acquire any of the Senior Notes, such acquisition shall not
operate as a redemption or
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satisfaction of the Indebtedness represented by such Senior Notes unless and
until the same are surrendered to the Trustee for cancellation pursuant to this
Section 2.11.
- ------------
SECTION 2.12. Defaulted Interest.
------------------
The Company will pay interest on overdue principal from time to time
on demand at the rate of interest then borne by the Senior Notes. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Senior Notes. Interest on the Senior
Notes will be computed on the basis of a 360-day year comprised of twelve 30-day
months, and, in the case of a partial month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Senior Notes,
it shall pay the defaulted interest, plus (to the extent lawful) any interest
----
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day next preceding the
date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(a) shall be paid to
---------------
Holders as of the regular record date for the Interest Payment Date for which
interest has not been paid.
SECTION 2.13. CUSIP Numbers.
-------------
The Company in issuing the Senior Notes may use one or more "CUSIP"
numbers, and if so, the Trustee shall use the CUSIP numbers in notices of
redemption or exchange as a convenience to Holders; provided, however, that no
-------- -------
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<PAGE>
representation is hereby deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP numbers printed in the notice or on the Senior Notes,
and that reliance may be placed only on the other identification numbers printed
on the Senior Notes. The Company shall promptly notify the Trustee of any
change in the CUSIP number.
SECTION 2.14. Deposit of Moneys.
-----------------
Prior to 11:00 a.m. New York City time on each Interest Payment Date,
Maturity Date, Redemption Date and Change of Control Payment Date, the Company
shall have deposited with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date,
Maturity Date, Redemption Date and Change of Control Payment Date, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date, Maturity Date, Redemption Date and Change of Control
Payment Date, as the case may be.
SECTION 2.15. Book-Entry Provisions for Global Notes
--------------------------------------
(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Exhibit B.
- ---------
Members of, or participants in, the Depository ("Participants") shall
------------
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note, and the Depository may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of the Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise of
the rights of a Holder of any Note.
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<PAGE>
(b) Transfers of Global Notes shall be limited to transfers in whole,
but not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in the Global Notes may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Section 2.16. In addition, Physical Notes shall
------------
be transferred to all beneficial owners in exchange for their beneficial
interests in Global Notes if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for any Global Note and a
successor Depository is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in a Global Note to beneficial owners pursuant to paragraph
(b), the Registrar shall (if one or more Physical Notes are to be issued)
reflect on its books and records the date and a decrease in the principal amount
of such Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall execute and
the Trustee shall authenticate and deliver, one or more Physical Notes of
authorized denominations in an aggregate principal amount equal to the principal
amount of the beneficial interest in the Global Note so transferred.
(d) In connection with the transfer of a Global Note as an entirety to
beneficial owners pursuant to paragraph (b) of this Section 2.15, such Global
------------
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute and the Trustee shall upon written instructions from the
Company authenticate and deliver, to each beneficial owner identified by the
Depository in exchange for its beneficial interest in such Global Note, an equal
aggregate principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Note delivered in
exchange for an interest in a Global Note pursuant to paragraph (b) or (c) of
this Section 2.15
------------
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<PAGE>
shall, except as otherwise provided by Section 2.16, bear the Private Placement
------------
Legend.
(f) The Holder of any Global Note may grant proxies and otherwise
authorize any Person, including Participants and Persons that may hold interests
through Participants, to take any action which a Holder is entitled to take
under this Indenture or the Senior Notes.
SECTION 2.16. Special Transfer Provisions.
---------------------------
(a) Transfers to Non-QIB Institutional Accredited Investors and Non-
---------------------------------------------------------------
U.S. Persons. The following additional provisions shall apply with respect to
- ------------
the registration of any proposed transfer of a Restricted Note to any
Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Restricted
Note, whether or not such Note bears the Private Placement Legend, if (x)
the requested transfer is after the second anniversary of the Issue Date;
provided, however, that neither the Company nor any Affiliate of the
-------- -------
Company has held any beneficial interest in such note, or portion thereof,
at any time on or prior to the second anniversary of the Issue Date or (y)
(1) in the case of a transfer to an Institutional Accredited Investor which
is not a QIB (excluding Non-U.S. Persons), the proposed transferee has
delivered to the Registrar a certificate substantially in the form of
Exhibit C hereto and any legal opinions and certifications required thereby
---------
and (2) in the case of a transfer to a Non-U.S. Person, the proposed
transferor has delivered to the Registrar a certificate substantially in
the form of Exhibit D hereto and any legal opinions and certificates
---------
required thereby;
(ii) if the proposed transferee is a Participant and the Senior
Notes to be transferred consist of Physical Notes which after transfer are
to be evidenced by an interest in the IAI Global Note or Regulation S
Global Note, as the case may be, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
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<PAGE>
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall register
the transfer and reflect on its books and records the date and an increase
in the principal amount of the IAI Global Note or Regulation S Global Note,
as the case may be, in an amount equal to the principal amount of Physical
Notes to be transferred, and the Trustee shall cancel the Physical Notes so
transferred; and
(iii) if the proposed transferor is a Participant seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall register
the transfer and reflect on its books and records (A) the date, (B) a
decrease in the principal amount of the Global Note from which such
interests are to be transferred in an amount equal to the principal amount
of the Senior Notes to be transferred and (C) an increase in the principal
amount of the IAI Global Note or the Regulation S Global Note, as the case
may be, in an amount equal to the principal amount of the Senior Notes to
be transferred.
(b) Transfers to QIBS. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of a Restricted Security to
a QIB:
(i) the Registrar shall register the transfer of any Restricted
Note, whether or not such Note bears the Private Placement Legend, if (x)
the requested transfer is after the second anniversary of the Issue Date;
provided, however, that neither the Company nor any Affiliate of the
-------- -------
Company has held any beneficial interest in such Note, or portion thereof,
at any time on or prior to the second anniversary of the Issue Date or (y)
such transfer is being made by a proposed transferor who has checked the
box provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in
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<PAGE>
writing, that the sale has been made in compliance with the provisions of
Rule 144A to a transferee who has signed the certification provided for on
the form of Senior Note stating, or has otherwise advised the Company and
the Registrar in writing, that it is purchasing the Senior Note for its own
account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning of
Rule 144A, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A;
(ii) if the proposed transferee is a Participant and the Senior
Notes to be transferred consist of Physical Notes which after transfer are
to be evidenced by an interest in the 144A Global Note, upon receipt by the
Registrar of written instructions given in accordance with the Depository's
and the Registrar's procedures, the Registrar shall register the transfer
and reflect on its book and records the date and an increase in the
principal amount of the 144A Global Note in an amount equal to the
principal amount of Physical Notes to be transferred, and the Trustee shall
cancel the Physical Note so transferred; and
(iii) if the proposed transferor is a Participant seeking to
transfer an interest in the IAI Global Note or the Regulation S Global
Note, upon receipt by the Registrar of written instructions given in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall register the transfer and reflect on its books and records
the date and (A) a decrease in the principal amount of the IAI Global Note
or the Regulation S Global Note, as the case may be, in an amount equal to
the principal amount of the Senior Notes to be transferred and (B) an
increase in the principal amount of the 144A Global Note in an amount equal
to
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<PAGE>
the principal amount of the Senior Notes to be transferred.
(c) Restrictions on Transfer and Exchange of Global Notes.
-----------------------------------------------------
Notwithstanding any other provisions of this Indenture, a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(d) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Senior Notes not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Senior Notes that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of Senior
Notes bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Senior Notes that bear the Private Placement Legend unless (i)
there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory
to the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act or (ii) such Senior Note has been sold
pursuant to an effective registration statement under the Securities Act.
(e) General. By its acceptance of any Senior Note bearing the Private
-------
Placement Legend, each Holder of such a Senior Note acknowledges the
restrictions on transfer of such Senior Note set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Senior Note
only as provided in this Indenture.
Each Holder of a Senior Note agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Senior Note in violation of any provision of this
Indenture and/or applicable United States federal or state securities law.
-41-
<PAGE>
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Senior Note (including any transfers between or among Participants or
beneficial owners of interests in any Global Note) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by the terms of, this Indenture, and to examine the same to
determine substantial compliance as to form with the express requirements
hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
------------ ------------
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
------------------
If the Company elects to redeem Senior Notes pursuant to paragraph 5
of the Senior Notes, it shall notify the Trustee and the Paying Agent in writing
of the Redemption Date and the aggregate principal amount of the Senior Notes to
be redeemed. Such notice must be given at least 45 days prior to the Redemption
Date (unless a shorter notice shall be satisfactory to the Trustee), but shall
not be given more than 60 days before the Redemption Date. Any such notice may
be cancelled at any time prior to notice of such redemption being mailed to any
Holder and shall thereby be void and of no effect. Except as otherwise provided
pursuant to Section 4.19 hereof and paragraph 7 of the Senior Notes, the Senior
Notes are not subject to early redemption or prepayment.
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<PAGE>
SECTION 3.02. Selection of Senior Notes To Be Redeemed.
----------------------------------------
If less than all of the Senior Notes are to be redeemed at any time,
the Company shall notify the Trustee at least 60 days prior to the Redemption
Date (or such shorter period as is satisfactory to the Trustee) of the aggregate
principal amount of Senior Notes to be redeemed and their Redemption Date.
Selection of such Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Senior Notes are listed or, if such Senior Notes are not
listed on a national securities exchange, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided, however, that
-------- -------
no Senior Notes of a principal amount of $100,000 or less shall be redeemed in
part. On and after the Redemption Date, interest shall cease to accrue on the
Senior Notes or portions thereof called for redemption; provided, further,
-------- -------
however, that if a partial redemption is made, selection of the Senior Notes or
- -------
portions thereof for redemption shall be made by the Trustee only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited.
SECTION 3.03. Notice of Redemption.
--------------------
At least 45 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause to be mailed a notice of redemption by first-
class mail to each Holder whose Senior Notes are to be redeemed at its
registered address, with a copy to the Trustee. At the Company's request, the
Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. Each notice for redemption shall identify the Senior Notes
to be redeemed and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of accrued interest, if
any, to be paid (the "Redemption Price");
----------------
(3) the paragraph and subparagraph of the Senior Notes pursuant
to which the Senior Notes are being redeemed;
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(4) the name and address of the Paying Agent;
(5) that Senior Notes called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(6) that, unless the Company defaults in making the redemption
payment, interest, if any, on Senior Notes or portions thereof called
for redemption shall cease to accrue on and after the Redemption Date,
and the only remaining right of the Holders of such Senior Notes is to
receive payment of the Redemption Price upon surrender to the Paying
Agent of the Senior Notes redeemed;
(7) that, if any Senior Note is being redeemed in part, the
portion of the principal amount of such Senior Note to be redeemed and
that, after the Redemption Date, and upon cancellation of such Senior
Note, a new Senior Note or Senior Notes in the aggregate principal
amount equal to the unredeemed portion thereof will be issued in the
name of the Holder;
(8) that, if less than all the Senior Notes are to be redeemed,
the identification of the particular Senior Notes (or portion thereof)
to be redeemed, as well as the aggregate principal amount of Senior
Notes to be redeemed and the aggregate principal amount of Senior
Notes to be outstanding after such partial redemption; and
(9) the CUSIP number, if any, relating to such Senior Notes.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such rule, laws and regulations are applicable in connection with the
purchase of Senior Notes.
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<PAGE>
SECTION 3.04. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.03,
------------
Senior Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Trustee or Paying Agent,
such Senior Notes called for redemption shall be paid at the Redemption Price,
but installments of interest, the maturity of which is on or prior to the
Redemption Date, shall be payable to Holders of record at the close of business
on the relevant record dates referred to in the Senior Notes. Interest shall
accrue on or after the Redemption Date and shall be payable only if the Company
defaults in payment of the Redemption Price.
SECTION 3.05. Deposit of Redemption Price.
---------------------------
On or before 10:00 a.m., New York City time, on any Redemption Date,
the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to
pay the Redemption Price of all Senior Notes to be redeemed on that date. The
Paying Agent shall promptly return to the Company any U.S. Legal Tender so
deposited that is not required for that purpose, except with respect to monies
owed as obligations to the Trustee pursuant to Article Seven.
-------------
Unless the Company fails to comply with the preceding paragraph and
defaults in the payment of such Redemption Price, interest on the Senior Notes
to be redeemed will cease to accrue on and after the applicable Redemption Date,
whether or not such Senior Notes are presented for payment.
SECTION 3.06. Notes Redeemed in Part.
----------------------
Upon surrender of a Senior Note that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Senior Note or Senior Notes
equal in principal amount to the unredeemed portion of the Senior Note
surrendered.
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<PAGE>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
----------------
The Company shall pay the interest on the Senior Notes on the dates
and in the manner provided in the Senior Notes. An installment of principal of
or interest on the Senior Notes shall be considered paid on the date it is due
if the Trustee or Paying Agent holds on that date U.S. Legal Tender designated
for and sufficient to pay the installment. Interest on the Senior Notes will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Notwithstanding anything to the contrary contained in this Indenture,
the Company may, to the extent it is required to do so by law, deduct or
withhold income or other similar taxes imposed by the United States of America
from principal, premium or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain the office or agency required under Section
-------
2.03. The Company shall give prior notice to the Trustee of the location, and
- ----
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 10.02.
-------------
SECTION 4.03. Corporate Existence.
-------------------
Subject to the provisions of Article Five, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect the corporate existence, rights (charter and statutory) and franchises of
the Company and its Subsidiaries, and shall comply in all material respects with
all statutes, rules, regulations and orders of and restrictions imposed by
governmental and administrative authorities and agencies applicable to the
Company and its Subsidiaries, a failure to comply with which would have a
material adverse effect on the Company and its Subsidiaries considered as a
single enterprise; provided, however, that the Company shall not be required to
preserve any right or franchise of the Company or its Subsidiaries if the
Company shall determine
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<PAGE>
that the preservation thereof is no longer desirable in the conduct of the
business the Company or its Subsidiaries and the loss thereof is not
disadvantageous in any material respect to the Noteholders.
SECTION 4.04. Limitations on Restricted Payments.
----------------------------------
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment if, at the time of such
Restricted Payment or after giving effect thereto,
(a) a Default or Event of Default shall have occurred and be
continuing or would occur as a result thereof; or
(b) the Company would fail to maintain sufficient Cash Equivalents to
comply with the terms of the covenant set forth in Section 4.14 hereof; or
(c) the Bank would fail to meet any of its capital requirements under
12 C.F.R. Part 565 (or any other successor provision) which are necessary to
enable it to qualify as an "adequately capitalized" institution under such
regulations; or
(d) the aggregate amount of all Restricted Payments (the amount of
such payments, if other than in cash, having been determined in good faith by
the Board of Directors, whose determination shall be conclusive and evidenced by
a Board Resolution filed with the Trustee) declared and made after the Issue
Date would exceed the sum of:
(i) 25% of the aggregate Consolidated Net Income (or, if such
Consolidated Net Income is a deficit, 100% of such deficit) of the Company
accrued on a cumulative basis during the period beginning on the first day
of the fiscal quarter during which the Issue Date occurred and ending on
the last day of the Company's last fiscal quarter ending prior to the date
of such proposed Restricted Payment, plus
----
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<PAGE>
(ii) the aggregate Net Cash Proceeds received by the Company as
capital contributions from a holder of the Company's Capital Stock, plus
----
(iii) without duplication of any amounts included in clause (ii)
above, the aggregate Net Cash Proceeds and the Fair Market Value of
property not constituting Net Cash Proceeds received by the Company from
any Person (other than a Subsidiary of the Company) from the issuance or
sale of Qualified Capital Stock after the Issue Date (except, in the case
of clauses (ii) and (iii), to the extent such proceeds are used to
purchase, redeem, defease, make sinking fund payments on or otherwise
acquire or retire for value Junior Indebtedness as set forth in clause (a)
of the definition of Permitted Payment herein), plus
----
(iv) 100% of the amount of any Indebtedness of the Company or a
Subsidiary that is converted into or exchanged for Qualified Capital Stock
of the Company after the Issue Date;
provided, however, that the foregoing provisions will not prevent (y) the
payment of a dividend within 60 days after the date of its declaration if at the
date of declaration such payment was permitted by the foregoing provisions or
(z) any Permitted Payment.
SECTION 4.05. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Subsidiaries or
properties of it or any of its Subsidiaries and (ii) all material lawful claims
for labor, materials, supplies and services that, if unpaid, might by law become
a Lien upon the property of it or any of its Subsidiaries; except for such
noncompliances as are not in the aggregate reasonably likely to have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries as a whole; provided, however, that there
-------- -------
-48-
<PAGE>
shall not be required to be paid or discharged any such tax, assessment or
charge, the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate provision has been
made or where the failure to effect such payment or discharge is not adverse in
any material respect to the Holders.
SECTION 4.06. Maintenance of Depository Institution Subsidiary and Minimum
------------------------------------------------------------
Total Capital of Bank.
---------------------
The Company shall, subject to the provisions of Article Five:
(a) maintain at all times as a Wholly-Owned Subsidiary an entity that
is a bank or thrift or substantially similar institution subject to regulation
by federal or state authorities and do all things necessary to ensure that
savings accounts of the Bank or such other institution are insured by the FDIC
or any successor organization up to the maximum amount permitted by the Federal
Deposit Insurance Act and regulations thereunder or any succeeding federal law
hereinafter enacted; and
(b) only for as long as any Indebtedness remains outstanding under the
Loan Agreement, do or cause to be done all things necessary to cause the Bank to
maintain Total Capital equal to or greater than $85,000,000.
SECTION 4.07. Maintenance of Properties.
-------------------------
The Company shall:
(a) cause all its properties and the properties of its Subsidiaries
used or useful in the conduct of the business of the Company and its
Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary facilities and equipment and shall cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously
-49-
<PAGE>
conducted at all times; provided, however, that nothing in this subsection shall
prevent the Company or a Subsidiary from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of its business and not disadvantageous
in any material respect to the Holders;
(b) take all appropriate steps to maintain the licenses and permits
used in the conduct of the business of the Company and its subsidiaries;
provided, however, that nothing in this subsection shall prevent the Company or
a Subsidiary from selling, abandoning or otherwise disposing of any such license
or permit if such sale, abandonment or disposition is, in the judgment of the
Company, desirable in the conduct of its business and not disadvantageous in any
material respect to the Holders; and
(c) and shall cause each Subsidiary to, at all times keep proper books
of record and account in which proper entries shall be made in accordance with
generally accepted accounting principles and, to the extent applicable,
regulatory accounting principles.
SECTION 4.08. Maintenance of Insurance.
------------------------
The Company shall at all times maintain and will cause each of its
Subsidiaries to maintain (either in the name of the Company or in such
Subsidiary's own name) with financially sound and reputable insurers, insurance
on all its properties in such amounts as management of the Company reasonably
determines is appropriate under the circumstances.
SECTION 4.09. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each of the Company's fiscal years, an Officers' Certificate, one of
the signors of which shall be the principal executive officer, principal
accounting officer or principal financial officer of the Company, stating that a
review of its activities and the activities of its Subsidiaries during the
preceding fiscal year has been made under the
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<PAGE>
supervision of the signing officers with a view to determining whether it has
kept, observed, performed and fulfilled its obligations under this Indenture and
further stating, as to each such officer signing such certificate, that to the
best of his knowledge the Company during such preceding fiscal year has kept,
observed, performed and fulfilled each and every such obligation and at the date
of such certificate there is no Default or Event of Default that has occurred
and is continuing or, if such signers do know of such Default or Event of
Default, the certificate shall describe the Default or Event of Default and its
status with particularity. The Officers' Certificate shall also notify the
Trustee should the Company elect to change the manner in which it fixes its
fiscal year end.
(b) The copy of the annual report on Form 10-K as filed with the SEC
and delivered to the Trustee pursuant to Section 4.11 shall be accompanied by a
------------
written report of the Company's independent accountants that in conducting their
audit of the financial statements which are a part of such annual report or such
annual financial statements nothing has come to their attention that would lead
them to believe that the Company has violated any provisions of Articles Four,
-------------
Five or Six insofar as they relate to accounting matters or, if any such
- ---- ---
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) So long as any of the Senior Notes are outstanding (i) if any
Default or Event of Default has occurred and is continuing or (ii) if any Holder
seeks to exercise any remedy hereunder with respect to a claimed Default under
this Indenture or the Senior Notes, the Company shall deliver to the Trustee as
soon as practicable, and in any event within five days after the Company becomes
aware of such event, by registered or certified mail or by facsimile
transmission followed by hard copy by registered or certified mail an Officers'
Certificate specifying such event, notice or other action.
SECTION 4.10. Compliance with Laws.
--------------------
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<PAGE>
The Company shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as are not in the aggregate
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Company and its Subsidiaries taken as a whole.
SECTION 4.11. Reports to Holders.
------------------
The Company shall deliver to the Trustee within 15 days after the
filing of the same with the Commission, copies of quarterly and annual reports
and of the information, documents and other reports, if any, which the Company
is required to file with the Commission pursuant to Section 13 or 15(d) of the
---------- -----
Exchange Act. Within 180 days after the Issue Date and at all times thereafter
that any Senior Notes shall be outstanding, notwithstanding that the Company may
not be subject to the reporting requirements of Section 13 or 15(d) of the
---------- -----
Exchange Act, the Company will file with the Commission, to the extent
permitted, and provide the Trustee and Holders with such annual reports and such
information, documents and other reports specified in Section 13 or 15(d) of the
---------- -----
Exchange Act which it would have been required to file had it been subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act. The
---------- -----
Company will also comply with the other provisions of the TIA ' 314(a).
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates). The Company agrees
that, for so long as any Senior Notes remain outstanding, it shall furnish to
the Holders and to securities analysts and prospective investors, upon their
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<PAGE>
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
SECTION 4.12. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury law
or other law that would prohibit or forgive the Company from paying all or any
portion of the principal of, premium or interest on the Senior Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the obligations or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.13. Limitations on Transactions with Affiliates.
-------------------------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly enter into any transaction or series of related
transactions (including without limitation, the purchase, sale, lease or
exchange of assets, property, or services) with any Affiliate of the Company
(except that the Company and any of its Subsidiaries may enter into any
transaction or series of related transactions with any other Subsidiary of the
Company without any limitation under this covenant), unless:
(i) such transactions or series of related transactions are on
terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than would be available in a comparable arm's length dealing
with a Person that is not such an Affiliate;
(ii) with respect to any transaction or series of related
transactions involving aggregate
-53-
<PAGE>
payments in excess of $500,000 the Company delivers an Officers'
Certificate to the Trustee certifying that such transaction or series of
transactions complies with clause (i) above and has been approved by a
majority of the Board of Directors of the Company; and
(iii) with respect to any transaction or series of related
transactions involving aggregate payments in excess of $2,000,000, the
Company delivers to the Trustee a written opinion of a nationally-
recognized investment banking firm to the effect that the transaction or
series of transactions are fair (from a financial point of view) to the
Company or such Subsidiary.
The limitations set forth in this paragraph shall not apply to (i)
transactions entered into pursuant to any agreement already in effect on the
date of this Indenture, (ii) any employment agreement, stock option, employee
benefit, indemnification, compensation, business expense reimbursement or other
employment-related agreement, arrangement or plan entered into by the Company or
any of its Subsidiaries either (A) in the ordinary course of business and
consistent with the past practice of the Bank or such other Subsidiary or (B)
which agreement, arrangement or plan was adopted by the Board of Directors of
the Company, (iii) residential mortgage, credit card and other consumer loans to
an Affiliate who is an officer, director or employee of the Company or any of
its Subsidiaries and which comply with the applicable provisions of 12 U.S.C. '
1468(b) and any rules and regulations of the OTS thereunder, (iv) any Restricted
Payments permitted by the Indenture or, (v) any transaction or series of
transactions in which the total amount involved does not exceed $250,000.
SECTION 4.14. Liquidity Maintenance.
---------------------
The Company shall, at all times when the Senior Notes are not rated in
an investment grade category by one or more nationally recognized statistical
rating organizations, maintain Cash Equivalents with a value equal to at least
100% of the required interest payments due on the Senior Notes on the next
succeeding semi-annual
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<PAGE>
Interest Payment Date. Cash Equivalents of a Subsidiary may be included in such
calculation only to the extent that such Cash Equivalents may at such time be
distributed to the Company without restriction or notice to any Person. Such
Cash Equivalents shall not be the subject of any pledge, Lien, encumbrance or
charge of any kind and shall not be used as collateral or security for
Indebtedness for borrowed money or otherwise of the Company or its Subsidiaries
nor may such Cash Equivalents be used as reserves for any self-insurance
maintained by the Company.
SECTION 4.15. Interest Reserve Account.
------------------------
(a) The Company agrees to: (i) maintain a segregated deposit account
and segregated Permitted Investments (the account or accounts pursuant to which
such deposit account and Permitted Investments are maintained are collectively
referred to herein as "Interest Reserve Account") in a bank or trust Company,
------------------------
which may be the Trustee, that (x) is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than
$50,000,000, (y) is not an Affiliate of the Company or any of its Subsidiaries
and (z) is in compliance with its applicable minimum regulatory capital
requirements, and (ii) fund the Interest Reserve Account as set forth in Section
4.15(b). Any funds or other assets in the Interest Reserve Account from time to
time shall not be commingled with any other funds or assets of the Company or
any of the Company's Subsidiaries or Affiliates, provided, however, that if on
any Interest Payment Date the amount of funds and the Fair Market Value of any
Permitted Investments in the Interest Reserve Account shall exceed the amount
required to be maintained therein in accordance with Section 4.15(b), the
Company shall be entitled to withdraw all or any portion of such excess in
accordance with an Officer's Certificate delivered pursuant to Section 4.15(d)
hereof.
(b) The Company agrees to carry in the Interest Reserve Account an
aggregate amount of cash and Fair Market Value of Permitted Investments
(determined by the Company not less frequently than on each Interest Payment
Date) sufficient to pay at all times during the period commencing on the date of
issuance of the Senior Notes,
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<PAGE>
interest due on the Senior Notes on the next two succeeding Interest Payment
Dates. The Company agrees to (i) make such deposits as are required by this
Section 4.15(b), (ii) maintain complete and correct books and records in
reasonable detail with respect to the valuation of the Interest Reserve Account
and (iii) use, to the extent necessary, funds and Permitted Investments in the
Interest Reserve Account to pay principal, premium if any, and interest due from
time to time on the Senior Notes or as otherwise required pursuant to the
Security Agreement.
(c) At all times when there are amounts in the Interest Reserve
Account, the Company will maintain arrangements with respect to the creation,
maintenance and perfection of a first priority security interest in favor of the
Holders of the Senior Notes in the Interest Reserve Account, including, without
limitation, the execution and delivery of the Custody and Security Agreement and
the Securities Account Control Agreement.
(d) Within 30 days after each Interest Payment Date, the Company will
furnish to the Trustee an Officers' Certificate stating the amount of cash on
deposit and the Fair Market Value of Permitted Investments in the Interest
Reserve Account as of such Interest Payment Date (after taking into account any
payments made therefrom on such Interest Payment Date or any withdrawals by the
Company of any excess amount as permitted under Section 4.15(a)).
SECTION 4.16. Limitations on Indebtedness.
---------------------------
(a) Neither the Company nor any Subsidiary shall create, incur, issue,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for or with respect to, or otherwise permit to exist any Indebtedness,
except:
(i) Indebtedness represented by the Senior Notes;
(ii) Indebtedness incurred under the Loan Agreement in the amount
and on such terms as are in effect on the Issue Date;
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<PAGE>
(iii) Junior Indebtedness with a stated maturity of principal (or
any required repurchase, redemption, defeasance or sinking fund payments)
which is after the final Stated Maturity of the Senior Notes;
(iv) Indebtedness the proceeds of which are immediately applied
to redeem or repurchase Senior Notes and provided that if such Indebtedness
is used to redeem or repurchase only a portion of the Senior Notes, such
Indebtedness has a stated maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund payments) which is after
the final Stated Maturity of the Senior Notes;
(v) Indebtedness specified in paragraph (b) of the definition of
"Permitted Payment;" and
(vi) Excluded Indebtedness.
(b) Notwithstanding the provisions of Section 4.16(a), the Company
shall not and shall not permit any Subsidiary to create, incur, assume,
guarantee or otherwise in any manner become directly or indirectly liable for or
with respect to, or otherwise permit to exist, any Indebtedness (including any
Indebtedness assumed in connection with the acquisition of assets from another
Person or as a result of the merger of any Person with or into the Company)
unless, at the time of such event, the principal amount of total Indebtedness of
the Company and its Subsidiaries would not exceed 100% of the Company's
Consolidated Net Worth, provided that for purposes of this requirement,
Indebtedness (i) shall not include Excluded Indebtedness and (ii) shall be net
of the Interest Reserve Account specified in Section 4.15(a).
SECTION 4.17. Limitations on Dividends and Other Payment Restrictions
-------------------------------------------------------
Affecting Subsidiaries.
----------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, create, assume or otherwise cause or suffer to exist or to become effective
any consensual encumbrance or restriction on the ability of any such Subsidiary
to:
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<PAGE>
(a) pay any dividends or make any other distribution on its Capital
Stock;
(b) make payments in respect of any Indebtedness owed to the Company
or any other Subsidiary; or
(c) make loans or advances to the Company or any Subsidiary or to
guarantee Indebtedness of the Company or any other Subsidiary;
other than, in the case of (a), (b) and (c),
(1) restrictions imposed by applicable laws and regulations;
(2) restrictions existing under agreements in effect on the
date of this Indenture;
(3) consensual encumbrances or restrictions binding upon any
Person at the time such Person becomes a Subsidiary of the Company so
long as such encumbrances or restrictions are not created, incurred or
assumed in contemplation of such Person becoming a Subsidiary;
(4) restrictions on the transfer of assets which are subject
to Liens;
(5) restrictions existing under agreements evidencing
Indebtedness which is incurred after the date of this Indenture in
accordance with Section 4.16 hereof, provided that the terms and
conditions of any such restrictions are no more restrictive than those
contained in this Indenture; and
(6) restrictions existing under any agreement which
refinances or replaces any of the agreements containing the
restrictions in clauses (2), (3) and (5); provided that the terms and
conditions of any such restrictions are not less favorable to the
Holders than those
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<PAGE>
under the agreement evidencing or relating to the Indebtedness
refinanced or replaced.
SECTION 4.18. Restrictions on Issuance and Sale or Disposition of Capital
-----------------------------------------------------------
Stock of Subsidiaries.
---------------------
Except as otherwise provided in Article V hereof, the Company shall
not, and shall not permit any Subsidiary to, issue or sell, pledge, convey or
otherwise transfer any shares of the Capital Stock of the Bank or any other
Subsidiary (including Capital Stock of any successor or surviving entity
hereto)(other than (i) to the Company or a Wholly-Owned Subsidiary, (ii) with
respect to any Subsidiary which is a bank, directors' qualifying shares, (iii)
as expressly required under Section 4.1(k) of the Loan Agreement as in effect on
the Issue Date, and (iv) solely with respect to the Company, as permitted
pursuant to duly approved stock option plans employment agreements). In the
event that the amount of Capital Stock of the Bank pledged to secure the
Company's obligations under the Credit Agreement exceeds the amount required
under Section 4.1(k) thereof, as in effect on the Issue Date, the Company shall
promptly obtain the release and return of such excess stock.
SECTION 4.19. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require that the Company purchase all or a portion of such Holder's
Senior Notes in cash pursuant to the offer described below (the "Change of
---------
Control Offer"), at a purchase price equal to 101% of the principal amount
- -------------
thereof plus accrued and unpaid interest, if any, to the date of purchase.
(b) Within 30 days following the date on which a Change of Control
occurs (the "Change of Control Date"), the Company shall send, by first class
----------------------
mail, postage prepaid, a notice to each Holder of Senior Notes at their last
registered address and the Trustee, which notice shall govern the terms of the
Change of Control Offer. The notice to the Holders shall contain all
instructions
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<PAGE>
and materials necessary to enable such Holders to tender Senior Notes pursuant
to the Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant
to Section 4.19 of the Indenture and that all Senior Notes validly
------------
tendered and not withdrawn will be accepted for payment;
(2) the purchase price (including the amount of accrued
interest, if any) and the purchase date (which shall be no earlier
than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law) (the "Change of Control
-----------------
Payment Date"), provided, however, with respect to a Change of Control
------------ -------- -------
occurring solely by operation of clause (iii) of the definition of
"Change of Control" and the reference to clause (ii) of such
definition therein, in no event shall the Change of Control Payment
Date occur until the time and date on which the Company shall
consummate the transaction referred to in such clause (ii);
(3) that any Senior Note not tendered will continue to
accrue interest;
(4) that, unless the Company defaults in making payment
therefor, any Senior Note accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that Holders electing to have a Senior Note purchased
pursuant to a Change of Control Offer will be required to surrender
the Senior Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Note completed, to the Paying
Agent and Registrar for the Senior Notes at the address specified in
the notice prior to the close of business on the third Business Day
prior to the Change of Control Payment Date;
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(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the third Business Day
prior to the Change of Control Payment Date, a facsimile transmission
or letter setting forth the name of the Holder, the principal amount
of the Senior Notes the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have such Senior Notes
purchased;
(7) that Holders whose Senior Notes are purchased only in
part will be issued new Senior Notes in a principal amount equal to
the unpurchased portion of the Senior Notes surrendered; provided,
--------
however, that each Senior Note purchased and each new Senior Note
-------
issued shall be in a principal amount of $100,000 or integral
multiples thereof; and
(8) the circumstances and relevant facts regarding such
Change of Control.
(c) On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Senior Notes or portions thereof (in integral multiples
of $100,000) validly tendered pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal Tender
------------
sufficient to pay the purchase price plus accrued and unpaid interest, if any,
of all Senior Notes to be purchased and (iii) deliver to the Trustee Senior
Notes so accepted together with an Officers' Certificate stating the Senior
Notes or portions thereof being purchased by the Company. Upon receipt by the
Paying Agent of the monies specified in clause (ii) above and a copy of the
Officers' Certificate specified in clause (iii) above, the Paying Agent shall
promptly mail to the Holders of Senior Notes so accepted payment in an amount
equal to the purchase price plus accrued and unpaid interest, if any, out of the
funds deposited with the Paying Agent in accordance with the preceding sentence.
The Trustee shall promptly authenticate and mail to such Holders new Senior
Notes equal in principal amount to any unpurchased portion of the Senior Notes
surrendered. Upon the payment of the purchase price for the Senior Notes
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accepted for purchase, the Trustee shall return the Senior Notes purchased to
the Company for cancellation. Any monies remaining after the purchase of Senior
Notes pursuant to a Change of Control Offer shall be returned within three
Business Days by the Trustee to the Company except with respect to monies owed
as obligations to the Trustee pursuant to Article Seven. For purposes of this
Section 4.19, the Trustee shall act as the Paying Agent.
- ------------
(d) The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such rule, laws and regulations are applicable in connection with the
purchase of the Senior Notes pursuant to a Change of Control Offer. To the
extent the provisions of any securities laws and regulations conflict with the
provisions of this Indenture relating to a Change of Control Offer, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations relating to such Change of Control
Offer by virtue thereof.
(e) Except as required by applicable law or regulations, the Company
shall not enter into any agreement which conflicts with, would be breached by,
or requires the Company to obtain consent of another Person for the Company's
performance of its obligations under this Section.
SECTION 4.20. Prohibition on Incurrence of Senior Subordinated Debt.
-----------------------------------------------------
Without prejudice to the provisions of Section 4.16, the Company shall
not incur or suffer to exist Indebtedness that by its terms is senior in right
of payment to the Senior Notes and subordinate in right of payment to any other
Indebtedness of the Company.
SECTION 4.21. Limitation on Preferred Stock of Subsidiaries.
---------------------------------------------
The Company shall not permit any of its Subsidiaries to, issue any
Preferred Stock (other than to the Company or to a Wholly-Owned Subsidiary of
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the Company) or permit any Person (other than the Company or a Wholly-Owned
Subsidiary of the Company) to own any Preferred Stock of any Subsidiary of the
Company.
SECTION 4.22. Limitations on Liens and Guarantees.
-----------------------------------
(a) Except (i) for any Liens securing Indebtedness under the Loan
Agreement pursuant to the terms of such Loan Agreement as in effect on the Issue
Date, (ii) Permitted Liens and (iii) as provided by Section 7.07 of this
Indenture, neither the Company nor the Bank shall create, assume, incur or
suffer to exist any Lien upon (i) the Capital Stock of the Bank or (ii) any of
the Company's property or assets (other than the Capital Stock of the Bank) now
owned, or acquired after the date of this Indenture, or any income or profits
from any such property or assets, as security for Indebtedness which may be
incurred by the Company pursuant to Section 4.16 and having a contractual time
to maturity greater than one year (other than the Senior Notes) without, in the
case of either (i) or (ii), effectively providing that the Senior Notes will be
equally and ratably secured with (or prior to) such Indebtedness; provided that
if such Indebtedness is Junior Indebtedness, any such security interest with
respect to such Junior Indebtedness shall be subordinated to the security
interest with respect to the Senior Notes to the same extent as such Junior
Indebtedness is subordinated to the Senior Notes.
(b) Except, (i) for any Liens securing Indebtedness under the Loan
Agreement pursuant to the terms of such Loan Agreement as in effect on the Issue
Date, (ii) Permitted Liens and (iii) as provided by Section 7.07 of this
Indenture, the Company shall not permit any Subsidiary of the Company, directly
or indirectly, to guarantee or assume, or subject any of its assets to a Lien to
secure, any Indebtedness which may be incurred by the Company or any Subsidiary
pursuant to Section 4.16 (other than the Senior Notes) unless (i) such
Subsidiary simultaneously executes and delivers a supplemental indenture to this
Indenture providing for a guarantee of, or pledge of assets to secure, the
Senior Notes by such Subsidiary on terms at least as favorable to the Holders as
such guarantee or security interest in such assets is to the holders of such
Indebtedness, except that in the event of a guarantee or security interest in
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such assets with respect to Junior Indebtedness, any such guarantee or security
interest in such assets with respect to such Junior Indebtedness shall be
subordinated to such Subsidiary's guarantee or security interest in such assets
with respect to the Senior Notes to the same extent as such Junior Indebtedness
is subordinated to the Senior Notes and (ii) such Subsidiary waives, and agrees
that it will not in any manner whatsoever claim, or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Subsidiary of the Company as a result of
any payment by such Subsidiary under its guarantees.
SECTION 4.23. Maintenance of Business
-----------------------
The Company shall continue to engage primarily in the business of (i)
acting as a holding company and holding one hundred percent of the Capital Stock
of the Bank and (ii) acting as a holding company and holding one hundred percent
of the Capital Stock of one or more other Subsidiaries engaged in activities
permissible for subsidiaries of a savings and loan holding company under the
Home Owners' Loan Act (or any successor provision). The Company shall not
permit the Bank to sell all or substantially all of the Bank's deposits,
branches or loan portfolio (other than in connection with the Bank's ordinary
securitization activities) and shall cause the Bank to continue to engage in the
business of banking.
SECTION 4.24. Registration Rights
-------------------
The Company shall comply with its obligations to afford registration
rights to the Senior Notes as set forth in a letter agreement dated on or prior
to the Issue Date.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
----------------------------------------
(a) The Company shall not, in a single transaction or a series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and its Subsidiaries) whether as an entirety
or substantially as an entirety to any Person unless:
(i) either (1) the Company shall be the surviving or continuing
entity or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person that
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and of the Company's
Subsidiaries substantially as an entirety (the "Surviving Entity") (x)
----------------
shall be an entity organized and validly existing under the laws of the
United States or any State thereof or the District of Columbia and (y)
shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the
due and punctual payment of the principal of, and premium, if any, and
interest on all the Senior Notes and the performance of every covenant of
the Senior Notes, this Indenture and the Registration Rights Agreement on
the part of the Company to be performed or observed, as the case may be;
(ii) immediately before and immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
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granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and
(iii) immediately after giving effect to the transaction or
series of transactions, the Company or the surviving entity, as applicable,
and their respective banking and thrift subsidiaries, as applicable, shall
be in compliance with all applicable regulatory capital requirements;
(iv) immediately after giving effect to the transaction or series
of transactions, the Company or the surviving entity, as applicable, could
incur at least $1.00 of additional Indebtedness without violating Section
4.16(b) hereof; and
(v) the Company or the Surviving Entity, as the case may be,
shall have delivered to the Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating to
such transaction have been satisfied.
(b) For purposes of this Section 5.01 and the definition of "Change of
------------
Control" under this Indenture, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties or assets of the Company, will be deemed to be the transfer of
all or substantially all of the properties and assets of the Company unless such
transfer is to the Company or one or more Wholly-Owned Subsidiaries.
SECTION 5.02. Successor Corporation Substituted
---------------------------------
Upon any consolidation, combination or merger, or any transfer of all
or substantially all of the assets of the Company in accordance with Section
-------
5.01 in which the Company is not the continuing entity, the successor Person
- ----
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formed by such consolidation or into which the Company is merged or to which
such conveyance, lease or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
and the Senior Notes with the same effect as if such successor Person had been
named as the Company herein. When a successor entity assumes all of the
obligations of the Company hereunder and under the Senior Notes and agrees to be
bound hereby and thereby, the predecessor shall be released from such
obligations.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
-----------------
Each of the following shall be an "Event of Default":
----------------
(1) the failure to pay interest on the Senior Notes when the
same becomes due and payable and such Default continues for a period
of 15 days;
(2) the failure to pay principal of, or premium, if any, on
any Senior Note, when such principal, or premium, if any, becomes due
and payable, at maturity, upon acceleration, upon redemption or
otherwise (including the failure to make a payment to purchase Senior
Notes tendered pursuant to a Change of Control Offer);
(3) a default in the performance, or breach, of the
provisions of Section 5.01;
(4) a default in the observance or performance of any other
covenant or agreement contained in this Indenture, which Default
continues for a period of 30 days after the Company receives written
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notice thereof specifying the default (and demanding that such Default
be remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Senior Notes;
(5) the failure to pay at the final maturity (giving effect
to any applicable grace periods and any extensions thereof) the
principal amount of any Indebtedness of the Company or any Subsidiary
of the Company or the acceleration of the final stated maturity of any
such Indebtedness, if, in either case, the aggregate principal amount
of such Indebtedness, together with the principal amount of any other
such Indebtedness in default for failure to pay principal at final
maturity or which has been accelerated, is equal to or greater than 5%
of the Company's Consolidated Net Worth at any time and such
Indebtedness has not been discharged in full or such acceleration has
not been rescinded or annulled within 30 days of such final maturity
or acceleration;
(6) one or more judgments, decrees or orders has been
rendered against the Company or any Subsidiary for the payment of an
amount of money which individually or in the aggregate, is equal to or
greater than 5% of the Company's Consolidated Net Worth and such
judgment or judgments remain undischarged, unpaid or unstayed for a
period of 60 days after such judgment or judgments become final and
nonappealable;
(7) the Company or any Subsidiary (A) commences a voluntary
case or proceeding under any Bankruptcy Law with respect to itself,
(B) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy
Law, (C) consents to the appointment of a custodian of it or for
substantially all of its property, (D) consents to or acquiesces in
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the institution of a bankruptcy or an insolvency proceeding against it
or (E) makes a general assignment for the benefit of its creditors;
(8) a court of competent jurisdiction enters a judgment,
decree or order for relief in respect of the Company or any Subsidiary
in an involuntary case or proceeding under any Bankruptcy Law, which
shall (A) approve as properly filed a petition seeking reorganization,
arrangement, adjustment or composition in respect of the Company or
any Subsidiary, (B) appoint a custodian of the Company or any
Subsidiary or for substantially all of its property or (C) order the
winding-up or liquidation of its affairs; and such judgment, decree or
order shall remain unstayed and in effect for a period of 60
consecutive days;
(9) failure by the Bank to comply with its Regulatory
Capital Requirements; provided, that an Event of Default under this
paragraph (9) shall not be deemed to have occurred (a) during the 45
day period following the Bank's failure to comply with Regulatory
Capital Requirements, if within such 45 day period, the Bank files a
capital plan with the OTS, (b) during the 60 day period following the
initial submission of a capital plan to the OTS by the Bank (or, if
the OTS notifies such Bank in writing that it needs a longer period of
time to determine whether to approve such capital plan, such longer
period as is so specified by the OTS), unless prior to such date the
OTS shall have notified the Bank of its determination not to approve
such capital plan, or (c) during the period that the Bank is operating
in material compliance with a capital plan approved by the OTS;
provided, further, that if the Bank meets the minimum amount of
capital required to meet each of the industry-wide regulatory capital
requirements pursuant to 12 U.S.C. Section 1464(t) and 12 C.F.R. Part
567 (and any amendment to either thereof) or any successor law or
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regulation, then notwithstanding the Bank's failure to meet an
individual minimum capital requirement pursuant to 12 U.S.C. Section
1464(s) and 12.C.F.R. Section 567.3 (and any amendment to either
thereof) or any successor law or regulation, no Event of Default shall
have occurred pursuant to this paragraph (9) unless written notice
thereof shall have been given (x) to the Company by the Trustee or (y)
to the Company and the Trustee by the Holders of 25% in aggregate
principal amount of the outstanding Senior Notes; or
(10) the termination of the Acquisition Agreement prior to
the consummation of transactions contemplated thereby.
SECTION 6.02. Acceleration.
------------
(a) If an Event of Default (other than an Event of Default specified
in Section 6.01(7) or (8) with respect to the Company) shall occur and be
--------------- ---
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Senior Notes may, declare the principal of all the Senior Notes,
together with all accrued and unpaid interest, to be due and payable by notice
in writing to the Company and, in the case of an acceleration notice from the
Holders of at least 25% in principal amount of the outstanding Senior Notes, the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same shall become immediately
-------------------
due and payable. If an Event of Default specified in Section 6.01(6) or (7)
--------------- ---
with respect to the Company occurs and is continuing, then all unpaid principal
of and premium, if any, and accrued and unpaid interest on all of the
outstanding Senior Notes will ipso facto become and be immediately due and
---- -----
payable without any declaration or other act on the part of the Trustee or any
Holder.
(b) At any time after a declaration of acceleration with respect to
the Senior Notes as described in clause (a) above, the Holders of a majority in
principal amount of the Senior Notes then outstanding (by notice to the Trustee)
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may rescind and cancel such declaration and its consequences if (i) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction, (ii) all existing Events of Default have been cured or
waived except nonpayment of principal or interest on the Senior Notes that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest (at the same rate specified in the Senior
Notes) on overdue installments of interest and overdue payments of principal,
which has become due other than by such declaration of acceleration, has been
paid, (iv) the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and (v) in
the event of the cure or waiver of a Default or Event of Default of the type
described in Sections 6.01(6) and (7), the Trustee has received an Officers'
---------------- ---
Certificate and Opinion of Counsel that such Default or Event of Default has
been cured or waived and the Trustee shall be entitled to conclusively rely upon
such Officers' Certificate and Opinion of Counsel. No such rescission shall
affect any subsequent Default or Event of Default or impair any right consequent
thereto.
SECTION 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, premium, if any, or accrued and unpaid interest on the
Senior Notes or to enforce the performance of any provision of the Senior Notes
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Senior Notes or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
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SECTION 6.04. Waiver of Past Defaults.
-----------------------
Subject to Sections 6.07 and 9.02, the Holders of a majority in
------------- ----
principal amount of the Senior Notes by notice to the Trustee may waive any
existing Default or Event of Default and its consequences, except a Default in
the payment of the principal of or interest on any Senior Note as specified in
clauses (1) and (2) of Section 6.01.
------------
SECTION 6.05. Control by Majority.
-------------------
Subject to Section 9.02, the Holders of a majority in aggregate
------------
principal amount of the then outstanding Senior Notes may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on it, including, without
limitation, any remedies provided for in Section 6.03. Subject to Section 7.01,
------------ ------------
however, the Trustee may, in its discretion, refuse to follow any direction that
conflicts with any law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of another Holder (it being understood that the
Trustee shall have no duty to ascertain whether or not such actions or
forbearances are unduly prejudicial to such Holders) or that may involve the
Trustee in personal liability; provided, however, that the Trustee may take any
-------- -------
other action deemed proper by the Trustee, in its discretion, that is not
inconsistent with such direction.
SECTION 6.06. Limitation on Suits.
-------------------
A Holder may not pursue any remedy with respect to this Indenture or
the Senior Notes unless:
(1) the Holder gives to the Trustee notice of a continuing
Event of Default;
(2) Holders of at least 25% in aggregate principal amount of
the then outstanding Senior Notes make a written request to the
Trustee to pursue the remedy;
(3) such Holders offer to the Trustee indemnity or security
against any loss, liability or expense to be incurred in compliance
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with such request which is satisfactory to the Trustee;
(4) the Trustee does not comply with the request within 45
days after receipt of the request and the offer of satisfactory
indemnity or security; and
(5) during such 45-day period the Holders of a majority in
aggregate principal amount of the then outstanding Senior Notes do not
give the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of, premium and interest on a Senior
Note, on or after the respective due dates expressed in such Senior Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of principal or interest specified
in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
------------
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Senior Notes for the whole amount of
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest at the rate set forth in the Senior
Notes and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
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SECTION 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may 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 the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Company or any other
obligor upon the Senior Notes, any of their respective creditors or any of their
respective property, and shall be entitled and empowered to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same, and any custodian in any such judicial proceedings is
hereby authorized by each Holder 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 Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, taxes, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section 7.07.
------------
The Company's payment obligations under this Section 6.09 shall be secured in
------------
accordance with the provisions of Section 7.07. Nothing herein contained shall
------------
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Senior Notes or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
SECTION 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article Six, it
-----------
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Sections 6.09 and 7.07;
------------- ----
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs;
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Third: to Holders for amounts due and unpaid on the Senior Notes for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Senior Notes for principal, premium, if any, and interest, respectively;
and
Fourth: to the Company or any other obligor on the Senior Notes, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Holders pursuant to this Section 6.10.
------------
SECTION 6.11. Undertaking for Costs.
---------------------
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, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by
------------
a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than
------------
10% in aggregate principal amount of the outstanding Senior Notes.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such rights and powers vested in it by
this Indenture and use the same degree of care and skill in its exercise thereof
as a prudent Person would exercise or use under the circumstances in the conduct
of its own affairs.
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(b) Except during the continuance of a Default or an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture or the TIA and no duties,
covenants, responsibilities or obligations shall be implied in this
Indenture that are adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
(including Officers' Certificates) or opinions (including Opinions of
Counsel) furnished to the Trustee and conforming to the requirements
of this Indenture. However, as to any certificates or opinions which
are required by any provision of this Indenture to be delivered or
provided to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph
(b) of this Section 7.01.
------------
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.02, 6.04 or 6.05.
------------ ---- ----
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<PAGE>
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
------------
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
(g) In the absence of bad faith, negligence or willful misconduct on
the part of the Trustee, the Trustee shall not be responsible for the
application of any money by any Paying Agent other than the Trustee.
SECTION 7.02. Rights of Trustee.
-----------------
Subject to Section 7.01:
------------
(a) The Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of Counsel,
which shall conform to Sections 10.04 and 10.05. The Trustee shall not be
-------------- -----
liable for and shall be fully protected in respect of any action it takes or
omits to take in good faith in reliance on such Officers' Certificate, or an
Opinion of Counsel or advice of counsel.
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(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent or attorney
appointed with due care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith that it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution (including any Board Resolution),
certificate (including any Officers' Certificate), statement, instrument,
opinion (including any Opinion of Counsel), notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled, upon reasonable notice
to the Company, to examine the books, records, and premises of the Company,
personally or by agent or attorney.
(f) 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 Holders of the Senior Notes pursuant to the provisions
of this Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred by it in compliance with such request, order or direction.
(g) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Senior Notes shall be full and complete authorization and
protection from liability with respect to any action taken, omitted or suffered
by it hereunder in good faith and in accordance with the advice or opinion of
such counsel.
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(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty.
(j) The Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture.
(k) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the principal corporate trust office of the Trustee,
and such notice references the Senior Notes and this Indenture.
SECTION 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Senior Notes and may otherwise deal with the Company, any
Subsidiary, or their respective Affiliates, with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
------------- ----
SECTION 7.04. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Senior Notes, and it shall not be accountable for the
Company's use of the proceeds from the Senior Notes, and it shall not be
responsible for any statement of the Company in this Indenture or the Senior
Notes other than the Trustee's certificate of authentication.
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SECTION 7.05. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and if
the Trustee has actual knowledge of such Default or Event of Default, the
Trustee shall mail to each Noteholder notice of the uncured Default or Event of
Default within 90 days after such Default or Event of Default occurs. Except in
the case of a Default or an Event of Default in the payment of interest or
principal of, premium or interest on, any Senior Note, including an accelerated
payment and the failure to make payment on the Change of Control Payment Date
pursuant to a Change of Control Offer and, except in the case of a failure to
comply with Article Five, the Trustee may withhold the notice if and so long as
------------
the Trustee's Board of Directors, and/or Trust Officers in good faith determines
that withholding the notice is in the interest of the Holders. The Trustee
shall not be deemed to have knowledge of a Default or Event of Default other
than (i) any Event of Default occurring pursuant to Sections 6.01(1) or 6.01(2);
---------------- -------
or (ii) any Default or Event of Default of which a Trust Officer shall have
received written notification or obtained actual knowledge. As used herein, the
term "actual knowledge" means the actual fact or statement of knowing, without
any duty to make any investigation with regard thereto.
SECTION 7.06. Reports by Trustee to Holders.
-----------------------------
Within 60 days after April 15 of each year beginning with April 15,
1999, the Trustee shall, to the extent that any of the events described in TIA
(S) 313(a) occurred within the previous twelve months, but not otherwise, mail
to each Noteholder a brief report dated as of such date that complies with TIA
(S) 313(a). The Trustee also shall comply with TIA (SS) 313(b) and 313(c).
A copy of each report at the time of its mailing to Noteholders shall
be mailed to the Company and filed with the SEC and each stock exchange, if any,
on which the Senior Notes are listed.
The Company shall promptly notify the Trustee if the Senior Notes
become listed on any stock exchange, and of any delisting thereof, and if the
Senior Notes are so listed, the Trustee shall comply with TIA (S) 313(d).
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SECTION 7.07. Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time, and the
Trustee shall be entitled to, such compensation as may be from time to time
agreed upon in writing by the Company and the Trustee. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses, disbursements and advances incurred or made
by it in connection with the performance of its duties and the discharge of its
obligations under this Indenture. Such expenses shall include the reasonable
fees and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee and its agents, employees,
officers, stockholders and directors for, and hold them harmless against, any
and all loss, liability, damage, claim or expense, including taxes (other than
taxes based on the income of the Trustee) incurred by them except for such
actions to the extent caused by any negligence, bad faith or willful misconduct
on their part, arising out of or in connection with the acceptance or
administration of this trust including the reasonable costs and expenses of
defending themselves against or investigating any claim or liability in
connection with the exercise or performance of any of the Trustee's rights,
powers or duties hereunder. The Trustee shall notify the Company promptly of
any claim asserted against the Trustee or any of its agents, employees,
officers, stockholders and directors for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee and its agents, employees, officers, stockholders and directors
subject to the claim may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided, however, that the
-------- -------
Company will not be required to pay such fees and expenses if it assumes the
Trustee's defense and there is no conflict of interest between the Company and
the Trustee and its agents, employees, officers, stockholders and directors
subject to the claim in connection with such defense as reasonably determined by
the Trustee; provided, further, that the Company shall not be liable to pay the
-------- -------
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fees and expenses of more than one local counsel in any one jurisdiction. The
Company need not pay for any settlement made without its written consent. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
------------
Trustee shall have a lien prior to the Senior Notes on all assets or money held
or collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or interest on particular Senior Notes.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(7) or (8) occurs, such expenses and the
--------------- ---
compensation for such services shall be paid to the extent allowed under any
Bankruptcy Law.
The provisions of this Section 7.07 shall survive the termination of
------------
this Indenture.
SECTION 7.08. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Company in writing at least
30 days in advance. The Holders of a majority in principal amount of the
outstanding Senior Notes may remove the Trustee by so notifying the Company and
the Trustee and may appoint a successor Trustee with the Company's consent. A
resignation or removal of the Trustee and appointment of a successor Trustee
shall become effective only with the successor Trustee's acceptance of
appointment as provided in this Section. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
------------
(b) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a receiver or other public officer takes charge of the Trustee or
its property; or
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(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Senior Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Promptly after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
------------
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee (at the expense of
the Company), the Company or the Holders of at least 10% in aggregate principal
amount of the outstanding Senior Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
------------
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
-------
7.08, the Company's obligations under Section 7.07 shall continue for the
- ---- ------------
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
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corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
-------- -------
such corporation shall be otherwise qualified and eligible under this Article
-------
Seven.
- -----
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirement of TIA (SS) 310(a)(1) and 310(a)(2). The Trustee (or in the case
of a corporation included in a bank holding Company system, the related bank
holding Company) shall have a combined capital and surplus of at least $100
million as set forth in its most recent published annual report of condition. In
addition, if the Trustee is a corporation included in a bank holding Company
system, the Trustee, independently of such bank holding Company, shall meet the
capital requirements of TIA (S) 310(a)(2). The Trustee shall comply with TIA (S)
310(b); provided, however, that there shall be excluded from the operation of
-------- -------
TIA (S) 310(b)(1) any indenture or indentures under which other notes, or
certificates of interest or participation in other notes, of the Company are
outstanding, if the requirements for such exclusion set forth in TIA (S)
310(b)(1) are met. The provisions of TIA (S) 310 shall apply to the Company and
any other obligor of the Senior Notes.
SECTION 7.11. Preferential Collection of Claims Against the Company.
-----------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein. The
provisions of TIA (S) 311 shall apply to the Company and any other obligor of
the Senior Notes.
SECTION 7.12. Trustee's Application for Instructions from the Company.
-------------------------------------------------------
Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
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on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or omission
of, the Trustee in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of the Company's Obligations.
----------------------------------------
This Indenture shall be Discharged and will cease to be of further
effect and the obligations of the Company under the Senior Notes and this
Indenture shall terminate (except that the obligations under Sections 2.03
-------------
through 2.07, 7.01, 7.02, 7.07 and 7.08 and the rights, powers, trusts, duties
---- ---- ---- ---- ----
and immunities of the Trustee hereunder shall survive the effect of this Article
Eight) when (a) either (i) all Senior Notes, theretofore authenticated and
delivered (except lost, stolen or destroyed Senior Notes which have been
replaced or paid and Senior Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (ii) all Senior Notes not theretofore delivered to
the Trustee for cancellation have become due and payable, or will become due and
payable or are to be called for redemption within one year, and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Senior
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Notes not theretofore delivered to the Trustee for cancellation, for principal
of, premium, if any, and interest on the Senior Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (b) the Company has paid all other sums payable under this Indenture by
the Company; and (c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions precedent
under this Indenture relating to the satisfaction and discharge of this
Indenture have been complied with; provided, however, that such counsel may
-------- -------
rely, as to matters of fact, on a certificate or certificates of officers of the
Company.
In addition, at the Company's option, either (a) the Company shall be
deemed to have been Discharged from any and all obligations with respect to the
outstanding Senior Notes ("Legal Defeasance") after the applicable conditions
----------------
set forth below have been satisfied (except for the obligations of the Company
under Sections 2.03, 2.04, 2.06, 2.07, 7.01, 7.02, 7.07 and this Section 8.01)
------------- ---- ---- ---- ---- ---- ---- ------------
or (b) the Company shall cease to be under any obligation to comply with any
term, provision or condition set forth in Sections 4.04 through 4.09, inclusive
------------- ----
(subject, in the case of Section 4.09 to any requirement of the Trust Indenture
------------
Act) 4.13, 4.16 through 4.19, inclusive, 4.22, 4.23 and Section 5.01 and
---- ---- ---- ---- ---- ------------
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Senior Notes ("Covenant
--------
Defeasance") after the applicable conditions set forth below have been
- ----------
satisfied:
(1) The Company shall have irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust, for the
benefit of the Holders cash in U.S. Legal Tender, non-callable U.S.
Government Obligations or a combination thereof that, together with
the payment of interest and premium thereon and principal in respect
thereof in accordance with their terms, will be sufficient, in the
opinion of a nationally recognized firm of independent public
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accountants expressed in a written certification thereof delivered to
the Trustee, to pay all the principal of, premium, if any, and
interest on the Senior Notes on the dates such payments are due in
accordance with the terms of such Senior Notes, as well as the
Trustee's fees and expenses; provided, however, that no deposits made
-------- -------
pursuant to this Section 8.01(1) shall cause the Trustee to have a
-------
conflicting interest as defined in and for purposes of the TIA; and
provided, further, that, as confirmed by an Opinion of Counsel, no
-------- -------
such deposit shall result in the Company, the Trustee or the trust
becoming or being deemed to be an "investment Company" under the
Investment Company Act of 1940;
(2) No Event of Default or Default with respect to the
Senior Notes shall have occurred and be continuing on the date of such
deposit after giving effect to such deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all or
a portion of the proceeds of which will be used to defease the Senior
Notes pursuant to this Article Eight) or insofar as Events of Default
-------------
pursuant to Section 6.01(6) or (7) are concerned, at any time in the
--------------- ---
period ending on the 91st day after the date of deposit;
(3) The Company shall have delivered to the Trustee an
Opinion of Counsel, to the effect that (A) either (i) the Company has
assigned all its ownership interest in the trust funds to the Trustee
or (ii) the Trustee has a valid perfected security interest in the
trust funds and (B) assuming no intervening bankruptcy of the Company
between the date of the deposit and the 124th day following the
perfection of a security interest in the deposit and that no Holder is
an insider of the Company, after the 124th day following the
perfection of a security interest in the deposit, the trust funds will
not be subject to avoidance as a preference under Section 547 of the
-----------
Federal Bankruptcy Code;
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<PAGE>
(4) The Company shall have paid or duly provided for payment
of all amounts then due to the Trustee pursuant to Section 7.07;
------------
(5) No such deposit will result in a Default under this
Indenture or a breach or violation of, or constitute a default under,
any other instrument or material agreement to which the Company or any
of its Subsidiaries is a party or by which it or its property is
bound;
(6) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(7) In the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company
has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture,
there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(8) In the case of Covenant Defeasance, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the
Holders will not recognize income, gain or loss for federal income tax
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purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance
had not occurred; and
(9) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel to the effect that all
conditions precedent to Legal Defeasance or Covenant Defeasance, as
the case may be, have been complied with.
Notwithstanding the foregoing, the Opinion of Counsel required by
subparagraph 7 above need not be delivered if all Senior Notes not theretofore
delivered to the Trustee for cancellation (i) have become due and payable, (ii)
will become due and payable on the Maturity Date within one year, or (iii) are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company.
SECTION 8.02. Acknowledgment of Discharge by Trustee.
--------------------------------------
Subject to Section 8.05, after (i) the conditions of Section 8.01,
------------ ------------
have been satisfied and (ii) the Company has delivered to the Trustee an Opinion
of Counsel, stating that all conditions precedent referred to in clause (i)
above relating to the satisfaction and discharge of this Indenture have been
complied with, the Trustee upon written request of the Company shall acknowledge
in writing the discharge of the Company's obligations under this Indenture
except for those surviving obligations specified in this Article Eight.
SECTION 8.03. Application of Trust Money; Miscellaneous.
-----------------------------------------
The Trustee shall hold in trust Funds deposited with it pursuant to
Section 8.01. It shall apply the Funds through the Paying Agent and in
- ------------
accordance with this Indenture to the payment of all the principal of, or
premium, if any, and interest on the Senior Notes.
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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 8.01 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 Senior Notes.
SECTION 8.04. Repayment to the Company.
------------------------
The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any Funds held by them for the payment of all the principal
of, or premium, if any, and interest that remains unclaimed for one year;
provided, however, that the Trustee or such Paying Agent may, at the expense of
- -------- -------
the Company, cause to be published once in a newspaper of general circulation in
the City of New York or mailed to each Holder, notice that such Funds remain
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication or mailing, any unclaimed balance of
such Funds then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to the Funds must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
Person and all liability of the Trustee and Paying Agent with respect to such
Funds shall cease.
SECTION 8.05. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any Funds 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 Senior Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
- ------------
apply all such Funds in accordance with Section 8.01; provided, however, that if
------------ -------- -------
the Company has made any payment of principal, or premium, if any, and interest
on any Senior Notes because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Senior Notes to receive
such payment from Funds held by the Trustee or Paying Agent.
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<PAGE>
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
--------------------------
The Company, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Senior Notes without the
consent of any Holders:
(1) to cure any ambiguity, defect or inconsistency, so long
as such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect;
(2) to comply with Article Five;
------------
(3) to provide for uncertificated Senior Notes in addition
to or in place of certificated Senior Notes;
(4) to comply with requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
TIA;
(5) to make any other change that would provide any
additional benefit or rights to the Holders or that does not adversely
affect in any material respect the rights of any Noteholders
hereunder; or
(6) to provide for the issuance of the Exchange Notes, which
will be treated together with any outstanding Initial Notes as a
single issue of Senior Notes;
provided, however, that the Company has delivered to the Trustee an Opinion of
- -------- -------
Counsel and an Officers' Certificate, each stating that such amendment or
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supplement complies with the provisions of this Section 9.01.
------------
SECTION 9.02. With Consent of Holders.
-----------------------
Subject to Section 6.07, the Company, when authorized by a Board
------------
Resolution and the Trustee, together, with the written consent of the Holder or
Holders of at least a majority in principal amount of the then outstanding
Senior Notes may make all other modifications, waivers and amendments of this
Indenture or the Senior Notes, except that, without the consent of each Holder
of Senior Notes affected thereby, no amendment or waiver may, directly or
indirectly:
(1) reduce the percentage in principal amount of Senior
Notes whose Holders must consent to an amendment or waiver under the
Indenture;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted
interest, on any Senior Notes;
(3) reduce the principal of or change or have the effect of
changing the stated maturity of any Senior Notes, or change the date
on which any Senior Notes may be subject to redemption or repurchase,
or reduce the redemption or repurchase price thereof;
(4) make any Senior Notes payable in money other than that
stated in the Senior Notes and this Indenture;
(5) make any change in provisions of this Indenture
protecting the right of each Holder to receive payment of principal
and interest on such Senior Note on or after the due date thereof or
to bring suit to enforce such payment or permitting Holders of a
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majority in principal amount of the Senior Notes to waive Defaults or
Events of Default except to increase the percentage in principal
amount of outstanding Senior Notes required for such action;
(6) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control or modify any of the
provisions or definitions with respect thereto; or
(7) modify or change any provision of this Indenture or the
related definitions affecting the subordination or ranking of the
Senior Notes in a manner which adversely affects the Holders.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
- ------------
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
------------
becomes effective (as provided in Section 9.04), the Company shall mail to the
------------
Holders affected thereby a notice briefly describing the amendment, supplement
or waiver. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.03. Compliance with TIA.
-------------------
Every amendment, waiver or supplement of this Indenture or the Senior
Notes shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Senior Note that evidences the same debt as the
consenting Holder's Senior Note, even if notation of the consent is not made on
any Senior Note. Subject to the following paragraph, any such Holder or
subsequent Holder may revoke the consent as to his Senior Note or portion of his
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Senior Note by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Senior Notes have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver (at
which time such amendment, supplement or waiver shall become effective).
The Company may, but shall not be obligated to, fix such record date
as it may select for the purpose of determining the Holders entitled to consent
to any amendment, supplement or waiver. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (1)
through (7) of Section 9.02, in which case, the amendment, supplement or waiver
------------
shall bind only each Holder of a Senior Note who has consented to it and every
subsequent Holder of a Senior Note or portion of a Senior Note that evidences
the same debt as a consenting Holder's Senior Note; provided, however, that any
-------- -------
such waiver shall not impair or affect the right of any Holder to receive
payment of principal of and interest on a Senior Note, on or after the
respective due dates expressed in such Senior Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
SECTION 9.05. Notation on or Exchange of Notes.
--------------------------------
If an amendment, supplement or waiver changes the terms of a Senior
Note, the Trustee may require the Holder of the Senior Note to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Senior Note about
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the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Senior Note shall
issue and the Trustee shall authenticate a new Senior Note that reflects the
changed terms. Failure to make the appropriate notation or issue a new Senior
Note shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. Trustee to Sign Amendments, Etc.
-------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to and adopted in accordance with this Article Nine;
------------
provided, however, that the Trustee may, but shall not be obligated to, execute
- -------- -------
any such amendment, supplement or waiver which affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel and an Officers' Certificate each stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture. Such Opinion of Counsel shall not be
an expense of the Trustee.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control. If any provision of this Indenture
modifies or excludes any provision of the TIA that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or excluded, as the case may be.
SECTION 10.02. Notices.
-------
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
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by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company:
c/o: Superior Federal Bank
5000 Rogers Avenue
Fort Smith, Arkansas 72903
Attention: C. Stanley Bailey, Chairman and Chief Executive Officer
copy to:
Miller, Hamilton, Snider & Odom L.L.C.
254 State Street
Mobile, AL 36601
Attention: Willard H. Henson, Esq.
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust
Trustee Administration
The Company and the Trustee by written notice to each other may
designate additional or different addresses for notices. Any notice or
communication to the Company or the Trustee shall be deemed to have been given
or made as of the date so delivered if personally delivered; when receipt is
acknowledged, if faxed; and five (5) calendar days after mailing if sent by
registered or certified mail, postage prepaid (except that a notice of change of
address shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Holder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
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the registration books of the Registrar and shall be sufficiently given to him
if so mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 10.03. Communications by Holders with Other Holders.
--------------------------------------------
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Senior Notes. The
Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA (S) 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent to be performed by the
Company, if any, provided for in this Indenture relating to the
proposed action have been complied with.
SECTION 10.05. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
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Certificate required by Section 4.09, 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 reasonably 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 each
such Person, such condition or covenant has been complied with.
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Holders. The Paying Agent
or Registrar may make reasonable rules for its functions.
SECTION 10.07. Legal Holidays.
--------------
A "Legal Holiday" used with respect to a particular place of payment
-------------
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such other place of payment are not required to be open. If a
payment date is a Legal Holiday at such place, payment may be made at such place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
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SECTION 10.08. GOVERNING LAW.
-------------
THIS INDENTURE AND THE SENIOR NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH
OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE OR THE SENIOR NOTES.
SECTION 10.09. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 10.10. No Recourse Against Others.
--------------------------
A past, present or future director, officer, employee, stockholder or
incorporator, as such, of the Company shall not have any liability for any
obligations of the Company under the Senior Notes or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creations. Each Holder by accepting a Senior Note waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Senior Notes.
SECTION 10.11. Successors.
----------
All agreements of the Company in this Indenture and the Senior Notes
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 10.12. Duplicate Originals.
-------------------
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
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SECTION 10.13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Senior Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 10.14. Independence of Covenants.
-------------------------
All covenants and agreements in this Indenture and the Senior Notes
shall be given independent effect so that if any particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
[Remainder of Page Intentionally Left Blank]
-100-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
SUPERIOR FINANCIAL CORP.
By: /s/ C. Stanley Bailey
------------------------------------
Name: C. Stanley Bailey
Title: Chairman of the Board
of Directors and
Chief Executive Officer
THE BANK OF NEW YORK,
as Trustee
By: /s/ Robert A. Massimillo
-------------------------------------
Name: Robert A. Massimillo
Title: Assistant Vice President
<PAGE>
EXHIBIT A-1
-----------
[FORM OF INITIAL NOTE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND,
ACCORDINGLY, MAY NOT BE TRANSFERRED, OFFERED, PLEDGED, SOLD OR OTHERWISE
DISPOSED OF WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE ISSUER THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO
A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT
IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF
THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH
A-1
<PAGE>
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
A-2
<PAGE>
SUPERIOR FINANCIAL CORP.
8.65% Senior Subordinated Note due 2003
CUSIP NO. $
No.
SUPERIOR FINANCIAL CORP., a Delaware corporation (the "Company"), for
value received, promises to pay to ________________ or registered assigns, the
principal sum of ______ _____ Dollars, on April 1, 2003.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Senior Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Dated:
SUPERIOR FINANCIAL CORP.
By: __________________________________________
Name: C. Stanley Bailey
Title: Chairman of the Board of Directors and
Chief Executive Officer
By: __________________________________________
Name: Marvin Scott
Title:
Trustee's Certificate of Authentication
This is one of the 8.65% Senior Notes due 2003 referred to in the
within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By: ____________________
Authorized Signatory
A-4
<PAGE>
(REVERSE OF NOTE)
8.65% Senior Note due 2003
(1) Interest. SUPERIOR FINANCIAL CORP., a Delaware Corporation (the
--------
"Company"), promises to pay interest on the principal amount of this Note at the
-------
rate per annum shown above. Interest on the Senior Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from April 1, 1998. The Company will pay interest semi-annually in
arrears on each April 15 and October 15 each, an "Interest Payment Date") and at
---------------------
stated maturity, commencing on October 15, 1998. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Senior Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Senior
-----------------
Notes (except defaulted interest) to the Persons who are the registered Holders
at the close of business on the Record Date immediately preceding the Interest
Payment Date even if the Senior Notes are cancelled on registration of transfer
or registration of exchange after such Record Date. Holders must surrender
Senior Notes to a Paying Agent to collect principal payments. The Company shall
pay principal, premium and interest in money of the United States that at the
time of payment is legal tender for payment of public and private debts ("U.S.
----
Legal Tender"). However, the Company may pay principal, premium and interest by
- ------------
its check payable in such U.S. Legal Tender but if requested in writing by a
Holder shall make payment by means of a wire transfer of same-day funds to such
account in the United States as may be designated by such Holder from time to
time. The Company may deliver any such interest payment to the Paying Agent or
to a Holder at the Holder's registered address.
(3) Paying Agent and Register. Initially, The Bank of New York (the
-------------------------
"Trustee") will act as Paying Agent and Registrar. The Company may change any
- --------
Paying Agent, Registrar or co-Registrar without notice to the Holders. The
Company or
A-5
<PAGE>
any of its Subsidiaries may, subject to certain exceptions, act as
Registrar or co-Registrar.
(4) Indenture. The Company issued the Senior Notes under an
---------
Indenture, dated as of April 1, 1998 (the "Indenture"), between the Company and
---------
the Trustee. This Note is one of a duly authorized issue of Senior Notes of the
Company designated as its 8.65% Senior Notes due 2003 (the "Senior Notes"),
------------
limited (except as otherwise provided in the Indenture) in aggregate principal
amount to $60,000,000, which may be issued under the Indenture. Capitalized
terms used herein shall have the meanings assigned to them in this Indenture
unless otherwise defined herein. The terms of the Senior Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. (SS) 77aaa-77bbbb) (the "TIA"), as in
---
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Senior Notes are subject to all such terms, and Holders of Senior
Notes are referred to the Indenture and the TIA for a statement of them. The
Senior Notes are senior unsecured obligations of the Company.
(5) Optional Redemption. Upon the occurrence of a Change of Control,
-------------------
the Senior Notes not tendered in accordance with the provisions set forth under
Paragraph (7) hereof and in accordance with the Indenture shall be redeemable at
the option of the Company, in whole or in part, at any time or from time to
time, upon not less than 45 nor more than 60 days' prior notice mailed by first-
class mail to each Holder's registered address, at a redemption price equal to
the sum of (i) the principal amount of the Senior Notes being redeemed plus
accrued interest thereon to the redemption date and (ii) the Make-Whole Amount,
if any, with respect to such Senior Notes (the "Redemption Price"). If notice
has been given as provided in Section 3.01 of the Indenture and funds for the
redemption of any Senior Notes called for redemption shall have been made
available on the Redemption Date, such Senior Notes will cease to bear interest
on the date fixed for such redemption specified in such notice and the only
right of the Holders of the Senior Notes will be to receive payment of the
Redemption Price.
If less than all the Senior Notes are to be redeemed at the option of the
Company, the Company will notify the Trustee at least 60 days prior to the
Redemption Date (or such shorter period as is satisfactory to the Trustee) of
the aggregate
A-6
<PAGE>
principal amount of the Senior Notes to be redeemed and their redemption date.
The Trustee shall select, in such manner as it shall deem fair and appropriate,
the Senior Notes to be redeemed in whole or in part. Senior Notes may be
redeemed in part in the minimum authorized denomination for the Senior Notes or
in any integral multiple thereof.
As used herein:
"Make-Whole Amount" means, in connection with any optional
redemption or accelerated payment of any Senior Note, the excess, if
any, of (i) the aggregate present value as of the date of such
redemption or accelerated payment of each dollar of principal being
redeemed or paid and the amount of interest (exclusive of interest
accrued to the date of redemption or accelerated payment) that would
have been payable in respect of such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment
Rate (determined on the third Business Day preceding the date such
notice of Redemption is given or declaration of acceleration is made)
from the respective dates on which such principal and interest would
have been payable if such redemption or accelerated payment had not
been made, over (ii) the aggregate principal amount of the Senior
Notes being redeemed or paid.
"Reinvestment Rate" means .50% (fifty one hundredths of one
percent) plus the arithmetic mean of the yields under the respective
headings "This Week" and "Last Week" published in the Statistical
Release under the caption "Treasury Constant Maturities" for the
maturity (rounded to the nearest month) corresponding to the remaining
life to maturity of the Senior Notes, as of the payment date of the
principal being redeemed or paid. If no maturity exactly corresponds
to such maturity, yields for the two published maturities most closely
corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a
A-7
<PAGE>
straight-line basis, rounding in each of such relevant periods to the
nearest month. For such purposes of calculating the Reinvestment Rate,
the most recent Statistical Release published prior to the date of
determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release which is
published weekly by the Federal Reserve System and which establishes
yields on actively traded United States government securities adjusted
to constant maturities or, if the statistical release is not published
at the time of any determination under the Indenture, then such other
reasonably comparable index which shall be designated by the Company.
(6) Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 45 days but not more than 60 days before the Redemption Date to each
Holder whose Senior Notes are to be redeemed at such Holder's registered
address. Senior Notes in denominations larger than $100,000 may be redeemed in
part.
(7) Change of Control Offer. In the event of a Change of Control,
-----------------------
upon the satisfaction of the conditions set forth in the Indenture, the Company
shall be required to offer to repurchase all of the then outstanding Senior
Notes pursuant to a Change of Control Offer at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase. Holders of Senior Notes that are the subject of such an offer
to repurchase shall receive an offer to repurchase and may elect to have such
Senior Notes repurchased in accordance with the provisions of the Indenture
pursuant to and in accordance with the terms of the Indenture.
(8) Denominations; Transfer; Exchange. The Senior Notes are in fully
---------------------------------
registered form only, without coupons, in denominations of $100,000 and integral
multiples of $100,000. A Holder shall register the transfer or exchange of
Senior Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in
A-8
<PAGE>
connection therewith as permitted by the Indenture. The Registrar need not
register the transfer or exchange of any Senior Notes during a period beginning
15 days before the mailing of a redemption notice for any Senior Notes or
portions thereof selected for redemption.
(9) Persons Deemed Owners. The registered Holder of a Note shall be
---------------------
treated as the owner of it for all purposes.
(10) Unclaimed Money. If money for the payment of principal or
---------------
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company, upon the Company's written request. After
that, all liability of the Trustee and such Paying Agent with respect to such
money shall cease.
(11) Discharge Prior to Redemption or Maturity. If the Company at any
-----------------------------------------
time deposits with the Trustee U.S. Legal Tender or non-callable U.S. Government
obligations sufficient to pay the principal of, premium and interest on the
Senior Notes to redemption or maturity and complies with the other provisions of
this Indenture relating thereto, the Company will be discharged from certain
provisions of the Indenture and the Senior Notes (including certain covenants,
but excluding its obligation to pay the principal of, premium and interest on
the Senior Notes).
(12) Amendment; Supplement; Waiver. Subject to certain exceptions,
-----------------------------
the Indenture or the Senior Notes may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding Senior Notes, and any existing Default or Event
of Default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in aggregate principal amount of the then
outstanding Senior Notes. Without consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Senior Notes to, among other
things, cure any ambiguity, defect or inconsistency, provide for uncertificated
Senior Notes in addition to or in place of certificated Senior Notes, or comply
with Article Five of the Indenture, make any other change that does not
adversely affect in any material respect the rights of any Holder of a Note or
provide for the issuance of the Exchange Notes.
A-9
<PAGE>
(13) Restrictive Covenants. The Indenture imposes certain limitations
---------------------
on the ability of the Company and its Subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other restricted
payments, enter into transactions with Affiliates, create dividend or other
payment restrictions affecting Subsidiaries and merge or consolidate with any
other Person, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its assets or adopt a plan of liquidation. Such
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
(14) Successors. When a successor assumes, in accordance with this
----------
Indenture, all the obligations of its predecessor under the Senior Notes and the
Indenture, the predecessor will be released from those obligations.
(15) Defaults and Remedies. If an Event of Default occurs and is
---------------------
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Senior Notes may declare all the Senior Notes to be due and
payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Senior Notes unless it has been offered indemnity
or security reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Senior Notes then outstanding to direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of
Senior Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines in good faith that
withholding notice is in their interest.
(16) Trustee Dealings with Company. The Trustee under the Indenture,
-----------------------------
in its individual or any other capacity, may become the owner or pledgee of
Senior Notes and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates as if it were not the Trustee.
(17) No Recourse Against Others. No past, present or future
--------------------------
stockholder, director, officer, employee or
A-10
<PAGE>
incorporator, as such, of the Company shall have any liability for any
obligation of the Company under the Senior Notes or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Senior Notes.
(18) Authentication. This Note shall not be valid until the Trustee
--------------
or authenticating agent manually signs the certificate of authentication on this
Note.
(19) Governing Law. This Note shall be governed by, and construed in
-------------
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
(20) Abbreviations and Defined Terms. Customary abbreviations may be
-------------------------------
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(21) CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Notes as a convenience to the Holders
of the Senior Notes. No representation is made as to the accuracy of such
numbers as printed on the Senior Notes and reliance may be placed only on the
other identification numbers printed hereon.
(22) Registration Rights. Pursuant to the Registration Rights
-------------------
Agreement, the Company will be obligated to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Series A Note for a 8.65% Senior Note due 2003, Series B, of the Company (an
"Unrestricted Note") which has been registered under the Securities Act, in like
- ------------------
principal amount and having terms identical in all material respects as the
Series A Notes.
(23) Indenture. Each Holder, by accepting a Note, agrees to be bound
---------
by all of the terms and provisions of the
A-11
<PAGE>
Indenture, as the same may be amended from time to time. Capitalized terms used
herein and not defined herein have the meanings ascribed thereto in the
Indenture.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture. Requests may be made to: SUPERIOR
FINANCIAL CORP. c/o Superior Federal Bank, 5000 Rogers Avenue, Fort Smith,
Arkansas 72903, Attention: C. Stanley Bailey, Chairman of the Board of
Directors and Chief Executive Officer.
A-12
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign to
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
______________________________________
_____________________________________________________________________________
(please print or type name and address)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints
_____________________________________________________________________________
attorney to transfer the Note on the books of the Company with full power of
substitution in the premises.
Dated:_________________ ________________________________________
NOTICE: The signature on this assignment must
correspond with the name as it appears upon the
face of the within Note in every particular
without alteration or enlargement or any change
whatsoever.
Signature Guarantee:_____________________________
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent 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 Exchange Act of 1934, as amended.
A-13
<PAGE>
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the Commission
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) April 1, 2000 the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
[Check One]
---------
(1) _____ to the Company or a subsidiary thereof; or
(2) _____ pursuant to and in compliance with Rule 144A under the
Securities Act; or
(3) _____ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(4) _____ outside the United States to a "foreign purchaser" in compliance
with Rule 904 of Regulation S under the Securities Act; or
(5) _____ pursuant to the exemption from registration provided by
Rule 144 under the Securities Act; or
(6) _____ pursuant to an effective registration statement under the
Securities Act; or
(7) _____ pursuant to another available exemption from the registration
statement requirements of the Securities Act.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act (an "Affiliate"):
A-14
<PAGE>
[ ] The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to
register any of the Senior Notes evidenced by this certificate in the name of
any person other than the registered Holder thereof; provided, however, that if
-------- -------
item (3), (4), (5) or (7) is checked, the Company or the Trustee may require,
prior to registering any such transfer of the Senior Notes, in their sole
discretion, such written legal opinions, certifications (including an investment
letter in the case of box (3) or (4), and other information as the Trustee or
the Company have reasonably requested to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
If none of the foregoing items are checked, the Trustee or Registrar
shall not be obligated to register this Note in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
------------
been satisfied.
Dated:____________ Signed: ______________________________________________
(Sign exactly as name appears on the other side
of this Note)
Signature Guarantee: ___________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's
A-15
<PAGE>
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:_________ ______________________________
NOTICE: To be executed by an
executive officer
A-16
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.19 of the Indenture, check here: [ ]
------------
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.19, state the amount: $____________
------------
Date:________________ Your Signature:________________
(Sign exactly as
your name appears on
the other
side of this Note)
Signature Guarantee:____________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Trustee, which
requirements include membership or participation in the
Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by
the Trustee in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934,
as amended.
A-17
<PAGE>
EXHIBIT A-2
-----------
FORM OF EXCHANGE NOTE
SUPERIOR FINANCIAL CORP.
8.65% Senior Note due 2003
CUSIP NO. $
No.
SUPERIOR FINANCIAL CORP., a Delaware corporation (the "Company"), for
value received, promises to pay to ___________________ or registered assigns,
theprincipal sum of _______________________ Dollars, on April 1, 2003.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Dated: SUPERIOR FINANCIAL CORP.
By:______________________
Name:_________________
Title:________________
By:______________________
Name:_________________
Title:________________
Trustee's Certificate of Authentication
This is one of the 8.65% Senior Notes due 2003 referred to in the
within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:______________________
Authorized Signatory
A-19
<PAGE>
(REVERSE OF NOTE)
8.65% Senior Note due 2003
(1) Interest. SUPERIOR FINANCIAL CORP., a Delaware Corporation (the
--------
"Company"), promises to pay interest on the principal amount of this Note at the
- --------
rate per annum shown above. Interest on the Senior Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from April 1, 1998. The Company will pay interest semi-annually in
arrears on each April 15 and October 15 (each, an "Interest Payment Date") and
---------------------
at stated maturity, commencing on October 15, 1998. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Senior Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
(2) Method of Payment. The Company shall pay interest on the Senior
-----------------
Notes (except defaulted interest) to the Persons who are the registered Holders
at the close of business on the Record Date immediately preceding the Interest
Payment Date even if the Senior Notes are cancelled on registration of transfer
or registration of exchange after such Record Date. Holders must surrender
Senior Notes to a Paying Agent to collect principal payments. The Company shall
pay principal, premium and interest in money of the United States that at the
time of payment is legal tender for payment of public and private debts ("U.S.
----
Legal Tender"). However, the Company may pay principal, premium and interest by
- ------------
its check payable in such U.S. Legal Tender but if requested in writing by a
Holder shall make payment by means of a wire transfer of same-day funds to such
account in the United States as may be designated by such Holder from time to
time. The Company may deliver any such interest payment to the Paying Agent or
to a Holder at the Holder's registered address.
(3) Paying Agent and Register. Initially, The Bank of New York (the
-------------------------
"Trustee") will act as Paying Agent and Registrar. The Company may change any
- --------
Paying Agent,
A-20
<PAGE>
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Registrar or co-
Registrar.
(4) Indenture. The Company issued the Senior Notes under an
---------
Indenture, dated as of April 2, 1998 (the "Indenture"), between the Company and
---------
the Trustee. This Note is one of a duly authorized issue of Senior Notes of the
Company designated as its __% Senior Notes due 2003 (the "Senior Notes"),
------------
limited (except as otherwise provided in the Indenture) in aggregate principal
amount to $60,000,000, which may be issued under the Indenture. Capitalized
terms used herein shall have the meanings assigned to them in this Indenture
unless otherwise defined herein. The terms of the Senior Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. (SS) 77aaa-77bbbb) (the "TIA"), as in
---
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Senior Notes are subject to all such terms, and Holders of Senior
Notes are referred to the Indenture and the TIA for a statement of them. The
Senior Notes are senior unsecured obligations of the Company.
(5) Optional Redemption. Upon the occurrence of a Change of Control,
-------------------
the Senior Notes not tendered in accordance with the provisions set forth under
Paragraph (7) hereof and in accordance with the Indenture shall be redeemable at
the option of the Company, in whole or in part, at any time or from time to
time, upon not less than 45 nor more than 60 days' prior notice mailed by first-
class mail to each Holder's registered address, at a redemption price equal to
the sum of (i) the principal amount of the Senior Notes being redeemed plus
accrued interest thereon to the redemption date and (ii) the Make-Whole Amount,
if any, with respect to such Senior Notes (the "Redemption Price"). If notice
has been given as provided in Section 3.01 of the Indenture and funds for the
redemption of any Senior Notes called for redemption shall have been made
available on the Redemption Date, such Senior Notes will cease to bear interest
on the date fixed for such redemption specified in such notice and the only
right of the Holders of the Senior Notes will be to receive payment of the
Redemption Price.
A-21
<PAGE>
If less than all the Senior Notes are to be redeemed at the option of the
Company, the Company will notify the Trustee at least 60 days prior to the
Redemption Date (or such shorter period as is satisfactory to the Trustee) of
the aggregate principal amount of the Senior Notes to be redeemed and their
redemption date. The Trustee shall select, in such manner as it shall deem fair
and appropriate, the Senior Notes to be redeemed in whole or in part. Senior
Notes may be redeemed in part in the minimum authorized denomination for the
Senior Notes or in any integral multiple thereof.
As used herein:
"Make-Whole Amount" means, in connection with any optional
redemption or accelerated payment of any Senior Note, the excess, if
any, of (i) the aggregate present value as of the date of such
redemption or accelerated payment of each dollar of principal being
redeemed or paid and the amount of interest (exclusive of interest
accrued to the date of redemption or accelerated payment) that would
have been payable in respect of such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment
Rate (determined on the third Business Day preceding the date such
notice of Redemption is given or declaration of acceleration is made)
from the respective dates on which such principal and interest would
have been payable if such redemption or accelerated payment had not
been made, over (ii) the aggregate principal amount of the Senior
Notes being redeemed or paid.
"Reinvestment Rate" means .50% (fifty one hundredths of one
percent) plus the arithmetic mean of the yields under the respective
headings "This Week" and "Last Week" published in the Statistical
Release under the caption "Treasury Constant Maturities" for the
maturity (rounded to the nearest month) corresponding to the remaining
life to maturity of the Senior Notes, as of the payment date of the
principal being redeemed or
A-22
<PAGE>
paid. If no maturity exactly corresponds to such maturity, yields for
the two published maturities most closely corresponding to such
maturity shall be calculated pursuant to the immediately preceding
sentence and the Reinvestment Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding in
each of such relevant periods to the nearest month. For such purposes
of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the Make-Whole
Amount shall be used.
"Statistical Release" means the statistical release which is
published weekly by the Federal Reserve System and which establishes
yields on actively traded United States government securities adjusted
to constant maturities or, if the statistical release is not published
at the time of any determination under the Indenture, then such other
reasonably comparable index which shall be designated by the Company.
(6) Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 45 days but not more than 60 days before the Redemption Date to each
Holder whose Senior Notes are to be redeemed at such Holder's registered
address. Senior Notes in denominations larger than $100,000 may be redeemed in
part.
(7) Change of Control Offer. In the event of a Change of Control,
-----------------------
upon the satisfaction of the conditions set forth in the Indenture, the Company
shall be required to offer to repurchase all of the then outstanding Senior
Notes pursuant to a Change of Control Offer at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase. Holders of Senior Notes that are the subject of such an offer
to repurchase shall receive an offer to repurchase and may elect to have such
Senior Notes repurchased in accordance with the provisions of the Indenture
pursuant to and in accordance with the terms of the Indenture.
A-23
<PAGE>
(8) Denominations; Transfer; Exchange. The Senior Notes are in fully
---------------------------------
registered form only, without coupons, in denominations of $100,000 and integral
multiples of $100,000. A Holder shall register the transfer or exchange of
Senior Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as permitted by the Indenture. The Registrar
need not register the transfer or exchange of any Senior Notes during a period
beginning 15 days before the mailing of a redemption notice for any Senior Notes
or portions thereof selected for redemption.
(9) Persons Deemed Owners. The registered Holder of a Note shall be
---------------------
treated as the owner of it for all purposes.
(10) Unclaimed Money. If money for the payment of principal or
---------------
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company, upon the Company's request. After that, all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
(11) Discharge Prior to Redemption or Maturity. If the Company at any
-----------------------------------------
time deposits with the Trustee U.S. Legal Tender or non-callable U.S. Government
obligations sufficient to pay the principal of, premium and interest on the
Senior Notes to redemption or maturity and complies with the other provisions of
this Indenture relating thereto, the Company will be discharged from certain
provisions of the Indenture and the Senior Notes (including certain covenants,
but excluding its obligation to pay the principal of, premium and interest on
the Senior Notes).
(12) Amendment; Supplement; Waiver. Subject to certain exceptions,
-----------------------------
the Indenture or the Senior Notes may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding Senior Notes, and any existing Default or Event
of Default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in aggregate principal amount of the then
outstanding Senior Notes. Without consent of any
A-24
<PAGE>
Holder, the parties thereto may amend or supplement the Indenture or the Senior
Notes to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes, or comply with Article Five of the Indenture or make
any other change that does not adversely affect in any material respect the
rights of any Holder of a Note.
(13) Restrictive Covenants. The Indenture imposes certain limitations
---------------------
on the ability of the Company and its Subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other restricted
payments, enter into transactions with Affiliates, create dividend or other
payment restrictions affecting Subsidiaries and merge or consolidate with any
other Person, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its assets or adopt a plan of liquidation. Such
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
(14) Successors. When a successor assumes, in accordance with this
----------
Indenture, all the obligations of its predecessor under the Senior Notes and the
Indenture, the predecessor will be released from those obligations.
(15) Defaults and Remedies. If an Event of Default occurs and is
---------------------
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Senior Notes may declare all the Senior Notes to be due and
payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Senior Notes unless it has been offered indemnity
or security reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Senior Notes then outstanding to direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of
Senior Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or
A-25
<PAGE>
interest) if it determines in good faith that withholding notice is in their
interest.
(16) Trustee Dealings with Company. The Trustee under the Indenture,
-----------------------------
in its individual or any other capacity, may become the owner or pledgee of
Senior Notes and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates as if it were not the Trustee.
(17) No Recourse Against Others. No past, present or future
--------------------------
stockholder, director, officer, employee or incorporator, as such, of the
Company shall have any liability for any obligation of the Company under the
Senior Notes or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Note by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Senior Notes.
(18) Authentication. This Note shall not be valid until the Trustee
--------------
or authenticating agent manually signs the certificate of authentication on this
Note.
(19) Governing Law. This Note shall be governed by, and construed in
-------------
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
(20) Abbreviations and Defined Terms. Customary abbreviations may be
-------------------------------
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(21) CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Notes as a convenience to the Holders
of the Senior Notes. No representation is made as to the accuracy of such
numbers as printed on the
A-26
<PAGE>
Senior Notes and reliance may be placed only on the other identification numbers
printed hereon.
(22) Indenture. Each Holder, by accepting a Note, agrees to be bound
---------
by all of the terms and provisions of the Indenture, as the same may be amended
from time to time. Capitalized terms used herein and not defined herein have
the meanings ascribed thereto in the Indenture.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture. Requests may be made to: SUPERIOR
FINANCIAL CORP., c/o Superior Federal Bank, 5000 Rogers Avenue, Fort Smith,
Arkansas 72903, Attention: C. Stanley Bailey, Chairman of the Board of
Directors and Chief Executive Officer.
A-27
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign to
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
______________________________________
________________________________________________________________________________
(please print or type name and address)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints
________________________________________________________________________________
attorney to transfer the Note on the books of the Company with full power of
substitution in the premises.
Dated:_______________
______________________________________________
NOTICE: The signature on this assignment must
correspond with the name as it appears upon the
face of the within Note in every particular
without alteration or enlargement or any change
whatsoever.
Signature Guarantee:________________________________________
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition
A-28
<PAGE>
to, or in substitution for, STAMP, all in accordance with the Securities
Exchange Act of 1934, as amended.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.19, check here:[ ]
------------
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.19, state the amount: $____________
------------
Date:_______________ Your Signature:________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:____________________________________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar which
requirements include membership or participation in the
Security Transfer Agent 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 Exchange Act of 1934,
as amended.
A-29
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Note) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT
EXCHANGEABLE FOR SENIOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF
THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
---
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.16 OF THE INDENTURE.
------------
B-1
<PAGE>
EXHIBIT C
---------
Form of Certificate To Be
Delivered in Connection with
Transfers To Non-QIB Accredited Investors
-----------------------------------------
[ ], [ ]
[ ]
[ ]
[ ]
Ladies and Gentlemen:
In connection with our proposed purchase of __% Senior Notes due 2003
(the "Senior Notes") of SUPERIOR FINANCIAL CORP., a Delaware corporation (the
"Company"), we confirm that:
1. We have received a copy of the Private Placement Memorandum dated
December 19, 1997, and all amendments thereof and supplements thereto, (the
"Private Placement Memorandum"), relating to the Senior Notes and such other
information as we deem necessary in order to make our investment decision. We
acknowledge that we have read and agreed to the matters stated in the section
entitled "Notice to Investors" of such Private Placement Memorandum, including
the restrictions on duplication and circulation of the Private Placement
Memorandum.
2. We understand that any subsequent transfer of subject to certain
restrictions and conditions set forth in the Indenture relating to the Senior
Notes (the "Indenture") in the Private Placement Memorandum and the undersigned
bound by, and not to resell, pledge or otherwise Senior Notes except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act"), and all applicable State securities
laws.
3. We understand that the offer and sale of the Senior Notes have not
been registered under the Securities
C-1
<PAGE>
Act, and that the Senior Notes may not be offered or sold except as permitted in
the following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we should sell
any Senior Notes, we will do so only (i) to the Company or any of its
subsidiaries, (ii) inside the United States in accordance with Rule 144A under
the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act), (iii) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as
defined in the Indenture) a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the Senior Notes (the
form of which letter can be obtained from the Trustee), (iv) outside the United
States in accordance with Rule 904 of Regulation S promulgated under the
Securities Act to non-U.S. persons, (v) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available), or
(vi) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing any of the Senior Notes
from us a notice advising such purchaser that resales of the Senior Notes are
restricted as stated herein.
4. We understand that, on any proposed resale of any Senior Notes, we
will be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Senior Notes purchased by us will
bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Senior Notes, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
C-2
<PAGE>
6. We are acquiring the Senior Notes purchased by us for our account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You, the Company, the Trustee and others are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:____________________
Name:
Title:
C-3
<PAGE>
EXHIBIT D
---------
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
------------------------------------
[ ], [ ]
[ ]
[ ]
[ ]
Re: Superior Financial Acquisition
Corp. (the "Company") __% Senior
Notes due 2003(the "Senior Notes")
----------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of [$ ] aggregate principal
amount of the Senior Notes, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Senior Notes was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
D-1
<PAGE>
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Senior Notes.
You, the Company, the Trustee and others are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By: _________________________
Authorized Signature
D-2
<PAGE>
EXHIBIT E
---------
FORM OF CUSTODY AND SECURITY AGREEMENT
--------------------------------------
CUSTODY AND SECURITY AGREEMENT, dated as of April 1, 1998 between
Superior Financial Corp., (the "Pledgor") and The Bank of New York, as trustee,
(the "Trustee") for the benefit of the holders (the "Holders") of the Senior
Notes (as defined herein) of the Pledgor issued under the Indenture (as defined
herein).
WHEREAS, the Pledgor and The Bank of New York, as Trustee, have
entered into that certain indenture dated as of April 1, 1998 (as amended,
restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgor is issuing on the date hereof
$60,000,000 in aggregate principal amount of Senior Notes due 2003 (the "Senior
Notes"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings given to such terms in the Indenture; and
WHEREAS, the Pledgor agrees, pursuant to the Indenture, to (i)
purchase Permitted Investments (together with any replacement or substitute
securities, the "Pledged Securities") in an amount sufficient upon receipt of
scheduled interest and principal payments in respect of Pledged Securities,
based on the report of a nationally recognized firm of independent public
accountants selected by the Pledgor, to provide for payment at all times during
the period commencing on the Issue Date, interest due on the Senior Notes on the
next two succeeding Interest Payment Dates and (ii) place such Pledged
Securities in an account (the "Collateral Account") held by the Trustee as
custodian (the "Custodian") for the benefit of Holders of the Senior Notes; and
WHEREAS, the Pledgor is the legal and beneficial owner of the Pledged
Securities; and
WHEREAS, to secure its obligations under the Indenture and the Senior
Notes (the "Secured Obligations"), the Pledgor has agreed to (i) pledge to the
Trustee for its benefit and the ratable benefit of the Holders a perfected first
priority security interest in the Pledged Securities and the Collateral Account
(as defined below) and
E-1
<PAGE>
(ii) execute and deliver this Custody and Security Agreement in order to secure
the payment and performance by the Pledgor of all such Secured Obligations.
WITNESSETH:
NOW THEREFORE, the parties hereto agree as follows:
1. Pledge and Grant of Security Interest.
-------------------------------------
The Pledgor hereby pledges to the Trustee for its benefit and for the
ratable benefit of the Holders, and grants to the Trustee for its benefit and
for the ratable benefit of the Holders of Senior Notes, a continuing first
priority security interest in and to (i) all of Pledgor's right, title and
interest in the Pledged Securities, the Collateral Account (as defined herein),
and any other securities, assets, or property credited to the Collateral Account
(ii) the certificates or other evidence of ownership representing the Pledged
Securities and the Collateral Account, and (iii) all products and proceeds of
any of the Pledged Securities, including, without limitation, all dividends,
interest, principal payments, cash, options, warrants, rights, instruments,
subscriptions and other property or proceeds from time to time received,
receivable or otherwise distributed or distributable in respect of or in
exchange for any or all of the Pledged Securities (collectively, the
"Collateral").
2. Security for Secured Obligations.
--------------------------------
The Custody and Security Agreement and the Collateral secure the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all Secured Obligations.
3. Delivery of Collateral; Collateral Account;
Interest; Substitution of Collateral.
-------------------------------------------
(a) All certificates or instruments, if any, from time to time
representing or evidencing the Collateral shall be delivered to and held by
or on behalf of the Trustee pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in
E-2
<PAGE>
blank, all in form and substance satisfactory to the Trustee.
(b) Concurrently with the execution and delivery hereof, the Trustee
shall establish an account entitled "SUPERIOR FINANCIAL CORP., AS PLEDGOR
FOR THE BENEFIT OF THE BANK OF NEW YORK, AS TRUSTEE" for the deposit of the
Pledged Securities (the "Collateral Account") at its office at 101 Barclay
Street, New York, New York 10286. Subject to the other terms and
conditions of this Custody and Security Agreement, all funds or other
property accepted by the Trustee pursuant to this Custody and Security
Agreement shall be held in the Collateral Account for the benefit of the
Trustee and the ratable benefit of the Holders. [Whenever Article 8 of the
1994 version of the Official Text of the Uniform Commercial Code (the
"UCC") is effective and applicable to the Trustee or the Trustee's security
interest in the Collateral, the Trustee agrees that it will hold (within
the meaning of Section 8-301 of the 1994 version of the Official Text of
the UCC) on behalf of the Holders any securities which now or hereafter
come into its possession and the Trustee will comply with "entitlement
orders" (within the meaning of Section 8-102(a)(8) of the 1994 version of
the Official Text of the UCC) without further consent by the Pledgor.]
[Ruth Olson to review]
(c) All interest earned on any Collateral shall be retained in the
Collateral Account (or reinvested, as the case may be), pending
disbursement pursuant to the terms hereof.
4. Disbursements.
-------------
(a) Not less than six (6) Business Days prior to the next scheduled
Interest Payment Date with respect to the Senior Notes the Pledgor may, in
writing, direct the Trustee to transfer from the Collateral Account to the
Trustee in its capacity as Paying Agent funds necessary to provide for
payment in full or any portion of the next scheduled interest payment on
the Senior Notes. Upon receipt of such written request, the Trustee will
take any action reasonably necessary to provide for the payment of such
interest payment on the
E-3
<PAGE>
Senior Notes directly to the Holders from proceeds of the Pledged
Securities in the Collateral Account.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Pledged Securities are collateral from a
source of funds other than the Collateral Account ("Pledgor Funds"), the
Pledgor may, after payment in full for such interest payment, direct the
Trustee in writing to release to the Pledgor or at the direction of the
Pledgor an amount of funds from the Collateral Account less than or equal
to the amount of Pledgor Funds so expended within six business days of such
request. Upon receipt of a direction from the Pledgor and any other
documentation reasonably satisfactory to the Trustee to substantiate such
use of Pledgor Funds by the Pledgor (including the certificate described in
the following sentence), the Trustee will take any action reasonably
necessary to enable it to pay over to the Pledgor the requested amount.
Concurrently with any release of funds to the Pledgor pursuant to this
Section 4(b), the Pledgor will deliver to the Trustee a certificate signed
by the Chief Executive Officer or the Chief Financial Officer of the
Pledgor stating that the use of Pledgor Funds to make interest payments has
been duly authorized by all necessary corporate action, and does not
contravene, or constitute a default under, any provisions of applicable law
or regulation or of the certificate of incorporation of the Pledgor or of
any agreement, judgment, injunction, order, decree or other instrument
binding upon the Pledgor or result in the creation or imposition of any
Lien on any assets of the Pledgor.
(c) If at any time the amount of Pledged Securities exceeds the
amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Pledgor, to provide for
payment in full of the next two succeeding scheduled interest payments due
on the Senior Notes (or, in the event an interest payment or payments have
been made, an amount sufficient to provide for payment in full of any
interest payments then remaining, up to and including the final scheduled
interest payment), the Pledgor may direct the Trustee in writing to release
any such overfunding to it. Upon receipt of a written
E-4
<PAGE>
request from the Pledgor and delivery of an Officer's Certificate to the
Trustee to substantiate such excess in accordance with Section 4.15(d) of
the Indenture, the Trustee will pay over to the Pledgor any such over-
funded amount.
(d) Upon payment in full of all scheduled interest payments on the
Senior Notes, the security interest in the Collateral evidenced by this
Custody and Security Agreement will terminate and be of no further force
and effect. Furthermore, upon the release of any Collateral from the
Collateral Account in accordance with the terms of this Custody and
Security Agreement, whether upon release of Collateral to Holders as
payment of interest, to the Company or otherwise, the security interest
evidenced by this Custody and Security Agreement in the Collateral so
released will terminate and be of no further force and effect.
5. Representations and Warranties.
------------------------------
The Pledgor hereby represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Custody and Security Agreement do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the Articles of
Incorporation of the Pledgor or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Pledgor or result in the
creation or imposition of any Lien on any assets of the Pledgor, except for
the security interests granted under this Custody and Security Agreement.
(b) No financing statement covering the Pledged Securities is on file
in any public office (other than any financing statements filed pursuant to
this Custody and Security Agreement).
(c) Upon the delivery to the Trustee of the certificates, if any,
representing the Pledged Securities and of any other certificates,
instruments and cash constituting Collateral, any filing of financing
statements required by the UCC and the notations on the records of the
Trustee that it holds the Collateral as
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<PAGE>
Custodian, the pledge of the Collateral pursuant to this Custody and
Security Agreement creates a valid and perfected first priority security
interest in and to the Collateral, which valid, perfected, first priority
security interest will continue, in the case of any certificates and
instruments constituting Collateral, so long as the Trustee maintains
possession of such certificates and instruments securing the payment of the
Secured Obligations for the benefit of the Trustee and the ratable benefit
of the Holders, enforceable as such against all creditors of the Pledgor
and any persons purporting to purchase any of the Collateral from the
Pledgor other than as permitted by the Indenture.
(d) No consent of any other person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by the Pledgor of the Collateral pursuant to this Custody and
Security Agreement or for the execution, delivery or performance of this
Custody and Security Agreement by the Pledgor (except for any filings and
notations necessary to perfect Liens on the Collateral) or (ii) for the
exercise by the Trustee of rights provided for in this Custody and Security
Agreement or the remedies in respect of the Collateral pursuant to this
Custody and Security Agreement, except for any filings or notices required
by the UCC.
(e) The pledge of the Collateral pursuant to this Custody and
Security Agreement is not prohibited by any applicable law or government
regulation, release interpretation or opinion of the Board of Governors of
the United States Federal Reserve System or other regulatory agency
(including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System).
6. Further Assurances.
------------------
The Pledgor agrees to promptly take such actions and to execute and
deliver or cause to be executed and delivered, or use its best efforts to
procure, such stock or bond powers, proxies, assignments, instruments and such
other or different writings as the Trustee may reasonably
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<PAGE>
request, all in form and substance reasonably satisfactory to the Trustee,
deliver any instruments to the Trustee and take any other actions that are
necessary or, in the reasonable opinion of the Trustee, desirable, to perfect,
continue the perfection of, confirm and assure the first priority of the
Trustee's security interest in the Collateral, to protect the Collateral against
the rights, claims or interests of third persons, to otherwise effect the
purposes of this Custody and Security Agreement.
7. Covenants.
---------
The Pledgor covenants and agrees with the Trustee and the Holders from
and after the date of this Custody and Security Agreement until the earlier of
payment in full in cash of (A) each of the scheduled interest payments due on
the Senior Notes under the terms of the Indenture or (B) all Secured Obligations
due and owing under the Indenture and the Senior Notes in the event such Secured
Obligations become due and payable prior to the payment of each of the scheduled
interest payments on the Senior Notes:
(a) The Pledgor agrees that it will not (i) sell or otherwise dispose
of, or grant any option or warrant with respect to, any of the Collateral
or (ii) create or permit to exist any Lien upon or with respect to any of
the Collateral (except for the Lien created pursuant to this Custody and
Security Agreement) and at all times will be the sole beneficial owner of
the Collateral.
(b) The Pledgor agrees that it will not (i) enter into any agreement
or understanding that purports to or may restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the Trustee's
right to sell or otherwise dispose of the Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any nature not later than six days
prior to the date of any proposed sale under any judgement, writ or warrant
of attachment with regard to the Collateral.
8. Power of Attorney.
-----------------
In addition to all of the powers granted to the Trustee pursuant to
Article VI of the Indenture, the
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<PAGE>
Pledgor hereby appoints and constitutes the Trustee as the Pledgor's attorney-
in-fact to exercise to the fullest extent permitted by law all of the following
powers upon and at any time after the occurrence and during the continuance of
an Event of Default: (i) collection of proceeds of any Collateral; (ii)
conveyance of any item of Collateral to any purchaser thereof; (iii) giving of
any notices or recording of any Liens under Section 6 hereof; (iv) making of any
payments or taking any acts under Section 9 hereof and (v) paying or discharging
taxes or Liens levied or placed upon the Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be determined by the
Trustee in its sole discretion, and such payments made by the Trustee in respect
of this clause (v) to become the Secured Obligations of the Pledgor to the
Trustee, due and payable immediately upon demand. The Trustee's authority
hereunder shall include, without limitation, the authority to endorse and
negotiate any checks or instruments representing proceeds of Collateral in the
name of the Pledgor, execute and give receipt for any certificate of ownership
or any document constituting Collateral, transfer title to any item of
Collateral, sign the Pledgor's name on all financing statements (to the extent
permitted by applicable law) or any other documents deemed necessary or
appropriate by the Trustee to preserve, process or perfect the security interest
in the Collateral and to file the same, prepare, file and sign the Pledgor's
name on any notice of Lien, and to take any other actions arising from or
incident to the powers granted to the Trustee in this Custody and Security
Agreement. This power of attorney is coupled with an interest and is irrevocable
by the Pledgor.
9. Trustee May Perform.
-------------------
If the Pledgor fails to perform any agreement contained herein, the
Trustee may, but shall not be required to, itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Trustee incurred in
connection therewith shall be payable by the Pledgor under Section 13 hereof.
10. No Assumption of Duties; Reasonable Care.
----------------------------------------
The rights and powers granted to the Trustee hereunder are being
granted in order to preserve and
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<PAGE>
protect the Trustee's and the Holders' first priority security interest in and
to the Collateral granted hereby and shall not be interpreted to, and shall not,
impose any duties on the Trustee in connection therewith other than those
imposed under applicable law.
11. Indemnity.
---------
The Pledgor shall indemnify, defend and hold harmless the Trustee and
its directors, officers, agents and employees from and against all claims,
actions, obligations, losses, liabilities and expenses, including reasonable
costs, fees and disbursements of counsel (including, without limitation, the
reasonable cost to the Trustee of legal counsel), the costs of investigations,
and claims for damages, arising from the Trustee's acceptance of or performance
under this Custody and Security Agreement, except insofar as the same may have
been caused by the bad faith, gross negligence or wilful misconduct of such
indemnified person.
12. Remedies upon Event of Default.
------------------------------
If an Event of Default shall have occurred and be continuing:
(a) The Trustee shall have and may exercise with reference to the
Collateral any or all of the rights and remedies of a secured party under
the Uniform Commercial Code in effect in the State of New York, and as
otherwise granted herein or under any other applicable law or under any
other agreement now or hereafter in effect executed by Pledgor, including,
without limitation, the right and power to sell, at public or private sale
or sales, or otherwise dispose of, or otherwise utilize the Collateral and
any part or parts thereof in any manner authorized or permitted under said
Uniform Commercial Code after default by a debtor, and to apply the
proceeds thereof toward payment of any costs and expenses and reasonable
attorneys' fees and expenses thereby incurred by the Trustee and toward
payment of the Secured Obligations in such order or manner as the Trustee
may elect. Specifically and without limiting the foregoing, the Trustee
shall have the right to take possession of all or any part of the
Collateral or any security therefor and of all books,
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<PAGE>
records, papers and documents of Pledgor or in Pledgor's possession or
control relating to the Collateral which are not already in the Trustee's
possession, and for such purpose may enter upon any premises upon which any
of the Collateral or any security therefor or any of said books, records,
papers and documents are situated and remove the same therefrom without any
liability for trespass or damages thereby occasioned. To the extent
permitted by law, Pledgor expressly waives any notice of sale or other
disposition of the Collateral and all other rights or remedies of Pledgor
or formalities prescribed by law relative to sale or disposition of the
Collateral or exercise of any other right or remedy of the Trustee existing
after default hereunder; and to the extent any such notice is required and
cannot be waived, Pledgor agrees that if such notice is given in the manner
provided in Section 17 hereof at least six (6) Business Days before the
time of the sale disposition, such notice shall be deemed reasonable and
shall fully satisfy any requirement for giving of such notice. The Trustee
shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. The Trustee may adjourn any public or private
sale. The Pledgor further agrees to use its reasonable best efforts to do
or cause to be done all such acts as may be reasonably necessary to enable
the Trustee to exercise its rights under this paragraph 12.
(b) All rights to marshalling of assets of Pledgor, including any
such right with respect to the Collateral, are hereby waived by Pledgor.
13. Expenses.
--------
The Pledgor will upon demand pay to the Trustee the amount of any and
all reasonable expenses (including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and agents retained by the
Trustee) that the Trustee may incur in connection with (i) the administration of
this Custody and Security Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the rights of the Trustee and the
Holders hereunder or (iv) the
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<PAGE>
failure by the Pledgor to perform or observe any of the provisions hereof.
14. Security Interest Absolute.
--------------------------
All rights of the Trustee and the Holders and security interests
hereunder, and all obligations of the Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or nonperfection of any Liens on
any other collateral for all or any of the Secured Obligations; or
(d) to the extent permitted by applicable law, any other circumstance
which might otherwise constitute a defense available to, or a discharge of,
the Pledgor in respect of the Secured Obligations or of this Custody and
Security Agreement.
15. Continuing Security Interest; Termination.
-----------------------------------------
(a) This Custody and Security Agreement shall create a continuing
security interest in and to the Collateral and shall, unless otherwise
provided in the Indenture or in this Custody and Security Agreement, remain
in full force and effect until the earlier of payment in full in case of
(A) each of the scheduled interest payments due on the Senior Notes under
the terms of the Indenture or (B) all Secured Obligations due and owing
under the Indenture and the Senior Notes in the event such Secured
Obligations become payable prior to the payment of each of the interest
payments on the Senior Notes. This Custody and Security Agreement shall be
binding upon the Pledgor, its successors and assigns, and shall inure,
together with the rights and remedies of the Trustee hereunder,
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<PAGE>
to the benefit of the Trustee, the Holders and their respective successors,
transferees and assigns.
(b) This Custody and Security Agreement shall terminate upon the
earlier of payment in full in cash of (A) each of the scheduled interest
payments due on the Senior Notes under the terms of the Indenture or (B)
all Secured Obligations due and owing under the Indenture and the Senior
Notes in the event such Secured Obligations become payable prior to the
payment of each of the scheduled interest payments on the Senior Notes. At
such time, the Trustee shall, at the written request of the Pledgor,
reassign and redeliver to Pledgor all of the Collateral hereunder that has
not been sold, disposed of, retained or applied by the Trustee in
accordance with the terms of this Custody and Security Agreement, the
Indenture and relevant provisions of Article 8 of the UCC. Such
reassignment and redelivery shall be without warranty (either express or
implied) by or recourse to the Trustee, except as to the absence of any
prior assignments by the Trustee of its interest in the Collateral, and
shall be at the expense of the Pledgor.
16. Authority of the Trustee.
------------------------
(a) The Trustee shall have and be entitled to exercise all powers
hereunder that are specifically granted to the Trustee by the terms hereof,
together with such powers as are reasonably incident thereto. The Trustee
may perform any of its duties hereunder or in connection with the
Collateral by or through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of counsel concerning
all such matters. Neither the Trustee, any director, officer, employee,
attorney or agent of the Trustee nor the Holder shall be liable to the
Pledgor for any action taken or omitted to be taken by it or them
hereunder, except for its or their own gross negligence or willful
misconduct, nor shall the Trustee be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors, officers,
employees, attorneys and agents shall be entitled to rely on any
communication, instrument or document reasonably believed by it or them to
be genuine
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<PAGE>
and correct and to have been signed or sent by the proper person or
persons.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Custody and Security Agreement with respect to any
action taken by the Trustee or the exercise or non-exercise by the Trustee
of any option, right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Custody and Security
Agreement shall, as between the Trustee and the Holders, be governed by the
Indenture and by such other agreements with respect thereto as may exist
from to time among them, but, as between the Trustee and the Pledgor, the
Trustee shall be conclusively presumed to be acting as agent for the
Holders with full and valid authority so to act or refrain from acting, and
the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
17. Notices.
-------
Any communication,, notice or demand to be given hereunder shall be
duly given hereunder if given in the form and manner, and delivered to the
address set forth in the Indenture, or in such other form and manner or to such
other address as shall be designated by any party hereto to each other party
hereto in a written notice delivered in accordance with the terms of the
Indenture.
18. No Waiver; Cumulative Rights.
----------------------------
No failure on the part of the Trustee to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Trustee of any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power. Each and every right, remedy and power hereby granted
to the Trustee or allowed it by law or other agreement shall be cumulative and
not exclusive the one of any other, and may be exercised by the Trustee from
time to time.
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<PAGE>
19. Benefits of Custody and Security Agreement.
------------------------------------------
Nothing in this Custody and Security Agreement, express or implied,
shall give to any person, other than the parties hereto and their successors
hereunder, and the Holders, any benefit or any legal or equitable right, remedy
or claim under this Custody and Security Agreement.
20. Applicable Law; Consent to Jurisdiction.
---------------------------------------
This Agreement and the rights and obligations of the parties hereunder
shall be governed by, and construed in accordance with, the laws of the State of
New York without regard to conflicts of laws principles thereof. Pledgor hereby
irrevocably submits to the non-exclusive jurisdiction of any New York State or
Federal court located in the State of New York in any action or proceeding
arising out of or relating to this Agreement.
21. Submission to Jurisdiction; Waiver of Jury Trial.
------------------------------------------------
(a) THIS CUSTODY AND SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. TO INDUCE THE TRUSTEE
TO ENTER INTO THIS CUSTODY AND SECURITY AGREEMENT, THE PLEDGOR HEREBY
IRREVOCABLY AGREES THAT, SUBJECT TO THE TRUSTEE'S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS WHICH IN ANY MANNER ARISE OUT OF OR IN
CONNECTION WITH OR ARE IN ANY WAY RELATED TO THIS CUSTODY AND SECURITY
AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
NEW YORK, STATE OF NEW YORK. THE PLEDGOR HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK. THE PLEDGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BETWEEN THE PLEDGOR AND
THE TRUSTEE IN ACCORDANCE WITH THIS PARAGRAPH.
(b) THE PLEDGOR HAS APPOINTED [ ], NEW YORK, NEW YORK [ ], AS
ITS AUTHORIZED AGENT (THE "AUTHORIZED AGENT") UPON WHOM PROCESS MAY BE
SERVED IN ANY SUCH ACTION ARISING OUT OF OR BASED ON THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY WHICH MAY BE INSTITUTED IN ANY NEW YORK
COURT BY ANY PURCHASER OR BY ANY PERSON WHO CONTROLS ANY PURCHASER,
EXPRESSLY CONSENTS TO THE JURISDICTION OF ANY SUCH
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<PAGE>
COURT IN RESPECT OF ANY SUCH ACTION, AND WAIVES ANY OTHER REQUIREMENTS OF
OR OBJECTIONS TO PERSONAL JURISDICTION WITH RESPECT THERETO. SUCH
APPOINTMENT SHALL BE IRREVOCABLE. THE PLEDGOR REPRESENTS AND WARRANTS THAT
THE AUTHORIZED AGENT HAS AGREED TO ACT AS SUCH AGENT FOR SERVICE OF PROCESS
AND AGREES TO TAKE ANY AND ALL ACTION, INCLUDING THE FILING OF ANY AND ALL
DOCUMENTS AND INSTRUMENTS, THAT MAY BE NECESSARY TO CONTINUE SUCH
APPOINTMENT IN FULL FORCE AND EFFECT AS AFORESAID. SERVICE OF PROCESS UPON
THE AUTHORIZED AGENT AND WRITTEN NOTICE OF SUCH SERVICE TO THE PLEDGOR
SHALL BE DEEMED, IN EVERY RESPECT, EFFECTIVE SERVICE OF PROCESS UPON THE
PLEDGOR.
(c) EACH OF THE PLEDGOR AND THE TRUSTEE HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN
ANY WAY RELATED TO THIS CUSTODY AND SECURITY AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN.
(d) THE PROVISIONS OF THIS SECTION 21 ARE A MATERIAL INDUCEMENT FOR
THE TRUSTEE ENTERING INTO THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREIN. PLEDGOR HEREBY ACKNOWLEDGES THAT IT HAS REVIEWED THE PROVISIONS OF
THIS SECTION 21 WITH ITS INDEPENDENT COUNSEL.
22. Execution in Counterparts.
-------------------------
This Custody and Security Agreement 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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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
SUPERIOR FINANCIAL CORP.
By:
By:______________________________
Name: C. Stanley Bailey
Title: Chairman of the Board
of Directors and
Chief Executive Officer
THE BANK OF NEW YORK, as Trustee
By:________________________________
Name:
Title:
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<PAGE>
EXHIBIT F
---------
FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT
--------------------------------------------
This Securities Account Control Agreement dated as of April 2, 1998
among Superior Financial Corp., as pledgor for the benefit of The Bank of New
York, as Trustee, (the "Debtor"), The Bank of New York, as Trustee, (the
"Secured Party") and The Bank of New York (the "Securities Intermediary").
Capitalized terms used but not defined herein shall have the meaning assigned in
the Custody and Security Agreement dated as of April 1, 1998 between Debtor and
the Secured Party (the "Security Agreement"). All references herein to the
"UCC" shall mean the Uniform Commercial Code as in effect in the State of [New
York].
SECTION 1. ESTABLISHMENT OF SECURITIES ACCOUNT. The Securities
-----------------------------------
Intermediary hereby confirms and agrees that:
(a) The Securities Intermediary has established account number
[IDENTIFY ACCOUNT NUMBER] in the name "SUPERIOR FINANCIAL CORP., AS PLEDGOR FOR
- ------------------------
THE BENEFIT OF THE BANK OF NEW YORK, AS TRUSTEE" (such account and any successor
account, the "Securities Account") and the Securities Intermediary shall not
change the name or account number of the Securities Account without the prior
written consent of the Secured Party;
(b) All securities or other property underlying any financial assets
credited to the Securities Account shall be registered in the name of the
Securities Intermediary, indorsed to the Securities Intermediary or in blank or
credited to another securities account maintained in the name of the Securities
Intermediary and in no case will any financial asset credited to the Securities
Account be registered in the name of the Debtor, payable to the order of the
Debtor or specially indorsed to the Debtor except to the extent the foregoing
have been specially indorsed to the Securities Intermediary or in blank;
(c) All property delivered to the Securities Intermediary pursuant to
the Security Agreement will be promptly credited to the Securities Account; and
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<PAGE>
(d) The Securities Account is an account to which financial assets are
or may be credited, and the Securities Intermediary shall, subject to the terms
of this Agreement, treat the Debtor as entitled to exercise the rights that
comprise any financial asset credited to the account.
SECTION 2. "FINANCIAL ASSETS" ELECTION. The Securities Intermediary
---------------------------
hereby agrees that each item of property (whether investment property, financial
asset, security, instrument or cash) credited to the Securities Account shall be
treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the
UCC.
SECTION 3. ENTITLEMENT ORDERS. If at any time the Securities
------------------
Intermediary shall receive any order from the Secured Party directing transfer
or redemption of any financial asset relating to the Securities Account, the
Securities Intermediary shall comply with such entitlement order without further
consent by the Debtor or any other person.
SECTION 4. SUBORDINATION OF LIEN; WAIVER OF SET-OFF. In the event
----------------------------------------
that the Securities Intermediary has or subsequently obtains by agreement, by
operation of law or otherwise a security interest in the Securities Account or
any security entitlement credited thereto, the Securities Intermediary hereby
agrees that such security interest shall be subordinate to the security interest
of the Secured Party. The financial assets and other items deposited to the
Securities Account will not be subject to deduction, set-off, banker's lien, or
any other right in favor of any person other than the Secured Party (except that
the Securities Intermediary may set off (i) all amounts due to the Securities
Intermediary in respect of customary fees and expenses for the routine
maintenance and operation of the Securities Account, and (ii) the face amount of
any checks which have been credited to the Securities Account but are
subsequently returned unpaid because of uncollected or insufficient funds).
SECTION 5. CHOICE OF LAW. Both this Agreement and the Securities
-------------
Account shall be governed by the laws of the State of NEW YORK. Regardless of
any provision in any other agreement, for purposes of the UCC, NEW YORK shall be
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<PAGE>
deemed to be the Securities Intermediary's jurisdiction and the Securities
Account (as well as the securities entitlements related thereto) shall be
governed by the laws of the State of NEW YORK.
SECTION 6. CONFLICT WITH OTHER AGREEMENTS.
------------------------------
(a) In the event of any conflict between this Agreement (or any
portion thereof) and any other agreement now existing or hereafter entered into,
the terms of this Agreement shall prevail.
(b) No amendment or modification of this Agreement or waiver of any
right hereunder shall be binding on any party hereto unless it is in writing and
is signed by all of the parties hereto.
(c) The Securities Intermediary hereby confirms and agrees that:
(i) There are no other agreements entered into between the Securities
Intermediary and the Debtor with respect to the Securities Account
EXCEPT FOR THE CUSTODY AND SECURITY AGREEMENT (COLLECTIVELY, THE
"ACCOUNT AGREEMENTS");
(ii) It has not entered into, and until the termination of the this
agreement will not enter into, any agreement with any other person
relating the Securities Account and/or any financial assets credited
thereto pursuant to which it has agreed to comply with entitlement
orders (as defined in Section 8-102(a)(8) of the UCC) of such other
person; and
(iii) It has not entered into, and until the termination of this
agreement will not enter into, any agreement with the Debtor or the
Secured Party purporting to limit or condition the obligation of the
Securities Intermediary to comply with entitlement orders as set forth
in Section 3 hereof.
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<PAGE>
SECTION 7. ADVERSE CLAIMS. Except for the claims and interest of the
--------------
Secured Party and of Debtor in the Securities Account, the Securities
Intermediary does not know of any claim to, or interest in, the Securities
Account or in any "financial asset" (as defined in Section 8-102(a) of the UCC)
credited thereto. If any person asserts any lien, encumbrance or adverse claim
(including any writ, garnishment, judgment, warrant of attachment, execution or
similar process) against the Securities Account or in any financial asset
carried therein, the Securities Intermediary will promptly notify the Secured
Party and Debtor thereof.
SECTION 8. MAINTENANCE OF SECURITIES ACCOUNT. In addition to, and
---------------------------------
not in lieu of, the obligation of the Securities Intermediary to honor
entitlement orders as agreed in Section 3 hereof, the Securities Intermediary
agrees to maintain the Securities Account as follows:
(a) Notice of Sole Control. If at any time the Secured Party
----------------------
delivers to the Securities Intermediary a Notice of Sole Control in
substantially the form set forth in Exhibit A hereto, the Securities
Intermediary agrees that after receipt of such notice, it will take all
instruction with respect to the Securities Account solely from the Secured
Party.
(b) Voting Rights. Until such time as the Securities Intermediary
-------------
receives a Notice of Sole Control pursuant to subsection (a) of this Section 8,
the Debtor shall direct the Securities Intermediary with respect to the voting
of any financial assets credited to the Securities Account.
(c) Permitted Investments. Until such time as the Securities
---------------------
Intermediary receives a Notice of Sole Control signed by the Secured Party, the
Debtor shall direct the Securities Intermediary with respect to the selection of
investments to be made; provided, however, that the Securities Intermediary
shall not honor any instruction to purchase any investments other than
investments of a type describe on Exhibit B hereto.
(d) Statements and Confirmations. The Securities Intermediary will
----------------------------
promptly send copies of all statements, confirmations and other correspondence
concerning the
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<PAGE>
Securities Account and/or any financial assets credited thereto simultaneously
to each of the Debtor and the Secured Party at the address for each set forth in
Section 12 of this Agreement.
(e) Tax Reporting. All items of income, gain, expense and loss
-------------
recognized in the Securities Account shall be reported to the Internal Revenue
Service and all state and local taxing authorities under the name and taxpayer
identification number of the Debtor.
SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
------------------------------------------------
SECURITIES INTERMEDIARY. The Securities Intermediary hereby makes the following
- -----------------------
representations, warranties and covenants:
(a) The Securities Account has been established as set forth in
Section 1 above and the Securities Account will be maintained in the manner set
forth herein until termination of this Agreement; and
(b) This Securities Account Control Agreement is the valid and legally
binding obligations of the Securities Intermediary.
SECTION 10. SUCCESSORS; ASSIGNMENT. The terms of this Agreement
----------------------
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their respective corporate successors or heirs and personal representatives who
obtain such rights solely by operation of law. The Secured Party may assign its
rights hereunder only with the express written consent of the Securities
Intermediary and by sending written notice of such assignment to the Debtor.
SECTION 11. NOTICES. Any notice, request or other communication
-------
required or permitted to be given under this Agreement shall be in writing and
deemed to have been properly given when delivered in person, or when sent by
telecopy or other electronic means and electronic confirmation of error free
receipt is received or two days after being sent by certified or registered
United States mail, return receipt requested, postage prepaid, addressed to the
party at the address set forth below.
F-5
<PAGE>
Debtor: Superior Financial Corp.
5000 Rogers Avenue
Fort Smith, Arkansas 72903
Secured Party:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administrator
Securities Intermediary:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administrator
Any party may change his address for notices in the manner set forth
above.
SECTION 12. TERMINATION. The obligations of the Securities
-----------
Intermediary to the Secured Party pursuant to this Control Agreement shall
continue in effect until the security interests of the Secured Party in the
Securities Account has been terminated pursuant to the terms of the Security
Agreement and the Secured Party has notified the Securities Intermediary of such
termination in writing. Secured Party agrees to provide Notice of Termination
in substantially the form of Exhibit C hereto to the Securities Intermediary
upon the request of the Debtor on or after the termination of the Secured
Party's security interest in the Securities Account pursuant to the terms of the
Security Agreement. The termination of this Control Agreement shall not
terminate the Securities Account or alter the obligations of the Securities
Intermediary to the Debtor pursuant to any other agreement with respect to the
Securities Account.
F-6
<PAGE>
SECTION 13. COUNTERPARTS. This Agreement may be executed in any
------------
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing and
delivering one or more counterparts.
SUPERIOR FINANCIAL CORP.
By: _____________________________
Name: C. Stanley Bailey
Title: Chairman of the Board
of Directors and
Chief Executive Officer
THE BANK OF NEW YORK, as Trustee
By: _____________________________
Name:
Title:
THE BANK OF NEW YORK
By: _____________________________
Name:
Title:
F-7
<PAGE>
Exhibit A
---------
[Letterhead of Secured Party]
[Date]
[Name and Address of Securities Intermediary]
Attention: __________________
Re: Notice of Sole Control
----------------------
Ladies and Gentlemen:
As referenced in the Securities Account Control Agreement, dated April
1, 1998, among Superior Financial Corp., you and the undersigned (a copy of
which is attached) we hereby give you notice of our sole control over securities
account number ____________ (the "Securities Account") and all financial assets
credited thereto. You are hereby instructed not to accept any direction,
instructions or entitlement orders with respect to the Securities Account or the
financial assets credited thereto from any person other than the undersigned,
unless otherwise ordered by a court of competent jurisdiction.
You are instructed to deliver a copy of this notice by facsimile
transmission to Superior Financial Corp.
Very truly yours,
THE BANK OF NEW YORK, as
Trustee
By: ______________________
Title
cc: Superior Financial Corp.
F-8
<PAGE>
Exhibit B
---------
Permitted Investments
---------------------
F-9
<PAGE>
Exhibit C
---------
[Letterhead of Secured Party]
[Date]
[Name and Address of Securities Intermediary]
Attention: _____________
Re: Termination of Control Agreement
--------------------------------
You are hereby notified that the Control Agreement between you,
Superior Financial Corp. and the undersigned (a copy of which is attached) is
terminated and you have no further obligations to the undersigned pursuant to
such Agreement. Notwithstanding any previous instructions to you, you are
hereby instructed to accept all future directions with respect to Securities
Account number ______________ from Superior Financial Corp. This notice
terminates any obligations you may have to the undersigned with respect to such
account, however nothing contained in this notice shall alter any obligations
which you may otherwise owe to Superior Financial Corp. pursuant to any other
agreement.
You are instructed to deliver a copy of this notice by facsimile
transmission to Superior Financial Corp.
Very truly yours,
THE BANK OF NEW YORK, as
Trustee
By: ___________________
Title: ______________
F-10
<PAGE>
================================================================================
INCORPORATED UNDER THE LAWS OF
DELAWARE
NUMBER SHARES
----------------- -----------------
VOID VOID
----------------- -----------------
---------------------------------------------------------------------
SUPERIOR FINANCIAL CORP.
TRANSFER OF THESE SHARES IS SUBJECT TO RESTRICTIONS LISTED ON THE REVERSE
HEREOF.
THIS CERTIFIES THAT VOID - SPECIMEN
------------------------------------------------------is the
registered holder of VOID - SPECIMEN
------------------------------------------------------shares
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly enclosed.
IN WITNESS WHEREOF, the said Corporation has caused this certificate
to be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ______________________________ day of ____________________
A.D 1998.
By: /s/ C. Stanley Bailey By: /s/ Holly M. Hicks
----------------------- ----------------------
C. Stanley Bailey Holly M. Hicks
Its Chairman of the Its Secretary
Board of Directors
================================================================================
<PAGE>
EXHIBIT 5.0
July 29, 1998
Montgomery Office
Board of Directors
Superior Financial Corp.
5000 Rogers Avenue
Fort Smith, Arkansas 72903
Re: Registration Statement on Form S-1 relating to the registration of
10,079,703 shares of Common Stock of Superior Financial Corp. and
$60,000,000 of 8.65% Senior Notes due 2003
Gentlemen:
We have acted as special counsel to Superior Financial Corp. (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), of a Registration Statement on Form S-1 (the "Registration
Statement") which registers 10,079,703 shares of the Company's common stock,
$0.01 par value per share, and $60,000,000 of 8.65% Senior Notes due 2003
(collectively, the "Superior Securities") for resale by certain stockholders of
the Company who acquired the Superior Securities pursuant to an exemption from
the registration requirements contained in Section 5 of the Securities Act. As
such counsel, we have made such legal and factual examinations and inquiries as
we deemed advisable for the purpose of rendering this opinion.
Upon the basis of the foregoing, we are of the opinion that:
(i) The Company is a corporation duly organized and existing under the
laws of the State of Delaware;
<PAGE>
(ii) The Superior Securities are validly authorized, legally issued,
fully paid and nonassessable;
(iii) Under the laws of the State of Delaware, no personal liability
attaches to the ownership of the shares of Common Stock of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In consenting to the inclusion of our opinion in the
Registration Statement, we do not thereby admit that we are a person whose
consent is required pursuant to Section 7 of the Securities Act.
Sincerely yours,
MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
/s/ Miller, Hamilton, Snider & Odom, L.L.C.
WHH/jb
<PAGE>
EXHIBIT 10.1
CUSTODY AND SECURITY AGREEMENT
CUSTODY AND SECURITY AGREEMENT, dated as of April 1, 1998 between
Superior Financial Corp., (the "Pledgor") and The Bank of New York, as trustee,
(the "Trustee") for the benefit of the holders (the "Holders") of the Senior
Notes (as defined herein) of the Pledgor issued under the Indenture (as defined
herein).
WHEREAS, the Pledgor and The Bank of New York, as trustee, have
entered into that certain indenture dated as of April 1, 1998 (as amended,
restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgor is issuing on the date hereof
$60,000,000 in aggregate principal amount of Senior Notes due 2003 (the "Senior
Notes"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings given to such terms in the Indenture; and
WHEREAS, the Pledgor agrees, pursuant to the Indenture, to (i)
purchase Permitted Investments (together with any replacement or substitute
securities, the "Pledged Securities") in an amount sufficient upon receipt of
scheduled interest and principal payments in respect of the Pledged Securities,
based on the report of a nationally recognized firm of independent public
accountants selected by the Pledgor, to provide for payment at all times during
the period commencing on the Issue Date, interest due on the Senior Notes on the
next two succeeding Interest Payment Dates and (ii) place such Pledged
Securities in an account (the "Collateral Account") held by The Bank of New York
as custodian (the "Custodian") for the benefit of Holders of the Senior Notes;
and
WHEREAS, the Pledgor is the legal and beneficial owner of the Pledged
Securities; and
WHEREAS, to secure its obligations under the Indenture and the Senior
Notes (the "Secured Obligations"), the Pledgor has agreed to (i) pledge to the
Trustee for its benefit and the ratable benefit of the Holders a perfected first
priority security interest in the Pledged Securities and the Collateral Account
(as defined below) and (ii) execute and deliver this Custody and Security
Agreement in order to secure the payment and performance by the Pledgor of all
such Secured Obligations.
<PAGE>
WITNESSETH:
NOW THEREFORE, the parties hereto agree as follows:
1. Pledge and Grant of Security Interest.
-------------------------------------
The Pledgor hereby pledges to the Trustee for its benefit and for the
ratable benefit of the Holders, and grants to the Trustee for its benefit and
for the ratable benefit of the Holders, a continuing first priority security
interest in and to (i) all of Pledgor's right, title and interest in the Pledged
Securities, the Collateral Account (as defined herein), and any other
securities, assets, or property held in or credited to the Collateral Account,
(ii) certificates or other evidence of ownership representing the Pledged
Securities, the Collateral Account, and any property held in or credited to the
Collateral Account and (iii) all products and proceeds of any of the foregoing,
including, without limitation, all dividends, interest, principal payments,
cash, options, warrants, rights, instruments, subscriptions and other property
or proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the foregoing,
including any such property held in or credited to the Collateral Account
(collectively, the "Collateral").
2. Security for Secured Obligations.
--------------------------------
The Custody and Security Agreement and the Collateral secure the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all Secured Obligations.
3. Delivery of Collateral; Collateral Account;
Interest; Substitution of Collateral.
---------------------------------------
(a) All certificates or instruments, if any, from time to time
representing or evidencing the Collateral shall be delivered to and held by
or on behalf of the Trustee pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Trustee.
(b) Concurrently with the execution and delivery hereof, the Trustee
shall establish an account entitled "SUPERIOR FINANCIAL CORP., AS PLEDGOR
FOR THE BENEFIT OF THE BANK OF NEW YORK, AS TRUSTEE" for the deposit of the
Pledged Securities (such account, or any successor account, the "Collateral
Account") at its office at [101 Barclay Street,] New York, New York
2
<PAGE>
10286. Subject to the other terms and conditions of this Custody and
Security Agreement, all funds or other property accepted by the Trustee
pursuant to this Custody and Security Agreement shall be held in the
Collateral Account for the benefit of the Trustee and the ratable benefit
of the Holders.
(c) All interest earned on any Collateral shall be retained and
reinvested in the Collateral Account and credited thereto, pending
disbursement pursuant to the terms hereof.
4. Disbursements.
-------------
(a) Not less than six (6) Business Days prior to the next scheduled
Interest Payment Date with respect to the Senior Notes the Pledgor may, in
writing, direct the Trustee to transfer from the Collateral Account to the
Trustee in its capacity as Paying Agent funds necessary to provide for
payment in full or any portion of the next scheduled interest payment on
the Senior Notes. Upon receipt of such written request, the Trustee will
take any action reasonably necessary to provide for the payment of such
interest payment on the Senior Notes directly to the Holders from proceeds
of the Pledged Securities or any other property held in or credited to the
Collateral Account.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Pledged Securities are collateral from a
source of funds other than the Collateral Account ("Pledgor Funds"), the
Pledgor may, after payment in full for such interest payment, direct the
Trustee in writing to release to the Pledgor or at the direction of the
Pledgor an amount of funds from the Collateral Account less than or equal
to the amount of Pledgor Funds so expended within six business days of such
request. Upon receipt of a direction from the Pledgor and any other
documentation reasonably satisfactory to the Trustee to substantiate such
use of Pledgor Funds by the Pledgor (including the certificate described in
the following sentence), the Trustee will take any action reasonably
necessary to enable it to pay over to the Pledgor the requested amount.
Concurrently with any release of funds to the Pledgor pursuant to this
Section 4(b), the Pledgor will deliver to the Trustee a certificate signed
by the Chief Executive Officer or the Chief Financial Officer of the
Pledgor stating that the use of Pledgor Funds to make interest payments has
been duly authorized by all necessary corporate action, and does not
contravene, or constitute a default under, any provisions of applicable law
or regulation or of the certificate of incorporation of the Pledgor or of
any agreement, judgment, injunction, order, decree or other
3
<PAGE>
instrument binding upon the Pledgor or result in the creation or imposition
of any Lien on any assets of the Pledgor.
(c) If at any time the amount of Pledged Securities exceeds the
amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Pledgor, to provide for
payment in full of the next two succeeding scheduled interest payments due
on the Senior Notes (or, in the event an interest payment or payments have
been made, an amount sufficient to provide for payment in full of any
interest payments then remaining, up to and including the final scheduled
interest payment), the Pledgor may direct the Trustee in writing to release
any such overfunding to it. Upon receipt of a written request from the
Pledgor and delivery of an Officer's Certificate to the Trustee to
substantiate such excess in accordance with Section 4.15(d) of the
Indenture, the Trustee will pay over to the Pledgor any such over-funded
amount.
(d) Upon payment in full of all scheduled interest payments on the
Senior Notes, the security interest in the Collateral evidenced by this
Custody and Security Agreement will terminate and be of no further force
and effect. Furthermore, upon the release of any Collateral from the
Collateral Account in accordance with the terms of this Custody and
Security Agreement, whether upon release of Collateral to Holders as
payment of interest, to the Company or otherwise, the security interest
evidenced by this Custody and Security Agreement in the Collateral so
released will terminate and be of no further force and effect.
5. Representations and Warranties.
------------------------------
The Pledgor hereby represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Custody and Security Agreement do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the Articles of
Incorporation of the Pledgor or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Pledgor or result in the
creation or imposition of any Lien on any assets of the Pledgor, except for
the security interests granted under this Custody and Security Agreement.
(b) The Collateral, including the Pledged Securities, the Collateral
Account and other property held therein or credited thereto are subject to
no liens other than the lien created by this Custody and Security
Agreement. No financing statement covering the Collateral, including the
Pledged Securities, the Collateral
4
<PAGE>
Account, or any other property held in or credited to the Collateral
Account is on file in any public office (other than any financing
statements filed pursuant to this Custody and Security Agreement) and no
person other than the Trustee shall have "control", within the meaning of
Section 8-106 of the UCC, of the Collateral, including the Pledged
Securities, the Collateral Account, or any other property held in or
credited to the Collateral Account.
(c) The pledge of the Collateral pursuant to this Custody and
Security Agreement and the execution of the Securities Account Control
Agreement, dated as of April 1, 1998 among the Pledgor, The Bank of New
York, as Trustee and The Bank of New York, as Securities Intermediary
creates a valid and perfected first priority security interest in and to
the Collateral, which valid, perfected, first priority security interest
will continue to be enforceable as such against all creditors of the
Pledgor and any persons purporting to purchase any of the Collateral from
the Pledgor other than as permitted by the Indenture.
(d) No consent of any other person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by the Pledgor of the Collateral pursuant to this Custody and
Security Agreement or for the execution, delivery or performance of this
Custody and Security Agreement by the Pledgor (except for any filings and
notations necessary to perfect Liens on the Collateral) or (ii) for the
exercise by the Trustee of rights provided for in this Custody and Security
Agreement or the remedies in respect of the Collateral pursuant to this
Custody and Security Agreement, except for any filings or notices required
by the UCC.
(e) The pledge of the Collateral pursuant to this Custody and
Security Agreement is not prohibited by any applicable law or government
regulation, release interpretation or opinion of the Board of Governors of
the United States Federal Reserve System or other regulatory agency
(including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System).
6. Further Assurances.
------------------
The Pledgor agrees to promptly take such actions and to execute and
deliver or cause to be executed and delivered, or use its best efforts to
procure, such stock or bond powers, proxies, assignments, instruments and such
other or different writings as the Trustee may reasonably request, all in form
and substance reasonably satisfactory to
5
<PAGE>
the Trustee, deliver any instruments to the Trustee and take any other actions
that are necessary or, in the reasonable opinion of the Trustee, desirable, to
perfect, continue the perfection of, confirm and assure the first priority of
the Trustee's security interest in the Collateral, to protect the Collateral
against the rights, claims or interests of third persons, to otherwise effect
the purposes of this Custody and Security Agreement, including, without
limitation, the preparation, execution and filing of UCC financing statements
and any other actions required to maintain the Trustee's "control" (within the
meaning of Article 8 of the UCC) over the Collateral.
7. Covenants.
---------
The Pledgor covenants and agrees with the Trustee and the Holders from
and after the date of this Custody and Security Agreement until the earlier of
payment in full in cash of (A) each of the scheduled interest payments due on
the Senior Notes under the terms of the Indenture or (B) all Secured Obligations
due and owing under the Indenture and the Senior Notes in the event such Secured
Obligations become due and payable prior to the payment of each of the scheduled
interest payments on the Senior Notes:
(a) The Pledgor agrees that it will not (i) sell or otherwise dispose
of, or grant any option or warrant with respect to, any of the Collateral
or (ii) create or permit to exist any Lien upon or with respect to any of
the Collateral (except for the Lien created pursuant to this Custody and
Security Agreement) and at all times will be the sole owner of the
Collateral.
(b) The Pledgor agrees that it will not (i) enter into any agreement
or understanding that purports to or may restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the Trustee's
right to sell or otherwise dispose of the Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any nature not later than six days
prior to the date of any proposed sale under any judgement, writ or warrant
of attachment with regard to the Collateral.
8. Power of Attorney.
-----------------
In addition to all of the powers granted to the Trustee pursuant to
Article VI of the Indenture, the Pledgor hereby appoints and constitutes the
Trustee as the Pledgor's attorney-in-fact to exercise to the fullest extent
permitted by law all of the following powers upon and at any time after the
occurrence and during the continuance of an Event of Default: (i) collection of
proceeds of any Collateral; (ii) conveyance of any
6
<PAGE>
item of Collateral to any purchaser thereof; (iii) giving of any notices or
recording of any Liens under Section 6 hereof; (iv) making of any payments or
taking any acts under Section 9 hereof and (v) paying or discharging taxes or
Liens levied or placed upon the Collateral, the legality or validity thereof and
the amounts necessary to discharge the same to be determined by the Trustee in
its sole discretion, and such payments made by the Trustee in respect of this
clause (v) to become the Secured Obligations of the Pledgor to the Trustee, due
and payable immediately upon demand. The Trustee's authority hereunder shall
include, without limitation, the authority to endorse and negotiate any checks
or instruments representing proceeds of Collateral in the name of the Pledgor,
execute and give receipt for any certificate of ownership or any document
constituting Collateral, transfer title to any item of Collateral, sign the
Pledgor's name on all financing statements (to the extent permitted by
applicable law) or any other documents deemed necessary or appropriate by the
Trustee to preserve, process or perfect the security interest in the Collateral
(including, without limitation, any documents deemed necessary by the Trustee to
obtain or maintain "control" (within the meaning of Article 8 of the UCC) of the
Collateral) and to file the same, prepare, file and sign the Pledgor's name on
any notice of Lien, and to take any other actions arising from or incident to
the powers granted to the Trustee in this Custody and Security Agreement. This
power of attorney is coupled with an interest and is irrevocable by the Pledgor.
9. Trustee May Perform.
-------------------
If the Pledgor fails to perform any agreement contained herein, the
Trustee may itself perform, or cause performance of, such agreement, and the
reasonable expenses of the Trustee incurred in connection therewith shall be
payable by the Pledgor under Section 13 hereof.
10. No Assumption of Duties; Reasonable Care.
----------------------------------------
The rights and powers granted to the Trustee hereunder are being
granted in order to preserve and protect the Trustee's and the Holders' first
priority security interest in and to the Collateral granted hereby and shall not
be interpreted to, and shall not, impose any duties on the Trustee in connection
therewith other than those imposed under applicable law.
11. Indemnity.
---------
The Pledgor shall indemnify, defend and hold harmless the Trustee and
its directors, officers, agents and employees from and against all claims,
actions, obligations, losses, liabilities and expenses, including reasonable
costs, fees and disbursements of
7
<PAGE>
counsel (including, without limitation, the reasonable cost to the Trustee of
legal counsel), the costs of investigations, and claims for damages, arising
from the Trustee's performance under this Custody and Security Agreement, except
insofar as the same may have been caused by the bad faith, gross negligence or
wilful misconduct of such indemnified person.
12. Remedies upon Event of Default.
------------------------------
If an Event of Default shall have occurred and be continuing:
(a) The Trustee shall have and may exercise with reference to the
Collateral any or all of the rights and remedies of a secured party under
the Uniform Commercial Code in effect in the State of New York, and as
otherwise granted herein or under any other applicable law or under any
other agreement now or hereafter in effect executed by Pledgor, including,
without limitation, the right and power to sell, at public or private sale
or sales, or otherwise dispose of, or otherwise utilize the Collateral and
any part or parts thereof in any manner authorized or permitted under said
Uniform Commercial Code after default by a debtor, and to apply the
proceeds thereof toward payment of any costs and expenses and reasonable
attorneys' fees and expenses thereby incurred by the Trustee and toward
payment of the Secured Obligations in such order or manner as the Trustee
may elect. Specifically and without limiting the foregoing, the Trustee
shall have the right to take possession of all or any part of the
Collateral or any security therefor and of all books, records, papers and
documents of Pledgor or in Pledgor's possession or control relating to the
Collateral which are not already in the Trustee's possession, and for such
purpose may enter upon any premises upon which any of the Collateral or any
security therefor or any of said books, records, papers and documents are
situated and remove the same therefrom without any liability for trespass
or damages thereby occasioned. To the extent permitted by law, Pledgor
expressly waives any notice of sale or other disposition of the Collateral
and all other rights or remedies of Pledgor or formalities prescribed by
law relative to sale or disposition of the Collateral or exercise of any
other right or remedy of the Trustee existing after default hereunder; and
to the extent any such notice is required and cannot be waived, Pledgor
agrees that if such notice is given in the manner provided in Section 17
hereof at least six (6) Business Days before the time of the sale
disposition, such notice shall be deemed reasonable and shall fully satisfy
any requirement for giving of such notice. The Trustee shall not be
obligated to make any sale of Collateral regardless of notice of sale
having been given. The Trustee may adjourn any public or private sale.
The Pledgor further agrees to use its reasonable best efforts to do or
cause to be done all such acts as
8
<PAGE>
may be reasonably necessary to enable the Trustee to exercise its rights
under this paragraph 12.
(b) All rights to marshalling of assets of Pledgor, including any
such right with respect to the Collateral, are hereby waived by Pledgor.
13. Expenses.
--------
The Pledgor will upon demand pay to the Trustee the amount of any and
all reasonable expenses (including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and agents retained by the
Trustee) that the Trustee may incur in connection with (i) the administration of
this Custody and Security Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the rights of the Trustee and the
Holders hereunder or (iv) the failure by the Pledgor to perform or observe any
of the provisions hereof.
14. Security Interest Absolute.
--------------------------
All rights of the Trustee and the Holders and security interests
hereunder, and all obligations of the Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or nonperfection of any Liens on
any other collateral for all or any of the Secured Obligations; or
(d) to the extent permitted by applicable law, any other circumstance
which might otherwise constitute a defense available to, or a discharge of,
the Pledgor in respect of the Secured Obligations or of this Custody and
Security Agreement.
9
<PAGE>
15. Continuing Security Interest; Termination.
-----------------------------------------
(a) This Custody and Security Agreement shall create a continuing
security interest in and to the Collateral and shall, unless otherwise
provided in the Indenture or in this Custody and Security Agreement, remain
in full force and effect until the earlier of payment in full in cash of
(A) each of the scheduled interest payments due on the Senior Notes under
the terms of the Indenture or (B) all Secured Obligations due and owing
under the Indenture and the Senior Notes in the event such Secured
Obligations become payable prior to the payment of each of the interest
payments on the Senior Notes. This Custody and Security Agreement shall be
binding upon the Pledgor, its successors and assigns, and shall inure,
together with the rights and remedies of the Trustee hereunder, to the
benefit of the Trustee, the Holders and their respective successors,
transferees and assigns.
(b) This Custody and Security Agreement shall terminate upon the
earlier of payment in full in cash of (A) each of the scheduled interest
payments due on the Senior Notes under the terms of the Indenture or (B)
all Secured Obligations due and owing under the Indenture and the Senior
Notes in the event such Secured Obligations become payable prior to the
payment of each of the scheduled interest payments on the Senior Notes. At
such time, the Trustee shall, at the written request of the Pledgor,
reassign and redeliver to Pledgor all of the Collateral hereunder that has
not been sold, disposed of, retained or applied by the Trustee in
accordance with the terms of this Custody and Security Agreement, the
Indenture and relevant provisions of Article 8 of the UCC. Such
reassignment and redelivery shall be without warranty (either express or
implied) by or recourse to the Trustee, except as to the absence of any
prior assignments by the Trustee of its interest in the Collateral, and
shall be at the expense of the Pledgor.
16. Authority of the Trustee.
------------------------
(a) The Trustee shall have and be entitled to exercise all powers
hereunder that are specifically granted to the Trustee by the terms hereof,
together with such powers as are reasonably incident thereto. The Trustee
may perform any of its duties hereunder or in connection with the
Collateral by or through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of counsel concerning
all such matters. Neither the Trustee, any director, officer, employee,
attorney or agent of the Trustee nor the Holder shall be liable to the
Pledgor for any action taken or omitted to be taken by it or them
hereunder, except for its or their own gross negligence or willful
misconduct, nor shall the
10
<PAGE>
Trustee be responsible for the validity, effectiveness or sufficiency
hereof or of any document or security furnished pursuant hereto. The
Trustee and its directors, officers, employees, attorneys and agents shall
be entitled to rely on any communication, instrument or document reasonably
believed by it or them to be genuine and correct and to have been signed or
sent by the proper person or persons.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Custody and Security Agreement with respect to any
action taken by the Trustee or the exercise or non-exercise by the Trustee
of any option, right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Custody and Security
Agreement shall, as between the Trustee and the Holders, be governed by the
Indenture and by such other agreements with respect thereto as may exist
from to time among them, but, as between the Trustee and the Pledgor, the
Trustee shall be conclusively presumed to be acting as agent for the
Holders with full and valid authority so to act or refrain from acting, and
the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
17. Notices.
-------
Any communication, notice or demand to be given hereunder shall be
duly given hereunder if given in the form and manner, and delivered to the
address set forth in the Indenture, or in such other form and manner or to such
other address as shall be designated by any party hereto to each other party
hereto in a written notice delivered in accordance with the terms of the
Indenture.
18. No Waiver; Cumulative Rights.
----------------------------
No failure on the part of the Trustee to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Trustee of any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power. Each and every right, remedy and power hereby granted
to the Trustee or allowed it by law or other agreement shall be cumulative and
not exclusive the one of any other, and may be exercised by the Trustee from
time to time.
19. Benefits of Custody and Security Agreement.
------------------------------------------
Nothing in this Custody and Security Agreement, express or implied,
shall give to any person, other than the parties hereto and their successors
hereunder, and the
11
<PAGE>
Holders, any benefit or any legal or equitable right, remedy or claim under this
Custody and Security Agreement.
20. Applicable Law; Consent to Jurisdiction.
---------------------------------------
This Custody and Security Agreement and the rights and obligations of
the parties hereunder shall be governed by, and construed in accordance with,
the laws of the State of New York. Pledgor hereby irrevocably submits to the
non-exclusive jurisdiction of any New York State or Federal court located in the
State of New York in any action or proceeding arising out of or relating to this
Custody and Security Agreement.
21. Submission to Jurisdiction; Waiver of Jury Trial.
------------------------------------------------
(a) THIS CUSTODY AND SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. TO INDUCE THE TRUSTEE
TO ENTER INTO THIS CUSTODY AND SECURITY AGREEMENT, THE PLEDGOR HEREBY
IRREVOCABLY AGREES THAT, SUBJECT TO THE TRUSTEE'S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS WHICH IN ANY MANNER ARISE OUT OF OR IN
CONNECTION WITH OR ARE IN ANY WAY RELATED TO THIS CUSTODY AND SECURITY
AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
NEW YORK, STATE OF NEW YORK. THE PLEDGOR HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK. THE PLEDGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BETWEEN THE PLEDGOR AND
THE TRUSTEE IN ACCORDANCE WITH THIS PARAGRAPH.
(b) THE PLEDGOR HAS APPOINTED [ ], NEW YORK, NEW YORK [ ], AS
ITS AUTHORIZED AGENT (THE "AUTHORIZED AGENT") UPON WHOM PROCESS MAY BE
SERVED IN ANY SUCH ACTION ARISING OUT OF OR BASED ON THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY WHICH MAY BE INSTITUTED IN ANY NEW YORK
COURT BY ANY PURCHASER OR BY ANY PERSON WHO CONTROLS ANY PURCHASER,
EXPRESSLY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN RESPECT OF ANY
SUCH ACTION, AND WAIVES ANY OTHER REQUIREMENTS OF OR OBJECTIONS TO
12
<PAGE>
PERSONAL JURISDICTION WITH RESPECT THERETO. SUCH APPOINTMENT SHALL BE
IRREVOCABLE. THE PLEDGOR REPRESENTS AND WARRANTS THAT THE AUTHORIZED AGENT
HAS AGREED TO ACT AS SUCH AGENT FOR SERVICE OF PROCESS AND AGREES TO TAKE
ANY AND ALL ACTION, INCLUDING THE FILING OF ANY AND ALL DOCUMENTS AND
INSTRUMENTS, THAT MAY BE NECESSARY TO CONTINUE SUCH APPOINTMENT IN FULL
FORCE AND EFFECT AS AFORESAID. SERVICE OF PROCESS UPON THE AUTHORIZED AGENT
AND WRITTEN NOTICE OF SUCH SERVICE TO THE PLEDGOR SHALL BE DEEMED, IN EVERY
RESPECT, EFFECTIVE SERVICE OF PROCESS UPON THE PLEDGOR.
(c) EACH OF THE PLEDGOR AND THE TRUSTEE HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN
ANY WAY RELATED TO THIS CUSTODY AND SECURITY AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN.
(d) THE PROVISIONS OF THIS SECTION 21 ARE A MATERIAL INDUCEMENT FOR
THE TRUSTEE ENTERING INTO THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREIN. PLEDGOR HEREBY ACKNOWLEDGES THAT IT HAS REVIEWED THE PROVISIONS OF
THIS SECTION 21 WITH ITS INDEPENDENT COUNSEL.
22. Execution in Counterparts.
-------------------------
This Custody and Security Agreement 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.
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
SUPERIOR FINANCIAL CORP.
By: /s/ C. Stanley Bailey
--------------------------------------------------
Name: C. Stanley Bailey
Title: Chairman of the Board of
Directors and Chief Executive
Officer
THE BANK OF NEW YORK, as Trustee
By: /s/ Robert A. Massimillo
--------------------------------------------------
Name: Robert A. Massimillo
Title: Assistant Vice President
14
<PAGE>
EXHIBIT 10.2
SECURITIES ACCOUNT CONTROL AGREEMENT
This Securities Account Control Agreement dated as of April 1, 1998
among Superior Financial Corp., as pledgor (the "Debtor"), The Bank of New York,
as Trustee pursuant to an indenture (the "Indenture"), dated as of April 1, 1998
between the Debtor and The Bank of New York, as Trustee (the "Secured Party")
and The Bank of New York (the "Securities Intermediary"). Capitalized terms
used but not defined herein shall have the meaning assigned in the Custody and
Security Agreement dated as of April 1, 1998 between Debtor and the Secured
Party (the "Security Agreement") or the Indenture. All references herein to the
"UCC" shall mean the Uniform Commercial Code as in effect in the State of New
York.
SECTION 1. ESTABLISHMENT OF SECURITIES ACCOUNT. The Securities
-----------------------------------
Intermediary hereby confirms and agrees that:
(a) The Securities Intermediary has established account number
[IDENTIFY ACCOUNT NUMBER] in the name "SUPERIOR FINANCIAL CORP., AS PLEDGOR FOR
- ------------------------
THE BENEFIT OF THE BANK OF NEW YORK, AS TRUSTEE" (such account and any successor
account, the "Securities Account") and the Securities Intermediary shall not
change the name or account number of the Securities Account without the prior
written consent of the Secured Party;
(b) All securities or other property underlying any financial assets
credited to the Securities Account shall be registered in the name of the
Securities Intermediary, indorsed to the Securities Intermediary or in blank or
credited to another securities account maintained in the name of the Securities
Intermediary and in no case will any financial asset credited to the Securities
Account be registered in the name of the Debtor, payable to the order of the
Debtor or specially indorsed to the Debtor except to the extent the foregoing
have been specially indorsed to the Securities Intermediary or in blank;
(c) All property delivered to the Securities Intermediary pursuant to
the Security Agreement will be promptly credited to the Securities Account; and
(d) The Securities Account is an account to which financial assets are
or may be credited, and the Securities Intermediary shall, subject to the terms
of this Agreement, treat the Debtor as entitled to exercise the rights that
comprise any financial asset credited to the account.
<PAGE>
SECTION 2. "FINANCIAL ASSETS" ELECTION. The Securities Intermediary
---------------------------
hereby agrees that each item of property (whether investment property, financial
asset, security, instrument or cash) credited to the Securities Account shall be
treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the
UCC.
SECTION 3. ENTITLEMENT ORDERS. If at any time the Securities
------------------
Intermediary shall receive any order from the Secured Party directing transfer
or redemption of any financial asset relating to the Securities Account, the
Securities Intermediary shall comply with such entitlement order without further
consent by the Debtor or any other person.
SECTION 4. SUBORDINATION OF LIEN; WAIVER OF SET-OFF. In the event
----------------------------------------
that the Securities Intermediary has or subsequently obtains by agreement, by
operation of law or otherwise a security interest in the Securities Account or
any security entitlement credited thereto, the Securities Intermediary hereby
agrees that such security interest shall be subordinate to the security interest
of the Secured Party. The financial assets and other items deposited to the
Securities Account will not be subject to deduction, set-off, banker's lien, or
any other right in favor of any person other than the Secured Party (except that
the Securities Intermediary may set off (i) all amounts due to the Securities
Intermediary in respect of customary fees and expenses for the routine
maintenance and operation of the Securities Account, and (ii) the face amount of
any checks which have been credited to the Securities Account but are
subsequently returned unpaid because of uncollected or insufficient funds).
SECTION 5. CHOICE OF LAW. Both this Agreement and the Securities
-------------
Account shall be governed by the laws of the State of NEW YORK. Regardless of
any provision in any other agreement, for purposes of the UCC, NEW YORK shall be
deemed to be the Securities Intermediary's jurisdiction and the Securities
Account (as well as the securities entitlements related thereto) shall be
governed by the laws of the State of NEW YORK.
SECTION 6. CONFLICT WITH OTHER AGREEMENTS.
------------------------------
(a) In the event of any conflict between this Agreement (or any
portion thereof) and any other agreement now existing or hereafter entered into,
the terms of this Agreement shall prevail.
(b) No amendment or modification of this Agreement or waiver of any
right hereunder shall be binding on any party hereto unless it is in writing and
is signed by all of the parties hereto.
2
<PAGE>
(c) The Securities Intermediary hereby confirms and agrees that:
(i) There are no other agreements entered into between the Securities
Intermediary and the Debtor with respect to the Securities Account
EXCEPT FOR THE CUSTODY AND SECURITY AGREEMENT (COLLECTIVELY, THE
"ACCOUNT AGREEMENTS");
(ii) It has not entered into, and until the termination of the this
agreement will not enter into, any agreement with any other person
relating the Securities Account and/or any financial assets credited
thereto pursuant to which it has agreed to comply with entitlement
orders (as defined in Section 8-102(a)(8) of the UCC) of such other
person; and
(iii) It has not entered into, and until the termination of this
agreement will not enter into, any agreement with the Debtor or the
Secured Party purporting to limit or condition the obligation of the
Securities Intermediary to comply with entitlement orders as set forth
in Section 3 hereof.
SECTION 7. ADVERSE CLAIMS. Except for the claims and interest of the
--------------
Secured Party and of Debtor in the Securities Account, the Securities
Intermediary does not know of any claim to, or interest in, the Securities
Account or in any "financial asset" (as defined in Section 8-102(a) of the UCC)
credited thereto. If any person asserts any lien, encumbrance or adverse claim
(including any writ, garnishment, judgment, warrant of attachment, execution or
similar process) against the Securities Account or in any financial asset
carried therein, the Securities Intermediary will promptly notify the Secured
Party and Debtor thereof.
SECTION 8. MAINTENANCE OF SECURITIES ACCOUNT. In addition to, and
---------------------------------
not in lieu of, the obligation of the Securities Intermediary to honor
entitlement orders as agreed in Section 3 hereof, the Securities Intermediary
agrees to maintain the Securities Account as follows:
(a) Notice of Sole Control. If at any time the Secured Party
----------------------
delivers to the Securities Intermediary a Notice of Sole Control in
substantially the form set forth in Exhibit A hereto, the Securities
Intermediary agrees that after receipt of such notice, it will take all
instruction with respect to the Securities Account solely from the Secured
Party.
3
<PAGE>
(b) Voting Rights. Until such time as the Securities Intermediary
-------------
receives a Notice of Sole Control pursuant to subsection (a) of this Section 8,
the Debtor shall direct the Securities Intermediary with respect to the voting
of any financial assets credited to the Securities Account.
(c) Permitted Investments. Until such time as the Securities
---------------------
Intermediary receives a Notice of Sole Control signed by the Secured Party, the
Debtor shall direct the Securities Intermediary with respect to the selection of
investments to be made; provided, however, that the Securities Intermediary
shall not honor any instruction to purchase any investments other than Permitted
Investments (as defined in the Indenture).
(d) Statements and Confirmations. The Securities Intermediary will
----------------------------
promptly send copies of all statements, confirmations and other correspondence
concerning the Securities Account and/or any financial assets credited thereto
simultaneously to each of the Debtor and the Secured Party at the address for
each set forth in Section 12 of this Agreement.
(e) Tax Reporting. All items of income, gain, expense and loss
-------------
recognized in the Securities Account shall be reported to the Internal Revenue
Service and all state and local taxing authorities under the name and taxpayer
identification number of the Debtor.
SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
------------------------------------------------
SECURITIES INTERMEDIARY. The Securities Intermediary hereby makes the following
- -----------------------
representations, warranties and covenants:
(b) The Securities Account has been established as set forth in
Section 1 above and the Securities Account will be maintained in the manner set
forth herein until termination of this Agreement; and
(c) This Securities Account Control Agreement is the valid and legally
binding obligations of the Securities Intermediary.
SECTION 10. SUCCESSORS; ASSIGNMENT. The terms of this Agreement
----------------------
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their respective corporate successors or heirs and personal representatives who
obtain such rights solely by operation of law. The Secured Party may assign its
rights hereunder only with the express written consent of the Securities
Intermediary and by sending written notice of such assignment to the Debtor.
4
<PAGE>
SECTION 11. NOTICES. Any notice, request or other communication
-------
required or permitted to be given under this Agreement shall be in writing and
deemed to have been properly given when delivered in person, or when sent by
telecopy or other electronic means and electronic confirmation of error free
receipt is received or two days after being sent by certified or registered
United States mail, return receipt requested, postage prepaid, addressed to the
party at the address set forth below.
Debtor: Superior Financial Corp.
c/o Superior Federal Bank
5000 Rogers Avenue
Fort Smith, Arkansas 72903
Attention: C. Stanley Bailey
Secured Party:
The Bank of New York, as Trustee
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administrator
Securities Intermediary:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administrator
Any party may change his address for notices in the manner set forth
above.
SECTION 12. TERMINATION. The obligations of the Securities
-----------
Intermediary to the Secured Party pursuant to this Control Agreement shall
continue in effect until the security interests of the Secured Party in the
Securities Account has been terminated pursuant to the terms of the Security
Agreement and the Secured Party has notified the Securities Intermediary of such
termination in writing. Secured Party agrees to provide Notice of Termination
in substantially the form of Exhibit B hereto to the Securities Intermediary
upon the request of the Debtor on or after the termination of the Secured
Party's security interest in the Securities Account pursuant to the terms of the
Security Agreement. The termination of this Control Agreement shall not
terminate the Securities Account or alter the obligations of the Securities
Intermediary to the Debtor pursuant to any other agreement with respect to the
Securities Account.
5
<PAGE>
SECTION 13. COUNTERPARTS. This Agreement may be executed in any
------------
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing and
delivering one or more counterparts.
SUPERIOR FINANCIAL CORP.
By: /s/ C. Stanley Bailey
---------------------------------------------------
Name: C. Stanley Bailey
Title: Chairman of the Board of
Directors and Chief Executive Officer
THE BANK OF NEW YORK, as Trustee
By: /s/ Robert A. Massimillo
---------------------------------------------------
Name: Robert A. Massimillo
Title: Assistant Vice President
THE BANK OF NEW YORK
By: /s/ Robert A. Massimillo
---------------------------------------------------
Name: Robert A. Massimillo
Title: Assistant Vice President
6
<PAGE>
Exhibit A
---------
[Letterhead of Secured Party Appears Here]
[Date]
[Name and Address of Securities Intermediary]
Attention:
-----------------------
Re: Notice of Sole Control
----------------------
Ladies and Gentlemen:
As referenced in the Securities Account Control Agreement, dated April
1, 1998, among Superior Financial Corp., you and the undersigned (a copy of
which is attached) we hereby give you notice of our sole control over securities
account number ____________ (the "Securities Account") and all financial assets
credited thereto. You are hereby instructed not to accept any direction,
instructions or entitlement orders with respect to the Securities Account or the
financial assets credited thereto from any person other than the undersigned,
unless otherwise ordered by a court of competent jurisdiction.
You are instructed to deliver a copy of this notice by facsimile
transmission to Superior Financial Corp.
Very truly yours,
THE BANK OF NEW YORK, as Trustee
By:
---------------------------------------------
Title
cc: Superior Financial Corp.
7
<PAGE>
Exhibit B
---------
[Letterhead of Secured Party Appears Here]
[Date]
[Name and Address of Securities Intermediary]
Attention:
--------------------
Re: Termination of Control Agreement
--------------------------------
You are hereby notified that the Control Agreement between you,
Superior Financial Corp. and the undersigned (a copy of which is attached) is
terminated and you have no further obligations to the undersigned pursuant to
such Agreement. Notwithstanding any previous instructions to you, you are
hereby instructed to accept all future directions with respect to Securities
Account number ______________ from Superior Financial Corp. This notice
terminates any obligations you may have to the undersigned with respect to such
account, however nothing contained in this notice shall alter any obligations
which you may otherwise owe to Superior Financial Corp. pursuant to any other
agreement.
You are instructed to deliver a copy of this notice by facsimile
transmission to Superior Financial Corp.
Very truly yours,
THE BANK OF NEW YORK, as Trustee
By:
---------------------------------------
Title:
-------------------------------
8
<PAGE>
EXHIBIT 10.3
FOUNDER'S AGREEMENT
This Founder's Agreement, dated as of December 2, 1997, is entered into
by and among SFC Acquisition Corp., a Delaware corporation (the "Company"), C.
Stanley Bailey ("Bailey", or the "Founder") (collectively, the "Parties",
individually, a "Party").
Whereas the Company has been organized for the purposes of acquiring
all of the issued and outstanding capital stock (the "Acquisition") of Superior
Federal Bank, (the "Bank") a subsidiary of NB Holdings Corporation, and of
operating thereafter as a unitary thrift holding company;
Whereas, the Founder and the Company have agreed to cooperate
in raising the capital necessary for the Acquisition and to provide for the
payment of the costs of the Acquisition, and Bailey has agreed to serve as an
executive officer of the Company in connection with the Acquisition and the
operations of the Company thereafter;
Whereas, the Parties acknowledge that neither the terms of this
Agreement nor the fact that they have entered into this Agreement shall (i) in
any way limit, control or determine the voting rights of the Founder as to any
capital stock of the Company that the Founder may acquire in connection with the
Acquisition; (ii) provide the Founder with any rights as to the management of or
control the affairs of the Company (other than as an officer of the Company
pursuant to the terms of an employment agreement) ; or (iii) entitle the Founder
to any share in any profits of the Company (other than as an officer of the
Company pursuant to the terms of an employment agreement);
Whereas the capital required to complete the Acquisition shall be
raised by (i) direct investment of the Founder in the amounts set forth on
Schedule "A" (each such amount with respect to the Founder an "Initial
Investment"), (ii) a private placement of a number of shares of common stock of
the Company, par value $0.01 (the "Common Stock"), sufficient to raise $85.0
million to $100.0 million of equity in the Company (the "Private Placement"),
and (iii) an offering of debt instruments of the Company in the principal amount
of $55.0 million to $70.0 million (the "Debt Offering");
Whereas it is intended that the Private Placement, the Debt Offering
and the Acquisition shall be consummated at the offices of NB Holdings
Corporation in Charlotte, North Carolina at a date and time to be determined
(the "Closing");
Whereas Keefe, Bruyette & Woods, Inc. ("Keefe") intends to provide
investment banking services in connection with the Private Placement and to
serve as lead underwriter for the Debt Offering;
Whereas Bailey has incurred and expects to incur significant out-of-
pocket expenses in connection with the Acquisition;
Now Therefore, the Company and the Founder agree as follows:
<PAGE>
ARTICLE ONE
CAPITALIZATION
--------------
1.1 FOUNDER'S INVESTMENT. The Founder agrees, subject to the conditions
--------------------
set forth in Section 1.2, to purchase, and the Company agrees to sell a number
of shares of Common Stock equal to the amount obtained by dividing 96% of that
price per share of Common Stock as shall be set forth in a Subscription
Agreement for Common Stock to be prepared in connection with the Private
Placement (the "Offering Price") into the amount of the Founder's Initial
Investment as set forth on Schedule A. The Founder's obligation to purchase, and
the Company's obligation to sell, any shares exceeding 10% of the Company's
issued and outstanding Common Stock (as defined herein) shall be subject to
approval by the Office of Thrift Supervision, or successor agency, if any, of
any rebuttal of control submission of the Founder. However, the Founder agrees
to purchase, and the Company agrees to sell, the maximum number of shares
provided for in this Agreement, subject to any reduction required to comply with
applicable regulatory restrictions on such purchase and sale.
1.2 CONDITIONS TO FUNDING. The obligation of the Founder to purchase
---------------------
Common Stock as set forth in Section 1.1 hereof shall be subject to the
fulfillment of each of the following conditions: (i) the Private Placement
(apart from the funding by the Founder of his Initial Investment) and the Debt
Offering shall have been completed and the aggregate proceeds therefrom,
together with the aggregate investment of the Founder, shall be sufficient to
complete the Acquisition; (ii) all conditions precedent to the consummation of
the Acquisition (other than any such condition requiring funding by the Founder
of his Initial Investments) shall have been fulfilled; (iii) all regulatory
approvals and consents necessary for consummation of the Acquisition and for the
Company's operation as a unitary thrift holding company of the Bank shall have
been obtained or made and shall be in full force and effect and all waiting
periods required by any applicable law shall have expired; and (iv) Bailey shall
have entered into an employment agreement with the Company as provided in
Article Three hereof.
ARTICLE TWO
RECOUPMENT OF PRE-CLOSING EXPENSES
----------------------------------
2.1 RECOUPMENT. Bailey shall be entitled to receive at Closing a number
----------
of additional shares of Common Stock equal in value to twice the sum of actual
Pre-closing Expenses, as defined herein, incurred by him to date in connection
with the Acquisition divided by the Offering Price.
2.2 PRE-CLOSING EXPENSES. As used herein, the term Pre-closing Expenses
--------------------
means expenses incurred in connection with the Acquisition, the Private
Placement and the Debt Offering, which shall include customary expenses of due
diligence, legal and accounting fees, consultancy fees and the cost of Bailey's
services through the Closing. Pre-closing Expenses incurred through the date of
this Agreement are set forth on Schedule 2.2. Pre-closing Expenses incurred and
binding estimates of Pre-closing Expenses expected to be incurred from the date
of this Agreement until Closing shall be set forth on appropriate schedules
submitted to the Company two days before the Closing.
2
<PAGE>
ARTICLE THREE
EMPLOYMENT AGREEMENT
--------------------
Bailey and the Company shall, at or before the Closing, enter into an
Employment Agreement, subject to any necessary regulatory approvals, which shall
provide, among other things, that (i) Bailey shall serve as the Chairman and
Chief Executive Officer of the Company and the Bank; (ii) his employment shall
be for an initial term of three years; (iii) he shall receive an initial annual
base salary of $225,000 to be reviewed annually for adequacy; (iv) he shall be
entitled to an initial $75,000 targeted annual bonus based upon the achievement
of agreed-upon annual and long term Company performance goals, such bonus to be
reviewed annually for adequacy; (v) he shall receive options to acquire an
amount of Common Stock (valued at the Offering Price) equal in value to 5% of
the aggregate proceeds of the Private Placement and vesting in accordance with
the following schedule:
20% vesting at Closing;
20% vesting upon the successful consummation of a public
offering of equity securities of the Company ("IPO Stock");
20% vesting upon the IPO Stock reaching a market value 50%
above the Offering Price;
20% vesting upon the IPO Stock reaching a market value 100%
above the Offering Price; and
20% vesting upon the IPO Stock reaching a market value 150%
above the Offering Price;
(vi) if a public offering of IPO Stock shall not have been consummated within
five years of the date of the Employment Agreement, he shall receive options as
described in subsection (v) above, which options shall vest in accordance with
the following schedule:
20% vesting at Closing;
20% vesting upon the Bank's annual return on average assets
("ROAA") attaining 125 basis points;
20% vesting upon the Bank's annual ROAA attaining 140 basis
points;
20% vesting upon the Bank's annual ROAA attaining 155 basis
points;
20% vesting upon the Bank's annual ROAA attaining 175 basis
points;
provided that such vesting shall be cumulative and accelerated upon the Bank's
having attained a stated ROAA basis-point target in any year in which the
vesting schedule of this subsection (vi) applies; (vii) subject to limitations
under Section 280(g) of the Internal Revenue Code of 1986, as amended, he shall
be entitled to receive a severance benefit equal to three years base
compensation and bonuses to vest upon a change of control of the Company; and
(viii) he shall receive perquisites including, but not limited to, reimbursement
of reasonable relocation expenses, term life insurance coverage paying at least
$1.0 million in death benefits, the use of a luxury automobile at Company
expense and, subject to applicable law, the right to participate in employee
benefit plans and insurance programs of the Company or the Bank and to receive
customary Company benefits.
3
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
-------------
4.1 BENEFIT. This Agreement shall inure to the benefit of and be
-------
binding upon each of the Parties, and their respective successors. This
Agreement shall not be assignable by any Party without the prior written consent
of the other Party.
4.2 GOVERNING LAW. This Agreement shall be governed by, and construed
-------------
in accordance with the Laws of the State of Delaware without regard to any
conflict of Laws.
4.3 COUNTERPARTS. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
4.4 HEADINGS. The headings of the various articles and sections of this
--------
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
4.5 SEVERABILITY. Any term or provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
term or provision shall remain valid and in effect in any other circumstances or
situation.
4.6 CONSTRUCTION. Use of the masculine pronoun herein shall be deemed
------------
to refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
4.7 EQUITABLE REMEDIES. The parties hereto agree that, in the event of
------------------
a breach of this Agreement by any Party, the other Party if not then in breach
of this Agreement may be without an adequate remedy at law owing to the unique
nature of the contemplated transactions. In recognition thereof, in addition to
(and not in lieu of) any remedies at law that may be available to the
non-breaching Party, the non-breaching Party shall be entitled to obtain
equitable relief, including the remedies of specific performance and injunction,
in the event of a breach of this Agreement by the Party in breach, and no
attempt on the part of the non-breaching Party to obtain such equitable relief
shall be deemed to constitute an election of remedies by the non-breaching Party
that would preclude the non-breaching Party from obtaining any remedies at law
to which it would otherwise be entitled.
4.8 ATTORNEYS' FEES. If any Party hereto shall bring an action at law
---------------
or in equity to
4
<PAGE>
enforce its rights under this Agreement, the prevailing Party in such action
shall be entitled to recover from the Party against whom enforcement is sough
its costs and expenses incurred in connection with such action (including fees,
disbursements and expenses of attorneys and costs of investigation).
4.9 NO WAIVER. No failure, delay or omission of or by any Party in
---------
exercising any right, power or remedy upon any breach or default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Agreement must be in writing and be executed by the Parties
to this Agreement and shall be effective only to the extent specifically set
forth in such writing.
4.10 REMEDIES CUMULATIVE. All remedies provided in this Agreement, by
-------------------
law or otherwise, shall be cumulative and not alternative.
4.11 AMENDMENT. This Agreement may only be amended by a writing signed
---------
by all of the Parties hereto.
4.12 ENTIRE CONTRACT. This Agreement and the documents and instruments
---------------
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
SFC ACQUISITION CORP.
/s/ C. Stanley Bailey By: /s/ John C. H. Miller, Jr.
- --------------------------- ---------------------------
C. Stanley Bailey Its: Acting Chairman
5
<PAGE>
EXHIBIT 10.4
FOUNDER'S AGREEMENT
This Founder's Agreement, dated as of December 2, 1997, is entered into
by and between SFC Acquisition Corp., a Delaware corporation (the "Company") and
Keefe, Bruyette & Woods, Inc. in its own right and on behalf of certain of its
employees to be named at a later date ("Keefe", or the "Founder") (collectively,
the "Parties", individually, a "Party").
Whereas the Company has been organized for the purposes of acquiring
all of the issued and outstanding capital stock (the "Acquisition") of Superior
Federal Bank, (the "Bank") a subsidiary of NB Holdings Corporation, and of
operating thereafter as a unitary thrift holding company;
Whereas, the Founder and the Company have agreed to cooperate in
raising the capital necessary for the Acquisition and to provide for the payment
of the costs of the Acquisition;
Whereas, the Parties acknowledge that neither the terms of this
Agreement nor the fact that they have entered into this Agreement shall (i) in
any way limit, control or determine the voting rights of the Founder as to any
capital stock of the Company that the Founder may acquire in connection with the
Acquisition; (ii) provide the Founder with any rights as to the management of or
control the affairs of the Company; or (iii) entitle the Founder to any share in
any profits of the Company;
Whereas the capital required to complete the Acquisition shall be
raised by (i) direct investment of the Founder in the amount set forth on
Schedule "A" (the "Initial Investment"), (ii) a private placement of a number of
shares of common stock of the Company, par value $0.01 (the "Common Stock"),
sufficient to raise $85.0 million to $100.0 million of equity (including any
Founder's shares) in the Company (the "Private Placement"), and (iii) an
offering of debt instruments of the Company in the principal amount of $55.0
million to $70.0 million (the "Debt Offering");
Whereas it is intended that the Private Placement, the Debt Offering
and the Acquisition shall be consummated at the offices of NB Holdings
Corporation in Charlotte, North Carolina at a date and time to be determined
(the "Closing");
Whereas Keefe intends to provide investment banking services in
connection with the Private Placement and to serve as lead underwriter for the
Debt Offering;
Whereas Keefe has incurred and expects to incur significant out-of-
pocket expenses in connection with the Acquisition;
Now Therefore, the Company and the Founder agree as follows:
ARTICLE ONE
CAPITALIZATION
--------------
1.1 FOUNDER'S INVESTMENT. The Founder agrees, subject to the conditions
--------------------
set forth in
<PAGE>
Section 1.2, to purchase, and the Company agrees, subject to the terms and
conditions of a subscription agreement for the Common Stock (the "Subscription
Agreement"), to sell a number of shares of Common Stock equal to the amount
obtained by dividing 96% of that price per share of Common Stock as shall be set
forth in a Subscription Agreement for Common Stock to be prepared in connection
with the Private Placement (the "Offering Price") into the amount of the
Founder's Initial Investment as set forth on Schedule A. The Founder's
obligation to purchase, and the Company's obligation to sell, any shares
exceeding 10% of the Company's issued and outstanding Common Stock (as defined
herein) shall be subject to approval by the Office of Thrift Supervision, or
successor agency, if any, of any rebuttal of control submission of the Founder.
However, the Founder agrees to purchase, and the Company agrees to sell, the
maximum number of shares provided for in this Agreement, subject to any
reduction required to comply with applicable regulatory restrictions on such
purchase and sale.
1.2 CONDITIONS TO PURCHASE AND SALE. The obligation of the Founder to
-------------------------------
purchase Common Stock as set forth in Section 1.1 hereof shall be subject to the
fulfillment of each of the following conditions: (i) the Private Placement
(apart from the funding by the Founder of its Initial Investment) and the Debt
Offering shall have been completed and the aggregate proceeds therefrom,
together with the Investment of the Founder, shall be sufficient to complete the
Acquisition; (ii) all conditions precedent to the consummation of the
Acquisition (other than any such condition requiring funding by the Founder of
its Initial Investments) shall have been fulfilled; and (iii) all regulatory
approvals and consents necessary for consummation of the Acquisition and for the
Company's operation as a unitary thrift holding company of the Bank shall have
been obtained or made and shall be in full force and effect and all waiting
periods required by any applicable law shall have expired. The obligation of the
Company to sell the Common Stock shall be subject to the Founder's delivery to
the Company of an executed Subscription Agreement.
ARTICLE TWO
INVESTMENT BANKING SERVICES; UNDERWRITING
-----------------------------------------
2.1 AGREEMENTS. Keefe shall provide placement agency services in
----------
connection with the Private Placement and the Debt Offering pursuant to an
Agency Agreement substantially in the form of Exhibit 2.1 attached hereto.
2.2 COMPENSATION. The Agency Agreement shall provide that Keefe shall
------------
be entitled to receive as compensation for services performed pursuant to the
Agency Agreement the sum of (i) an amount equal to 1.5% of the purchase price
paid to NB Holdings Corporation (or its designee) at the Closing; (ii) an amount
equal to 4% of the aggregate proceeds of the Private Placement, net of the
amount of the aggregate Founders' Initial Investments; and (iii) an amount equal
to 3.5% of the aggregate proceeds of the Debt Offering.
2
<PAGE>
ARTICLE THREE
RECOUPMENT OF PRE-CLOSING EXPENSES
----------------------------------
3.1 RECOUPMENT. Keefe shall be entitled to receive at Closing a number
----------
of additional shares of Common Stock equal to the sum of the Pre-closing
Expenses (as defined herein) distributed from the Escrow Account (as defined
herein) divided by the Offering Price, provided that the number of shares to
which the Founder shall be entitled pursuant to this Section shall not, when
aggregated with the number of shares to which the Founder shall be entitled
pursuant to Section 1.1, exceed 24.99% of the issued and outstanding shares of
Common Stock. If any reduction in the number of shares to which the Founder is
entitled under this Agreement is required in order to maintain the Founder's
stock ownership at a level below 25% of the issued and outstanding shares of
Common Stock, such reduction shall be made first out of shares to which the
Founder is entitled under Section 1.1 hereof.
3.2 PRE-CLOSING EXPENSES. As used herein, the term Pre-closing Expenses
--------------------
means expenses incurred in connection with the Acquisition, the Private
Placement and the Debt Offering, which shall include customary expenses of due
diligence, legal and accounting fees, consultancy fees and the cost of retaining
the services of a banking expert through the Closing. Upon execution of this
Agreement, the Founder will place in an escrow account with an agent mutually
agreeable to the Founder and the Company (the "Escrow Account") the sum of
$130,000 and agrees to deposit additional funds not to exceed $500,000 one month
from the date hereof or upon depletion of the Escrow Account, which ever is
sooner. All Pre-Closing Expenses shall be paid out of the Escrow Account. After
the Closing, one-half of any funds remaining in the Escrow Account shall be
reimbursed to the Founder.
ARTICLE FOUR
MISCELLANEOUS
-------------
4.1 BENEFIT. This Agreement shall inure to the benefit of and be
-------
binding upon each of the Parties, and their respective successors. This
Agreement shall not be assignable by any Party without the prior written consent
of the other Party.
4.2 GOVERNING LAW. This Agreement shall be governed by, and construed
-------------
in accordance with the Laws of the State of Delaware without regard to any
conflict of Laws.
4.3 COUNTERPARTS. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
4.4 HEADINGS. The headings of the various articles and sections of this
--------
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
3
<PAGE>
4.5 SEVERABILITY. Any term or provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
term or provision shall remain valid and in effect in any other circumstances or
situation.
4.6 CONSTRUCTION. Use of the masculine pronoun herein shall be deemed
------------
to refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
4.7 EQUITABLE REMEDIES. The parties hereto agree that, in the event
------------------
of a breach of this Agreement by any Party, the Party not then in breach of this
Agreement may be without an adequate remedy at law owing to the unique nature of
the contemplated transactions. In recognition thereof, in addition to (and not
in lieu of) any remedies at law that may be available to a non-breaching Party,
the non-breaching Party shall be entitled to obtain equitable relief, including
the remedies of specific performance and injunction, in the event of a breach of
this Agreement by the Party in breach, and no attempt on the part of the non-
breaching Party to obtain such equitable relief shall be deemed to constitute an
election of remedies by the non-breaching Party that would preclude the non-
breaching Party from obtaining any remedies at law to which it would otherwise
be entitled.
4.8 ATTORNEYS' FEES. If any Party hereto shall bring an action at law
---------------
or in equity to enforce its rights under this Agreement, the prevailing Party in
such action shall be entitled to recover from the Party against whom enforcement
is sough its costs and expenses incurred in connection with such action
(including fees, disbursements and expenses of attorneys and costs of
investigation).
4.9 NO WAIVER. No failure, delay or omission of or by any Party in
---------
exercising any right, power or remedy upon any breach or default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Agreement must be in writing and be executed by the Parties
to this Agreement and shall be effective only to the extent specifically set
forth in such writing.
4.10 REMEDIES CUMULATIVE. All remedies provided in this Agreement, by
-------------------
law or otherwise, shall be cumulative and not alternative.
4.11 AMENDMENT. This Agreement may only be amended by a writing
---------
signed by the Parties hereto.
4
<PAGE>
4.12 ENTIRE CONTRACT. This Agreement and the documents and
----------------
instruments referred to herein constitute the entire contract between the
parties to this Agreement and supersede all other understandings with respect to
the subject matter of this Agreement.
KEEFE, BRUYETTE & WOODS, INC. SFC ACQUISITION CORP.
By: /s/ Emmett J. Daly By: /s/ John C. H. Miller, Jr.
--------------------------- ---------------------------------
Its: Senior Vice President Its: Acting Chairman
- ------------------------------ -------------------------------
5
<PAGE>
EXHIBIT 10.5
FOUNDER'S AGREEMENT
This Founder's Agreement, dated as of December 2, 1997, is entered into
by and among SFC Acquisition Corp., a Delaware corporation (the "Company") and
Financial Stocks, Inc. ("FSI", or the "Founder") (collectively, the "Parties",
individually, a "Party").
Whereas the Company has been organized for the purposes of acquiring
all of the issued and outstanding capital stock (the "Acquisition") of Superior
Federal Bank (the "Bank"), a subsidiary of NB Holdings Corporation, and of
operating thereafter as a unitary thrift holding company;
Whereas, the Founder and the Company have agreed to cooperate in
raising the capital necessary for the Acquisition and to provide for the payment
of the costs of the Acquisition;
Whereas, the Parties acknowledge that neither the terms of this
Agreement nor the fact that they have entered into this Agreement shall (i) in
any way limit, control or determine the voting rights of the Founder as to any
capital stock of the Company that the Founder may acquire in connection with the
Acquisition; (ii) provide the Founder with any rights as to the management of or
control the affairs of the Company; or (iii) entitle the Founder to any share in
any profits of the Company;
Whereas the capital required to complete the Acquisition shall be
raised by (i) direct investment of the Founder in the amount set forth on
Schedule "A" (such amount with respect to the Founder, an "Initial Investment"),
(ii) a private placement of a number of shares of common stock of the Company,
par value $0.01(the "Common Stock"), sufficient to raise $85.0 million to $100.0
million of equity (including any Founder's shares) in the Company (the "Private
Placement"), and (iii) an offering of debt instruments of the Company in the
principal amount of $55.0 to $70.0 million (the "Debt Offering");
Whereas it is intended that the Private Placement, the Debt Offering
and the Acquisition shall be consummated at the offices of NB Holdings
Corporation in Charlotte, North Carolina at a date and time to be determined
(the "Closing");
Whereas Keefe, Bruyette & Woods, Inc. ("Keefe") intends to provide
investment banking services in connection with the Private Placement and to
serve as lead underwriter for the Debt Offering;
Whereas FSI has incurred and expects to incur significant out-of-pocket
expenses in connection with the Acquisition;
Now Therefore, the Company and the Founder agree as follows:
ARTICLE ONE
CAPITALIZATION
--------------
1.1 FOUNDER'S INVESTMENT. The Founder agrees, subject to the conditions
--------------------
set forth in
<PAGE>
Section 1.2, to purchase, and the Company agrees, subject to the terms and
conditions of a subscription agreement for the Common Stock (the "Subscription
Agreement"), to sell a number of shares of Common Stock equal to the amount
obtained by dividing 96% of that price per share of Common Stock as shall be set
forth in a Subscription Agreement for Common Stock to be prepared in connection
with the Private Placement (the "Offering Price") into the amount of the
Founder's Initial Investment as set forth on Schedule A. The Founder's
obligation to purchase, and the Company's obligation to sell, any shares
exceeding 10% of the Company's issued and outstanding Common Stock (as defined
herein) shall be subject to approval by the Office of Thrift Supervision, or
successor agency, if any, of any rebuttal of control submission of the Founder.
However, the Founder agrees to purchase, and the Company agrees to sell, the
maximum number of shares provided for in this Agreement, subject to any
reduction required to comply with applicable regulatory restrictions on such
purchase and sale. The Initial Investment may include investments by the
Founder, its affiliates, its shareholders and their family members
("Affiliates"), with shares to be issued to each such Affiliate pro rata in
accordance with his or her investment.
1.2 CONDITIONS TO PURCHASE AND SALE. The obligation of the Founder (or
-------------------------------
any Affiliate in accordance with his or her investment) to purchase Common Stock
as set forth in Section 1.1 hereof shall be subject to the fulfillment of each
of the following conditions: (i) the Private Placement (apart from the funding
by the Founder of its Initial Investment) and the Debt Offering shall have been
completed and the aggregate proceeds therefrom, together with the Investment of
the Founder, shall be sufficient to complete the Acquisition; (ii) all
conditions precedent to the consummation of the Acquisition (other than any such
condition requiring funding by the Founder of Initial Investment) shall have
been fulfilled; and (iii) all regulatory approvals and consents necessary for
consummation of the Acquisition and for the Company's operation as a unitary
thrift holding company of the Bank shall have been obtained or made and shall be
in full force and effect and all waiting periods required by any applicable law
shall have expired. The obligation of the Company to sell the Common Stock shall
be subject to the Founder's delivery to the Company of an executed Subscription
Agreement.
ARTICLE TWO
RECOUPMENT OF PRE-CLOSING EXPENSES
----------------------------------
2.1 RECOUPMENT. FSI shall be entitled to receive at Closing a number of
----------
additional shares of Common Stock equal to the sum of the Pre-closing Expenses,
as defined herein, distributed from the Escrow Account (as defined herein)
divided by the Offering Price, provided that the number of shares to which the
Founder shall be entitled pursuant to this Section shall not, when aggregated
with the number of shares to which the Founder shall be entitled pursuant to
Section 1.1, exceed 24.99% of the issued and outstanding shares of Common Stock.
If any reduction in the number of shares to which the Founder is entitled under
this Agreement is required in order to maintain the Founder's stock ownership at
a level below 25% of the issued and outstanding shares of Common Stock, such
reduction shall be made first out of shares to which the Founder is entitled
under Section 1.1 hereof.
2.2 PRE-CLOSING EXPENSES. As used herein, the term Pre-closing Expenses
--------------------
means expenses incurred in connection with the Acquisition, the Private
Placement and the Debt Offering,
2
<PAGE>
which shall include customary expenses of due diligence, legal and accounting
fees, consultancy fees and the cost of retaining the services of a banking
expert through the Closing. Upon execution of this Agreement, the Founder will
place in an escrow account with an agent mutually agreeable to the Founder and
the Company (the "Escrow Account") the sum of $130,000 and agrees to deposit
additional funds not to exceed $500,000 one month from the date hereof or upon
depletion of the Escrow Account, which ever is sooner. All Pre-Closing Expenses
shall be paid out of the Escrow Account. After the Closing, one-half of any
funds remaining in the Escrow Account shall be reimbursed to the Founder. The
funds to be provided hereunder may be supplied by Affiliates, with shares to be
issued to each such Affiliate in accordance with his investment.
ARTICLE THREE
MISCELLANEOUS
-------------
3.1 BENEFIT. This Agreement shall inure to the benefit of and be
-------
binding upon each of the Parties, and their respective successors. This
Agreement shall not be assignable by any Party without the prior written consent
of the other Party.
3.2 GOVERNING LAW. This Agreement shall be governed by, and construed
-------------
in accordance with the Laws of the State of Delaware without regard to any
conflict of Laws.
3.3 COUNTERPARTS. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
3.4 HEADINGS. The headings of the various articles and sections of this
--------
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
3.5 SEVERABILITY. Any term or provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
term or provision shall remain valid and in effect in any other circumstances or
situation.
3.6 CONSTRUCTION. Use of the masculine pronoun herein shall be deemed
------------
to refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
3
<PAGE>
3.7 EQUITABLE REMEDIES. The parties hereto agree that, in the event
------------------
of a breach of this Agreement by any Party, the other Party if not then in
breach of this Agreement may be without an adequate remedy at law owing to the
unique nature of the contemplated transactions. In recognition thereof, in
addition to (and not in lieu of) any remedies at law that may be available to
the non-breaching Party, the non-breaching Party shall be entitled to obtain
equitable relief, including the remedies of specific performance and injunction,
in the event of a breach of this Agreement by the Party in breach, and no
attempt on the part of the non-breaching Party to obtain such equitable relief
shall be deemed to constitute an election of remedies by the non-breaching Party
that would preclude the non-breaching Party from obtaining any remedies at law
to which it would otherwise be entitled.
3.8 ATTORNEYS' FEES. If any Party hereto shall bring an action at law
---------------
or in equity to enforce its rights under this Agreement, the prevailing Party in
such action shall be entitled to recover from the Party against whom enforcement
is sough its costs and expenses incurred in connection with such action
(including fees, disbursements and expenses of attorneys and costs of
investigation).
3.9 NO WAIVER. No failure, delay or omission of or by any Party in
---------
exercising any right, power or remedy upon any breach or default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Agreement must be in writing and be executed by the Parties
to this Agreement and shall be effective only to the extent specifically set
forth in such writing.
3.10 REMEDIES CUMULATIVE. All remedies provided in this Agreement, by
-------------------
law or otherwise, shall be cumulative and not alternative.
3.11 AMENDMENT. This Agreement may only be amended by a writing
---------
signed by all of the Parties hereto.
3.12 ENTIRE CONTRACT. This Agreement and the documents and instruments
---------------
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
SFC ACQUISITION CORP. FINANCIAL STOCKS, INC.
By: /s/ John C. H. Miller, Jr. By: /s/ Steven N. Stein
------------------------------ ---------------------------
Its: Acting Chairman Its: Chairman and CEO
----------------------------- --------------------------
4
<PAGE>
EXHIBIT 10.6
[SUPERIOR FINANCIAL CORP LETTERHEAD]
January 1, 1998
Mr. Marvin Scott
7495 Lazy Acres Road
Pass Christian, Mississippi 39571
Dear Marvin:
The purpose of this letter is to confirm our discussions with respect to
your employment by SFC Acquisition Corp. (the "Parent") which has been organized
for the purpose of acquiring Superior Federal Bank, FSB (the "Company").
Effective Date: January 9, 1998 or shortly thereafter based on your
official resignation date from your current employer.
Position: You will serve as President of both the Parent and the
Company, following its acquisition.
Compensation: For all services rendered by you during your
employment, you will be paid an annual base salary of
$150,000, or $12,500 per month, subject to periodic
increases as the board of directors of the parent may
approve. You will be paid a targeted annual bonus of
$50,000 based on the accomplishment of both annual and
long-term goals to be approved by the board of
directors of the parent.
Benefits You will be provided the right to participate in the
normal employee benefits plans as the Company may have
in effect upon its acquisition. You will be provided
with the use of a full size automobile along with
insurance coverage and associated expenses upon your
employment. Also, you will be provided a $500,000 term
life insurance policy during the period from your
resignation of your current employer to the closing of
the acquisition of the
<PAGE>
Company by the Parent. Thereafter, you will
participate in the Company life insurance plan.
Relocation Expenses: You will be provided with temporary living expenses
in Arkansas, including hotel, apartment, meals, and
utilities expenses until the earlier of your move
into a new home in Arkansas, or December 31, 1998;
payment or reimbursement for all costs of packing
and moving your household goods, furniture and other
belongings from your present home to your new home,
and all costs incurred by you and your family in
making up to three trips for house-hunting.
The Parent or Company will, until your present home
is sold, reimburse you for interest costs on the
purchased of a new home, and, if your present home
is not sold by December 31, 1998, shall purchase
your present home at fair-market value as determined
by the average of three then-current appraisals of
the property.
The Parent or Company will reimburse you for all
closing costs associated with both the sale of your
current home and the purchase of your new home. If
your current home is not sold to the Company, you
will be reimbursed for all real estate commissions
in connections with the sale.
Stock Options: You will receive options, for a term of ten (10)
years, to acquire an amount of common stock, valued
at the initial offering price of $10. equal to two
and one-half percent (2.5%) of the aggregate
proceeds of the equity private placement. Vesting
shall be in accordance with the following schedule:
20% vesting at the closing of the Parent's
acquisition of the Company;
20% vesting upon successful consummation of a
public offering of equity securities of
the Parent;
20% vesting upon the stock reaching a market
value (adjusted for stock splits, stock
dividends, or other changes in capital
structure), based upon an average of the
closing price over (10) consecutive days
(the "Market Value") of at least $15 per
share;
20% vesting when such Market Value reaches
$20 per share; and;
20% vesting when such Market Value reaches
$25 per share.
If a public offering is not consummated by December
8, 2002,
2
<PAGE>
options shall vest in accordance with the
following schedule:
20% vesting at Closing;
20% vesting upon the Company's annual return on
average assets ("ROAA") attaining 125 basis
points;
20% vesting upon the Company's annual ROAA
attaining 140 basis points;
20% vesting upon the Company's annual ROAA
attaining 155 basis points;
20% vesting upon the Company's annual ROAA
attaining 175 basis points;
provided that such vesting shall be cumulative
and accelerated upon the company's having attained
a stated annual ROAA basis point target in any
fiscal year.
All options whether under the equity private
placement or under the public offering shall become
fully vested upon a change in control as defined in
the next paragraph.
Change in Control: A "Change in Control" of the Company on the Parent
shall mean the occurrence of a transaction the
result of which is that more than twenty-five
percent of the outstanding shares of the Company
or the Parent, or any successor thereof, are
acquired by any person or entity, or group acting
in concert, which, prior, to such transaction owned
or controlled less than twenty-five percent of the
shares of the Company or of the Parent except that
this definition shall not apply to a corporate
reorganization.
In the event of a Change in Control of the Company
or the Parent subsequent to the date hereof, this
agreement shall be terminated and you shall receive
compensation of 2.99 times your annualized total
compensation for the twelve months preceding the
change in control, including bonuses.
Personal Investment: You will be allowed to make a personal investment in
the Parent within your personal capacity.
Club Membership: Based on approval of the Parent's board of
directors, you will be provided with funds, net of
taxes, sufficient to enable you to purchase
membership in one club with facilities at which you
could engage in business entertainment on behalf of
the Parent or Company. You will be reimbursed, net
of taxes, for monthly dues, periodic assessments,
and other such costs of membership. You will be
responsible for any personal charges that you may
incur in
3
<PAGE>
utilizing the club.
Parent's Undertaking: Following its acquisition of Company, Parent shall
cause Company to be bound by any obligation
undertake by Parent in this letter.
I believe this letter summarized the terms agreed upon in our
discussions. Except as to the explicit provisions expressed herein, no contract
or other arrangement exists between the undersigned parties. This agreement
shall be governed by the law of the State of Arkansas. If you concur, please
sign the enclosed copy of this letter and return it to me.
Sincerley yours,
/s/ C. Stanley Bailey
C. Stanley Bailey
AGREED TO:
/s/ C. Marvin Scott
- -------------------
4
<PAGE>
EXHIBIT 10.7
SUPERIOR FINANCIAL CORP.
1998 LONG-TERM INCENTIVE PLAN
1. Purpose
The purpose of the Superior Financial Corp. 1998 Long-Term Incentive Plan is to
provide incentives and rewards for Employees of the Company and its Subsidiaries
(i) to support the execution of the Company's business and human resource
strategies and the achievement of its goals, (ii) to associate the interests of
Employees with those of the Company's shareholders, (iii) provide Employees with
an equity ownership in the Company commensurate with Company performance, as
reflected in increased shareholder value, (iv) maintain competitive compensation
levels, and (v) provide an incentive to Employees for continuous employment with
the Company. The Plan permits the grant of non-qualified stock options,
incentive stock options, stock appreciation rights, and restricted and
performance shares.
2. Definitions
"Award" includes, without limitation, stock options (including incentive stock
options under Section 422 of the Code), restricted and performance shares, and
stock appreciation rights all on a stand alone, combination, or tandem basis, as
described in or granted under this Plan.
"Award Agreement" means a written agreement entered into between the Company and
a Participant setting forth the terms and conditions of an Award made to such
Participant under this Plan, in the form prescribed by the Committee.
"Board" means the Board of Directors of the Company.
"Change of Control" shall have them meaning specified in Section 11(b).
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means the Committee appointed by the Board, each member of which
shall be a "disinterested person" within the
<PAGE>
meaning of Rule 16b-3 under the Exchange Act and shall be an "outside director"
within the meaning of Section 162(m) of the Code. The Committee shall be
composed of no fewer than the minimum number of disinterested persons as may be
required by Rule 16b-3.
"Common Stock" means the common stock of the Company.
"Company" means Superior Financial Corp., a thrift holding company under the
Homeowners' Loan Act, organized in Delaware and headquartered in Fort Smith,
Arkansas.
"Employee" means an employee of the Company or a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing price of the Common Stock as reported on
the national stock exchange on which the Company's shares are actively traded on
the relevant valuation date or, if there were no Common Stock transactions on
the valuation date, on the next preceding date on which there were Common Stock
transactions. If the Common Stock is not listed on such, or similar exchange,
"Fair Market Value" means the last price at which shares were issued by the
Company or traded in a private transaction.
"Incentive Stock Option Plan" means all terms and provisions of this "Plan"
applicable to incentive stock options under Section 422 of the Code.
"Participant" means an Employee who has been granted an Award under this Plan.
"Performance Goals" means, with respect to any Performance Period, performance
goals based on any of the following criteria and established by the Committee
prior to the beginning of such Performance Period, or performance goals based on
any of the following criteria and established by the Committee after the
beginning of such Performance Period, that meet the requirements
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<PAGE>
to be considered pre-established performance goals under Section 162(m) of the
Code: earnings or earnings growth; earnings per share; return on equity, assets
or investment; revenues; expenses; stock price; market share; charge-offs; or
reductions in non-performing assets. Such Performance Goals may be particular to
an Employee or the division, department, branch, line of business, Subsidiary or
other unit in which the Employee works, or may be based on the performance of
the Company generally.
"Performance Period" means the period of time designated by the Committee
applicable to a Performance Share during which the Performance Goals shall be
measured.
"Performance Share" shall have the meaning specified in Section 6(c).
"Plan" means this Superior Financial Corp. 1998 Long-Term Incentive Plan.
"Plan Year" means a twelve-month period beginning with January 1 of each year.
"Reporting Person" means an officer or director of the Company subject to the
reporting requirements of Section 16 of the Exchange Act.
"Stock Appreciation Rights" or "SARs" shall have the meaning specified in
Section 6(d).
"Subsidiary" means any corporation or other entity in which the Company has or
obtains, directly or indirectly, a proprietary interest of more than 50% by
reason of stock ownership or otherwise.
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<PAGE>
3. Eligibility
Employees eligible for participation in the Plan shall be selected by the
Committee from the executive officers and other key employees of the Company who
occupy responsible managerial or professional positions and who have the
capability of making a substantial contribution to the success of the Company.
In making the selection and in determining the form and amount of Awards, the
Committee shall consider any factors deemed relevant, including the Employee's
functions, responsibilities, value of services to the Company, past and
potential contributions to the Company's profitability and growth.
4. Plan Administration
(a) This Plan shall be administered by the Committee. The Committee shall have
the authority, in its sole discretion from time to time to:
(i) designate the Employees or classes of Employees eligible to
participate in the Plan;
(ii) subject to the limitations contained herein, grant Awards in such
form and amount as the Committee shall determine;
(iii) impose such limitations, restrictions and conditions upon any
such Award as the Committee shall deem appropriate, including vesting schedules,
price, and performance standards (including Performance Goals);
(iv) determine payment alternatives such as cash, stock, or other
means of payment consistent with the purpose of this Plan;
(v) determine such other terms and conditions as the Committee shall
deem appropriate; and
(vi) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, and make all other determinations and take all
other actions necessary or advisable for the implementation and administration
of the Plan.
4
<PAGE>
(b) Except as otherwise required by this Plan, the Committee shall have
authority in its sole discretion to interpret and construe the provisions of
this Plan and the Award Agreements and make determinations pursuant to any Plan
provision or Award Agreement which shall be final and binding on all persons.
(c) The Committee may designate persons other than its members to carry out its
responsibilities under such conditions or limitations as it may set, other than
its authority with regard to Awards granted to Reporting Persons.
5. Stock Subject To The Provisions Of This Plan
(a) The stock subject to the provisions of this Plan shall either be shares of
authorized but unissued Common Stock, shares of Common Stock held as treasury
stock or previously issued shares of Common Stock reacquired by the Company,
including shares purchased on the open market. Subject to adjustment in
accordance with the provisions of Section 9, and subject to Section 5(d), (i)
the total number of shares of Common Stock that may be issued pursuant to Awards
under the Plan (including, without limitation, Awards of Options, SARs, and
restricted and Performance Shares) shall not exceed ten percent (10%) of the
outstanding Common Stock as reported in the Company's Annual Report on Form 10-K
for the fiscal year ending December 31, 1998, (ii) the total number of shares of
Common Stock available for grants of Awards (including, without limitation,
Awards of Options, SARs, and restricted and Performance Shares) in any Plan Year
shall not exceed one percent (1%) of the outstanding Common Stock as reported in
the Company's Annual Report on Form 10-K for the fiscal year ending December 31,
1998, and (iii) the total number of shares of Common Stock available for grants
of restricted stock in any Plan Year that vest solely upon passage of time (for
example, without regard to Performance Goals), shall not exceed one-third of one
percent of the outstanding Common Stock as reported in the Company's Annual
Report on Form 10-K for the fiscal year ending December 31, 1998.
(b) Subject to adjustment in accordance with Section 9 and subject to Section
5(a) the total number of shares of Common
5
<PAGE>
Stock available for grants of Awards (including without limitation, Awards of
Options, SARs, and restricted and Performance Shares) in any Plan Year to any
Participant shall not exceed one percent (1%) of the outstanding Common Stock as
reported on the Company's Form 10-K for the fiscal year ending December 31,
1998.
(c) For purposes of calculating the total number of shares of Common Stock
available for grants of Awards, the grant of a performance or restricted share
Award shall be deemed to be equal to the maximum number of shares of Common
Stock which may be issued under the Award.
(d) There shall be carried forward and be available for Awards under this Plan
in each succeeding Plan Year, in addition to shares of Common Stock available
for grant under paragraph (a) of this Section 5, all of the following: (i) any
unused portion of the limit set forth in paragraph (a) of this Section 5 for
preceding Plan Years; and (ii) shares of Common Stock represented by Awards
which have been cancelled, forfeited, surrendered, terminated or expire
unexercised during preceding Plan Years.
6. Employee Awards Under This Plan
As the Committee may determine, the following types of Employee Awards may be
granted under this Plan to Employees on a stand alone, combination, or tandem
basis:
(a) Stock Option. A right to purchase for cash or shares a specified number of
------------
shares of Common Stock at a fixed exercise price during a specified time, all as
the Committee may determine; provided that the exercise price of any option
shall not be less than 100% of the Fair Market Value of the Common Stock on the
date of grant of the Award.
(b) Incentive Stock Option. An award in the form of a stock option which shall
----------------------
comply with the requirements of Section 422 of the Code or any successor Section
as it may be amended from time to time.
6
<PAGE>
(c) Restricted and Performance Shares. A transfer of shares of Common Stock to a
---------------------------------
Participant, subject to such restrictions or other incidents of ownership, or
subject to specified Performance Goals for such periods of time as the Committee
may determine.
(d) Stock Appreciation Rights.
-------------------------
(i) Subject to the terms and conditions of the Plan, Stock
Appreciation Rights ("SARs") may be granted to Participants at any time and from
time to time as shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs, or any combination of these forms of SARs.
(ii) A "Freestanding SAR" means a SAR that is granted independently of
any other Award. A "Tandem SAR" means a SAR that is granted in connection with a
related Award, particularly a stock option, including an incentive stock option,
the exercise of which shall require forfeiture of the right to purchase a share
of Common Stock under the related option (and when a share is purchased under
the option, a Tandem SAR shall similarly be cancelled).
(iii) The Committee shall have complete discretion in determining the
number of SARs granted to each Participant (subject to Article 5 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs.
(iv) The grant price of a Freestanding SAR shall equal the Fair Market
Value of a share of Common Stock on the date of grant of the SAR. The grant
price of Tandem SARs shall equal the exercise price of the related option.
(vi) Exercise of Tandem SARs. Tandem SARs may be exercised for all or
part of the shares of Common Stock subject to the related option upon the
surrender of the right to exercise the equivalent portion of the related option.
A Tandem SAR may be exercised only with respect to the shares of Common Stock
for which its related option is then exercisable.
7
<PAGE>
(viii) Exercise of Freestanding SARs. Freestanding SARs may be
exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon them.
(ix) SAR Agreement. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
(x) Term of SARs. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however that such
term shall not exceed ten (10) years.
(xi) Payment of SAR Amount. Upon exercise of a SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(A) The difference between the Fair Market Value of a share of Common
Stock on the date of exercise over the grant price; by
(B) The number of shares of Common Stock with respect to which the SAR
is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in shares of Common Stock of equivalent value, or in some combination
thereof.
(xi) Section 16 Requirements. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on exercise of a SAR
(including, without limitation, the right of the Committee to limit the time of
exercise to specified periods) as may be required to satisfy the requirements of
Section 16 of the Exchange Act.
7. Other Terms and Conditions
--------------------------
(a) Assignability. With respect to Incentive Stock Options only, except to the
-------------
extent, if any, as may be permitted by the Code and rules promulgated under
Section 16 of the Exchange Act,
8
<PAGE>
(i) no Incentive Stock Option shall be assignable or transferable except by will
or by the laws of descent and distribution or pursuant to a domestic relations
order, and (ii) during the lifetime of a Participant, the Incentive Stock Option
shall be exercisable only by such Participant or such Participant's guardian,
legal representative, or assignee pursuant to a domestic relations order.
With respect to other Awards, unless the Committee shall permit (on such terms
and conditions as it shall establish) an Award to be transferred to a member of
the Participant's immediate family or to a trust or similar vehicle for the
benefit of such immediate family members (collectively, the "Permitted
Transferees"), (i) no Award shall be assignable or transferable except by will,
by the laws of descent and distribution or pursuant to a domestic relations
order, and (ii) during the lifetime of a Participant, the Award shall be
exercisable only by such Participant or such Participant's guardian, legal
representative or assignee pursuant to a domestic relations order or, if
applicable, the Permitted Transferees.
(b) Death of Participant. Upon the death of a Participant, any rights to the
--------------------
extent exercisable on the date of death may be exercised by the Participant's
estate, or by a person who acquires the right to exercise the Award by bequest
or inheritance or by reason of the death of the Participant, provided that such
exercise occurs within both the remaining effective term of the Award and one
year after the Participant's death.
(c) Retirement or Disability. Upon termination of the Participant's employment
------------------------
by reason of retirement or permanent disability (in each case as determined by
the Committee), the Participant may, within thirty-six months from the date of
termination, exercise any Award to the extent such Award otherwise is
exercisable during such thirty-six months, pursuant to the terms of this Plan
and the Award Agreement.
(d) Termination for Other Reasons. Except as provided in Section 7(b) and (c),
-----------------------------
or except as otherwise determined by the
9
<PAGE>
Committee, all Awards shall terminate three (3) months after the termination of
the Participant's employment.
(e) Exercise of Option by Transferee. Upon the transfer of (i) an Incentive
--------------------------------
Stock Option to a beneficiary of devisee, or (ii) an option other than an
Incentive Stock Option to any transferee pursuant to a transfer approved by the
Committee, such transferee shall have the balance of the original exercise
period within which to exercise the transferred option.
(f) Award Agreement. Each Award under this Plan shall be evidenced by an Award
---------------
Agreement executed by the Company and the holder of the Award, stating the
number of shares of Common Stock subject to the Award in such form as the
Committee may from time to time determine. Each Award shall be effective upon
the decision of the Committee to grant the Award, which shall be deemed the date
of grant of the Award.
(g) Rights As A Shareholder. Except as otherwise provided herein or in any Award
-----------------------
Agreement, a Participant shall have no right as a shareholder with respect to
shares of Common Stock covered by an Award until the date the Participant or his
guardian or legal representative is the holder of record of such shares.
(h) No Obligation to Exercise. The grant of an Award shall impose no obligation
-------------------------
upon the Participant to exercise the Award.
(i) Payments by Participants. The Committee may determine that Awards for which
------------------------
a payment is due from a Participant may be payable: (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the Company,
by money transfers or direct account debits; (ii) through the delivery or deemed
delivery based on attestation to the ownership of shares of Common Stock with a
Fair Market Value equal to the total payment due from the Participant; (iii) by
a combination of the methods described in (i) and (ii) above; or (iv) by such
other methods as the Committee may deem appropriate.
10
<PAGE>
(j) Tax Withholding. The Company shall have the right to withhold from any
---------------
payments made under this Plan, or to collect as a condition of payment, any
taxes required by law to be withheld. At any time when a Participant is required
to pay to the Company an amount required to be withheld under applicable income
tax laws in connection with a distribution of shares of Common Stock pursuant to
this Plan, the Participant may satisfy this obligation in whole or in part by
electing to have the Company withhold from such distribution shares of Common
Stock having a value equal to the amount required to be withheld. The value of
the shares of Common Stock to be withheld shall be based on the Fair Market
Value of the Common Stock on the date that the amount of tax to be withheld
shall be determined (the "Tax Date"). Any such election is subject to the
following restrictions: (i) the election must be made on or prior to the Tax
Date; (ii) the election must be irrevocable; and (iii) the election must be
subject to the disapproval of the Committee. To the extent required to comply
with rules promulgated under Section 16 of the Exchange Act, elections by
Reporting Persons are subject to the following additional restrictions: (i) no
election shall be effective for a Tax Date which occurs within six months of the
grant of the award; and (ii) the election must be made either (A) six months or
more prior to the Tax Date or (B) during a period beginning on the third
business day following the date of release for publication of the Company's
quarterly or annual summary statements of sales and earnings and ending on the
twelfth business day following such date.
(k) Restrictions On Sales and Exercise. With respect to Reporting Persons, and
----------------------------------
if required to comply with rules promulgated under Section 16 of the Exchange
Act (i) no Award providing for exercise, a vesting period, a restriction period
or the attainment of performance standards shall permit unrestricted ownership
of shares of Common Stock by the Participant for at least six months from the
date of grant, and (ii) shares of Common Stock acquired pursuant to this Plan
(other than shares of Common Stock acquired as a result of the granting of a
"derivative security") may not be sold or otherwise disposed of for at least six
months after acquisition.
11
<PAGE>
(l) Requirements of Law. The granting of Awards and the issuance of shares of
-------------------
Common Stock upon the exercise of Awards shall be subject to all applicable
requirements imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges upon which the Common Stock may be listed. As a condition precedent to
the issue of shares of Common Stock pursuant to the grant or exercise of an
Award, the Company may require the Participant to take any reasonable action to
meet such requirements.
8. Amendments
(a) Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan. Any such action
of the Board may be taken without the approval of the Company's shareholders,
but only to the extent that such shareholder approval is not required by
applicable law or regulation, including specifically Rule 16b-3 under the
Exchange Act and the Code.
(b) No amendment, modification or termination of this Plan shall in any manner
adversely affect any Awards theretofore granted to a Participant under this Plan
without the consent of such Participant.
9. Recapitalization
The aggregate number of shares of Common Stock as to which Awards may be granted
to Participants, the number of shares thereof covered by each outstanding Award,
and the price per share thereof in each such Award, shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, stock dividend, combination or exchange for
other securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or other such change. Any such adjustment may
provide for the elimination of fractional shares.
10. No Right To Employment
12
<PAGE>
No person shall have any claim or right to be granted an Award, and the grant of
an Award shall not be construed as giving a Participant the right to be retained
in the employ of the Company or a Subsidiary. Nothing in this Plan shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate any Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or any
Subsidiary. Moreover, the Committee's determinations under the Plan (including
without limitation, determinations of the persons to receive Awards, the form,
amount and timing of such Awards, the terms and provisions of such Awards and
the Award Agreements evidencing same) need not be uniform and may be made by it
selectively among Employees who receive, or are eligible to receive, Awards
under the Plan, whether or not such persons are similarly situated.
11. Change of Control
(a) Notwithstanding anything contained in this Plan or any Award Agreement to
the contrary, in the event of a Change of Control, as defined below, the
following shall occur with respect to any and all Awards outstanding as of such
Change of Control:
(i) automatic maximization of performance standards, lapse of all restrictions
and acceleration of any time periods relating to the exercise, realization or
vesting of such Awards so that such Awards may be immediately exercised,
realized or vested in full on or before the relevant date fixed in the Award
Agreement;
(ii) Performance Shares may be paid, in the Committee's discretion, entirely
in cash;
(iii) upon exercise of a stock option or an incentive stock option
(collectively, an "Option") during the 60-day period from and after the date of
Change of Control, the Participant exercising the Option may in lieu of the
receipt of Common Stock upon the exercise of the Option, elect by written notice
to the Company to receive an amount in cash equal to the excess of the aggregate
Value (as defined below) of the shares of Common Stock covered by the Option or
portion thereof surrendered determined
13
<PAGE>
on the date the Option is exercised, over the aggregate exercise price of the
Option (such excess is referred to herein as the "Aggregate Spread"); provided,
however, as to any person who is a Reporting Person, and notwithstanding any
other provision of this Plan, that if the end of such 60-day period is within
six months of the date of grant of an Option held by such Reporting Person, such
Option shall be cancelled in exchange for a cash payment to the Participant
equal to the Aggregate Spread on the day which is six months and one day after
the date of grant of such Option. As used in this subparagraph 11(a)(iii) the
term "Value" means the higher of (i) the highest Fair Market Value during the
60-day period from and after the date of a Change of Control, and (ii) if the
Change of Control is the result of a transaction or series of transactions
described in subparagraphs (i) or (iii) of Paragraph 11(b) (the definition of
Change of Control), the highest price per share of the Common Stock paid in such
transaction or series of transactions (which in the case of subparagraph 11(b)
(i) shall be the highest price per share of the Common Stock as reflected in a
Schedule 13D filed by the person having made the acquisition);
(iv) following a Change of Control, if a Participant's employment terminates for
any reason other than retirement under a retirement plan of the Company or
death, any Options held by such Participant may be exercised by such Participant
until the earlier of three months after the termination of employment or the
expiration date of such Options; and
(v) all Awards shall become non-cancelable.
(b) A "Change of Control" of the Company shall be deemed to have occurred upon
the happening of any of the following events:
(i) the acquisition, other than from the Company, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
of beneficial ownership of 25% or more of either the then outstanding shares of
Common Stock of the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors; provided, however, that
14
<PAGE>
neither of the following shall constitute a Change of Control: (A) any
acquisition by the Company or any of its Subsidiaries, or any employee benefit
plan (or related trust) of the Company or its Subsidiaries, or (B) any
acquisition by any corporation if, following such acquisition, more than 50% of
the then outstanding voting shares of stock of such corporation are owned,
directly or indirectly, by all or substantially all of the persons who were the
owners of the Common Stock of the Company immediately prior to such acquisition:
(ii) individuals who, as of the effective date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board, provided that any individual becoming a director subsequent to such date
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(iii) approval by the shareholders of the Company of a reorganization, merger or
consolidation of the Company, in each case, with respect to which the
individuals and entities who were the respective beneficial owners of the Common
Stock and voting securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of Common Stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation.
(iv) approval by the shareholders of the Company of a (i) complete liquidation
or dissolution of the Company, or (ii) the
15
<PAGE>
sale or other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following such sale
or other disposition more than 50% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Common Stock of the Company and the
outstanding voting securities of the Company immediately prior to such sale or
other disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the outstanding Common
Stock of the Company and outstanding securities of the Company, as the case may
be.
(c) Notwithstanding anything contained in this Plan or any Award Agreement to
the contrary, the provisions of this Article 11 may not be terminated, amended,
or modified on or after the date of a Change of Control to effect adversely any
Award theretofore granted under the Plan without the prior written consent of
the Participant with respect to said Participant's outstanding Awards.
12. Governing Law
To the extent that federal laws do not otherwise control, this Plan shall be
construed in accordance with and governed by the law of the State of Arkansas.
13. Indemnification
Each person who is or shall have been a member of the Committee or of the Board
shall be indemnified and held harmless by the Company against and from any loss,
cost, liability or expense that may be imposed upon or reasonably incurred by
him in connection with or resulting from any claim, action, suit or proceeding
to which he may be a party or in which he may be involved by reason of any
action taken or failure to act under this Plan and against and from any and all
amounts paid by him in
16
<PAGE>
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or Code or Regulation, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
14. Savings Clause
This Plan is intended to comply in all aspects with applicable law and
regulation, including, with respect to Incentive Stock Options, Section 422 of
the Code, and with respect to those Employees who are Reporting Persons, Rule
16b-3 under the Exchange Act. In case any one or more of the provisions of this
Plan shall be held invalid, illegal or unenforceable in any respect under
applicable law and regulation (including Rule 16b-3), the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby and the invalid, illegal or unenforceable provision shall be
deemed null and void; however, to the extent permissible by laws, any provision
which could be deemed null and void shall first be construed, interpreted or
revised retroactively to permit this Plan to be construed in compliance with all
applicable laws (including Section 422 of the Code and Rule 16b-3) so as to
foster the intent of this Plan. Notwithstanding anything in this Plan to the
contrary, the Committee, in its sole and absolute discretion, may bifurcate this
Plan so as to restrict, limit or condition the use of any provision of this Plan
to Participants who are Reporting Persons without so restricting, limiting or
conditioning this Plan with respect to other Participants.
17
<PAGE>
15. Effective Date And Term
The effective date of this Plan is the date of approval by the Company's Board
of Directors, which date is _____________, 1998. Awards may be granted on or
after the effective date, subject in the case of the Incentive Stock Option
Plan, only, to its approval by the Company's shareholders within twelve (12)
months thereafter. This Plan shall remain in effect until the tenth anniversary
of its effective date.
18
<PAGE>
EXHIBIT 23.1
Consent of Miller, Hamilton, Snider & Odom, L.L.C.
CONSENT OF COUNSEL
------------------
Superior Financial Corp.
We hereby consent to use in this Form S-1 Registration Statement of
Superior Financial Corp., of our name in the Prospectus, which is a part of such
Registration Statement, under the heading "Certain Legal Matters," to the
summarization of our opinion referenced therein, and to the inclusion of our
opinion at Exhibit 5.0 of the Registration Statement.
/s/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
July 29, 1998
<PAGE>
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated July 7, 1998 and July 22, 1998 in the Registration
Statement (Form S-1) and related Prospectus of Superior Financial Corp. for the
registration of 10,079,703 shares of its common stock and $60,000,000 of 8.65%
Senior Notes due April 1, 2003.
/s/ Ernst & Young LLP
Little Rock, Arkansas
July 29, 1998
<PAGE>
EXHIBIT 25.0
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2) [_]
__________________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (zip code)
__________________________
SUPERIOR FINANCIAL CORP.
(Exact name of obligor as specified in its charter)
Delaware 51-0379417
(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification no.)
5000 Roger Avenue 72903
Fort Smith Arkansas (Zip code)
(Address of principal executive officers)
__________________________
8.65% Senior Notes due 2003
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trustee Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10 (d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321 (b) of the Act. (Exhibit
6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published pursuant
to law or to the requirements of its supervising or examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 17th day of July, 1998.
THE BANK OF NEW YORK
By: /s/ REMO J. REALE
------------------------------------
Name: REMO J. REALE
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
Exhibit 7
________________________________________________________________________________
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin................................. $ 6,397,993
Interest-bearing balances.......................... 1,138,362
Securities:
Held-to-maturity securities........................ 1,062,074
Available-for-sale securities...................... 4,167,240
Federal funds sold and Securities purchased
under agreements to resell......................... 391,650
Loans and lease financing receivables:
Loans and leases, net of unearned income........... 36,538,242
LESS: Allowance for loan and lease losses.......... 631,725
LESS: Allocated transfer risk reserve.............. 0
Loans and leases, net of unearned income, allowance,
and reserve...................................... 35,906,517
Assets held in trading accounts...................... 2,145,149
Premises and fixed assets (including capitalized
leases)............................................ 663,928
Other real estate owned.............................. 10,895
Investments in unconsolidated subsidiaries and
associated companies............................... 237,991
Customers' liability to this bank on acceptances
outstanding........................................ 992,747
Intangible assets.................................... 1,072,517
Other assets......................................... 1,643,173
------------
Total assets......................................... $ 55,830,236
============
LIABILITIES
Deposits:
In domestic offices................................ $24,849,054
Noninterest-bearing................................ 10,011,422
Interest-bearing................................... 14,837,632
In foreign offices, Edge and
</TABLE>
<PAGE>
Agreement subsidiaries, and IBFs.... 15,319,002
Noninterest-bearing................. 707,820
Interest-bearing.................... 14,611,182
Federal funds purchased and Securities
sold under agreements to repurchase. 1,906,066
Demand notes issued to the U.S.
Treasury............................ 215,985
Trading liabilities................... 1,591,288
Other borrowed money:
With remaining maturity of one year
or less........................... 1,991,119
With remaining maturity of more than
one year through three years...... 0
With remaining maturity of more than
three years....................... 25,574
Bank's liability on acceptances exe-
cuted and outstanding............... 998,145
Subordinated notes and debentures..... 1,314,000
Other liabilities..................... 2,421,281
-----------
Total liabilities..................... 50,631,514
-----------
EQUITY CAPITAL
Common stock.......................... 1,135,284
Surplus............................... 731,319
Undivided profits and capital
reserves............................ 3,328,050
Net unrealized holding gains
(losses) on available-for-sale
securities.......................... 40,198
Cumulative foreign currency transla-
tion adjustments.................... ( 36,129)
-----------
Total equity capital.................. 5,198,722
-----------
Total liabilities and equity
capital............................. $55,830,236
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi
Alan R. Griffith Directors
J. Carter Bacot
_______________________________________________________________________________
