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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File #0-25239
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SUPERIOR FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 51-0379417
(State of Incorporation) (IRS Employer Identification No.)
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5000 Rogers Avenue, Fort Smith, Arkansas 72903
(Address of principal executive offices)
(501) 484-4305
(Telephone No.)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [_]
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of March 24, 1999 based on the average bid and ask prices of
$10.125 per share for Common Stock was $65,698,634. (For purposes of
calculating this amount, all directors, officers and principal shareholders of
the registrant are treated as affiliates).
Shares of Common Stock outstanding at March 24, 1999 were 10,080,503.
DOCUMENTS INCORPORATED BY REFERENCE
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Part of
Form 10-
Document K
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Portions of Definitive Proxy Statement for 1999 Annual Meeting as
specifically referred to herein .................................... Part III
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PART I
Item 1. Business
General
The Registrant, Superior Financial Corp. is hereinafter referred to as "the
Company".
The Company is a unitary 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 Superior Federal
Bank F.S.B. (the "Bank"), a federally chartered thrift institution, from
NationsBank, N.A. The acquisition of the Bank was completed on April 1, 1998
and was financed through the private placement of $97.5 million of Common
Stock and $60.0 million of Senior Notes and a $20.0 million loan. The Bank was
founded in 1934 in Fort Smith, Arkansas. In 1992, the Bank was acquired by
Boatmen's Bancshares, Inc. ("Boatmen's"). In turn, Boatmen's was acquired by
NationsBank in 1997. The Bank has expanded through de novo growth and
acquisitions to 50 branches concentrated in Ft. Smith, Little Rock, and
eastern Oklahoma. At December 31, 1998 the Company had consolidated assets of
$1.38 billion, and shareholders equity of $102 million. At December 31, 1998
the Bank had deposits of $974.7 million and gross loans of $825.6 million.
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.
Business Objectives
The Company's business strategy is based on a series of initiatives, both
short- and long-term, to achieve its goal of maximizing shareholder value.
These initiatives are designed to unleash the inherent strength of the
franchise which has not been fully realized. These initiatives combine the
following elements:
. short-term and intermediate-term initiatives designed to increase
revenue and enhance operating efficiency of the Bank;
. 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 merger-related
customer dislocation in the Bank's markets;
. 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;
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. expanding ATM, telephone, and personal computer based banking services;
and
. maintaining financial safety and soundness.
Short-Term Initiatives
Management has begun a campaign of near-term initiatives designed to enhance
revenue and improve operating efficiency. These initiatives include the
following:
Branch Rationalization: As of January 1999, the Bank completed the sale of
ten branch facilities located 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, certain unnecessary
inter-company expenses have been eliminated.
Revenue Enhancements: The opportunity to realize revenue enhancements
through the optimal use of uninvested cash, Federal Home Loan Bank FHLB
funding and reserve levels has 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.
Balance Sheet Optimization: The Bank has undertaken steps to enhance the
earnings contribution of its balance sheet through the redeployment of cash
and overnight investments into higher-yielding securities and loans, growth of
transaction deposit accounts, use of FHLB borrowing capabilities and an
increased loan-to-deposit ratio.
Growth Strategy
The Company's growth strategy focuses on attracting customers displaced and
disenchanted as a result of industry consolidation in the Company's immediate
and contiguous markets. Management believes that 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 attract these customers through promotion in its
existing markets and by tapping new markets through de novo branching and
acquisitions. The Bank has begun building four branches, two in Little Rock
and one each in Conway and Ft. Smith. These locations will introduce a branch
design that emphasizes speed of service and convenience. The Bank opened a
loan production office in the Tulsa market in October, 1998.
In 1998, management implemented certain initiatives designed to improve the
franchise through enhancing the menu of financial products and services it
offers. These initiatives allow the Bank to target additional customers as
well as cross-market to its existing, loyal customer base. For example,
management has introduced 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 makes it possible for the Company's customers to
take care of essentially all of their financial needs in one 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.
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Delivery Systems
Management has enhanced 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 added six new ATM locations in 1998 to its network of 53 ATMs. In
addition, significant progress has been made in establishing a telephone sales
and service function that no only provides routine customer information, but
also allows customers to pay bills, transfer money, order checks, and apply
for loans 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 December 31, 1998, the Company's allowance for loan losses is
approximately 1.27% of total loans. 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.
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 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 marketing and growth opportunities for
a locally based institution like the Bank, which is committed to quality
customer service, competitive fees and interest rates, and active community
involvement.
Employees
As of December 31, 1998, the Company had 637 full-time employees, and 154
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.
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CERTAIN REGULATORY CONSIDERATIONS
General
The Bank is a federally chartered and insured stock savings bank subject to
extensive regulation and supervision by the Office of Thrift Supervision
("OTS"), as its chartering agency, and the Federal Deposit Insurance
Corporation ("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 Home Owners Loan Act ("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 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
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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 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.
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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.
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
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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 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.
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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.
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 December 31, 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,
8
<PAGE>
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 OTS regulations effective through March 31, 1999, 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.
Under OTS regulations effective April 1, 1999, an institution must file an
application with the OTS in order to obtain OTS approval of a proposed capital
distribution under the following circumstances: (i) the institution is not
eligible for expedited treatment under applicable OTS regulations; (ii) the
total amount of the institution's capital distributions, including the
proposed capital distribution, for the applicable calendar year exceeds its
net income for that year to date plus its retained net income for the
preceding two years; (iii) the institution would not be at least adequately
capitalized following the distribution; or (iv) the proposed capital
distribution would violate a prohibition contained in any applicable statute,
regulation, or agreement between the institution and the OTS or the FDIC, or
violate a condition imposed on it in an OTS-approved application or notice. If
an institution is not required to file an application prior to a capital
distribution, but one of the following conditions is met, the institution must
file a notice with the OTS prior to the proposed capital distribution: (i) the
institution would not be well capitalized following the distribution; (ii) the
proposed capital distribution would reduce the amount of or retire any part of
certain debt instruments such as notes or debentures included in capital; or
(iii) the institution is a subsidiary of a savings and loan holding company.
If none of the application requirements are met, and none of the notice
requirements are met, the institution is not required to file either a notice
or an application with the OTS before making a 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
9
<PAGE>
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 December 31, 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.
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." "Well capitalized" and "adequately
capitalized" institutions are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed previously.
"Undercapitalized" institutions are those that do not qualify
10
<PAGE>
as either "well capitalized" or "adequately capitalized." 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, 1998 equaled $554,771.
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.
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.
11
<PAGE>
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 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.
Additional Information
Additional information, including statistical information concerning the
business of the Company, is contained herein at Items 6 and 7 under the
captions "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Executive Officers and Directors
Pursuant to general instruction G, information regarding executive officers
of the Company is contained herein at Item 10.
Item 2. Properties
The Company currently offers a broad range of banking services through a
total of 50 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........................................... 11 74,010
Hot Springs MSA........................................... 4 16,690
Eastern Oklahoma.......................................... 13 57,942
North and Central Arkansas................................ 11 37,209
</TABLE>
12
<PAGE>
The Company owns 35 offices and leases the remaining 15 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 is expanding its branch network through the addition of four
locations in Little Rock, Conway, and Ft. Smith. Three of these offices are
being constructed on land currently owned by the Company.
Item 3. Legal Proceedings
As a result of the acquisition of the Bank from NationsBank, the Company
succeeded to NationsBank's right and interest in the proceedings brought under
the caption Superior Federal Bank, F.S.B. vs. United States (No. 95-769C) (the
"Goodwill Litigation"). The Goodwill Litigation relates to claims for damages
by the Bank against the United States. Under the terms of the Stock Purchase
Agreement with NationsBank, the Company has agreed to pay NationsBank 50% of
any net recovery (total recovery obtained in a judgment or settlement of the
claims less litigation expenses). The Company is unable to estimate the
likelihood or amount of any judgment or settlement.
Item 4. Submission of matters to a Vote of Security Holders
Not Applicable
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters
As of December 31, 1998, there was no established trading market for the
Common Stock, and there were approximately 896 record holders of 10,080,503
shares of Common Stock. The Company was formed in December 1997 and, since
that time, has not paid cash or other dividends. The Company has no plans to
pay cash dividends in the near future.
On April 1, 1998, the Company sold in a private placement 10,079,703 shares
of Common Stock and $60,000,000 of 8.65% Senior Notes due April 1, 2003, to
persons the Company reasonably believed were "qualified institutional buyers"
as defined in Rule 144A of the Securities Act of 1933 (the "1933 Act") or
other "accredited investors" under Rule 501(a) of Regulation D of the 1933
Act. Keefe, Bruyette & Woods, Inc. served as the Placement Agent for the
transactions. The Company received aggregate consideration of $97.5 million
from the sale of the Common Stock and $60.0 million from the sale of the
Senior Notes. The Company paid Keefe, Bruyette and Woods, Inc. approximately
$7.28 million in transaction and placement agent fees. In completing the
private placement, the Company relied on the exemption provided under
Section 4(2) of the 1933 Act, Rule 506 of Regulation D thereunder and Rule
144A thereunder.
Item 6. Selected Financial Data
FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Company Bank
----------- ----------------------------------------------------------
Year Ended
December 31 Years Ended December 31,
----------- ----------------------------------------------------------
1998 (1) 1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income statement data:
Net interest income.... $ 24,362 $ 38,979 $ 38,305 $ 36,676 $ 34,113 $ 33,217
Provision for loan
losses................ 1,021 8,786 2,155 1,125 1,050 300
---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses........... 23,341 30,193 36,150 35,551 33,063 32,917
Non-interest income.... 19,195 24,711 23,280 23,370 20,572 17,389
Non-interest expense... 31,616 42,242 39,316 46,362 36,527 33,641
---------- ---------- ---------- ---------- ---------- ----------
Income before taxes.... 10,920 12,662 20,114 12,559 17,108 16,665
Net income............. 6,675 6,409 10,922 7,634 10,397 10,125
Balance sheet data at
period end:
Total assets........... $1,378,716 $1,368,171 $1,256,153 $1,206,235 $1,294,575 $1,252,203
Securities............. 375,011 369,827 382,211 449,006 534,709 618,952
Loans.................. 825,633 825,633 697,869 674,861 639,880 528,901
Allowance for loan
losses................ 10,472 10,472 4,660 5,058 4,930 4,686
Total deposits......... 970,821 974,669 982,442 990,203 1,084,582 1,060,886
Total shareholders'
equity................ 101,812 168,968 161,832 84,521 84,279 76,928
Average balance sheet
data:
Total assets........... $1,292,196 $1,287,756 $1,291,295 $1,252,641 $1,272,514 $1,229,178
Securities............. 334,321 339,384 410,876 480,728 578,879 668,610
Loans.................. 711,798 706,700 684,379 652,172 589,020 460,313
Allowance for loan
losses................ 10,465 9,055 4,886 5,003 4,841 4,770
Total deposits......... 984,443 991,311 995,237 1,041,920 1,064,880 1,007,654
Total shareholders'
equity................ 88,410 167,296 156,432 85,556 83,041 78,791
Performance Ratios:
Return on average
assets................ .52% 0.50% 0.85% 0.61% 0.82% 0.82%
Return on average
common equity......... 7.55 3.83 6.98 8.92 12.52 12.85
Net interest margin.... 2.83 3.42 3.44 3.15 2.88 2.89
Efficiency ratio....... 72.61 66.34 63.84 77.21 66.80 66.48
Asset Quality Ratios:
Nonperforming assets to
total loans and other
real estate........... .48 0.48 .82 .79 .73 1.59
Net charge-offs to
average loans......... 1.48 1.48 .37 .15 .14 .11
Allowance for loan
losses to total
loans................. 1.27 1.27 .67 .75 .77 .89
Allowance for loan
losses to
nonperforming loans... 313 313 91 107 112 59
Capital Ratios:
Tangible capital
ratio................. 2.85 7.99 7.40 6.60 5.97 5.31
Average shareholders'
equity to average
total assets.......... 6.84 12.99 12.11 6.83 6.53 6.41
Core capital ratio..... 2.85 7.99 7.40 6.60 5.97 5.31
Risk-based capital
ratio................. 5.50 16.70 15.69 15.06 14.86 14.84
</TABLE>
- -------
(1) The results of operations of the Bank were consolidated with those of the
Company from April 1, 1998, the date of the acquisition.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a unitary thrift 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 the Private
Placement, 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 of common stock and debt. The
Bank is a federally chartered savings bank. 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
operations. This section should be read in conjunction with the Company's and
the Bank's financial statements and accompanying notes and other detailed
information contained in this Annual Report.
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 TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997
Results of Operations
Company
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 transaction and
the private placement offering of the Company's common stock and debt. The
Company's primary asset is its investment in 100% of the common stock of the
Bank and the Company's operations are funded solely from the operations of the
Bank.
Total assets and total stockholders' equity at December 31, 1998 were $1.4
billion and $102 million, respectively. The $20 million Note Payable with
Colonial Bank and the $60 million Senior Notes used to finance the acquisition
of the Bank are recorded as liabilities of the Company.
Net income for the twelve months ended December 31, 1998 was $6.675 million.
Net income per share-basic and diluted for the twelve months ended December
31, 1998 were $0.88. The interest expense on the Note Payable and the Senior
Notes is recorded by the Company and was $5.757 million for the twelve months
ended December 31, 1998. This represents the primary difference between the
operations of the Company and that of the Bank. The Company had return on
average assets of .52% and return of average common equity of 7.55% for the
twelve months ended December 31, 1998.
The following table presents the following:
A) Historical results of Superior Financial Corp. for the twelve months ended
December 31, 1998, including the results of operations of Superior Federal
Bank, F.S.B. from April 1, 1998, the date of the acquisition.
B) Pro forma results of Superior Financial Corp. for the twelve months ended
December 31, 1998, including the results of operations of Superior Federal
Bank, F.S.B. for the three months ended March 31, 1998.
C) Operating results of Superior Federal Bank, F.S.B. on a stand alone basis
for the period from January 1, 1998 through December 31, 1998.
D) Historical results of Superior Federal Bank, F.S.B. for the period from
January 7, 1997 to December 31, 1997.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
<TABLE>
<CAPTION>
Superior Financial Superior Financial Superior Federal Superior Federal
Corp.-Historical Corp.-Pro Forma Bank, F.S.B Bank, F.S.B.
Twelve Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
December 31, 1998 December 31, 1998 December 31, 1998 December 31, 1997
(A) (B) (C) (D)
------------------ ------------------ ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income......... $63,094 $83,836 $83,660 $83,664
Interest expense........ 38,732 50,438 44,681 45,359
------- ------- ------- -------
Net interest income..... 24,362 33,398 38,979 38,305
Provision for loan
losses................. 1,021 8,786 8,786 2,155
------- ------- ------- -------
Net interest income
after provision........ 23,341 24,612 30,193 36,150
Noninterest income...... 19,195 24,711 24,711 23,280
Noninterest expenses.... 31,616 42,462 42,242 39,316
------- ------- ------- -------
Income before income
taxes.................. 10,920 6,681 12,662 20,114
Income tax expense...... 4,245 3,963 6,253 9,192
------- ------- ------- -------
Net income.............. $ 6,675 $ 2,898 $ 6,409 $10,922
======= ======= ======= =======
</TABLE>
The following discussion on the Bank compares the results of operations for
the Bank on a stand alone basis for the twelve months ended December 31, 1998
(Column C above) to that of the Bank for the period from January 7, 1997 to
December 31, 1997. For the twelve months ended December 31, 1998, the primary
difference between the results of operations for the Company and the Bank was
the $5.76 million interest expense on the Note Payable and the Senior Notes
which are obligations of the Company.
Bank
For the twelve months ended December 31, 1998, the Bank had net income of
$6.4 million, a decrease of $4.5 million or 41.3% from 1997. The primary
reason for this decrease was an increase in the provision for loan losses
which is more fully discussed under the section--"Allowance for Loan Losses"--
below. This resulted in a return on average assets of .50% and a return on
average common equity of 3.83% for the twelve months ended December 31, 1998
compared to .85% and 6.98%, respectively for the same time period in 1997.
Total assets increased to $1.369 billion at December 31, 1998, from $1.256
billion, an increase of $113 million or 9%. This increase was primarily the
result of loan growth in the third and fourth quarters of 1998. Deposits
decreased to $970 million at December 31, 1998 from $982 million at December
31, 1997, a decrease of $12 million or 1.2%. Total stockholders' equity was
$169 million at December 31, 1998, representing an increase of $7 million or
4.3% over total stockholders' equity of $162 million at December 31, 1997.
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of the Bank's
earnings. Interest rate fluctuations, as well as changes in the amount and
type of earning assets and liabilities, combine to affect net interest income.
Factors that determine the level of net interest income include the volume
of earnings assets and interest bearing liabilities, yields earned and rates
paid, fee income from portfolio loans, the level of nonperforming loans and
other non-earning assets, and the amount of noninterest bearing liabilities
supporting earning assets.
Net interest income for the twelve months ended December 31, 1998 was $39.0
million, an increase of $.7 million or 1.8% from $38.3 million for the twelve
months ended December 31, 1997. This resulted in a net
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
interest margin of 3.42% and 3.44%, and a net interest spread of 3.02% and
3.16% for the twelve months ended December 31, 1998 and December 31, 1997,
respectively. The decrease in the net interest margin and net interest spread
was primarily the result of a lower yield on the investment portfolio caused
by a general decrease in interest rates, resulting in excess principal
payments.
Interest income was flat at $83.7 million for the twelve months ended
December 31, 1998 compared to the twelve months ended December 31, 1997. The
overall growth in loans during the third and fourth quarters of 1998,
increased interest income, but this increase was offset by the net change in
the asset mix between investment securities and federal funds sold.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Results of Operations
Bank
Net Interest Income
Net interest income totaled $38.3 million in 1997 compared to $36.7 million
in 1996, an increase of $1.6 million or 4.4%. 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 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, while the yield on deposits and other
borrowed funds decreased 9 basis points to 4.35%.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
The following table presents for the periods indicated the total dollar
amount of average balances, interest income from average interest-earning
assets and interest expense on average interest-bearing liabilities, expressed
both in dollars and rates. No tax equivalent adjustments were made as the Bank
does not have any tax-exempt investments and all average balances are monthly
average balances. Nonaccruing loans have been included in the table as loans
carrying a zero yield.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------------------------
1998 1997 1996
--------------------------- --------------------------- ---------------------------
Average Interest Avg. Average Interest Avg. Average Interest Avg.
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.................. $ 706,700 $56,536 8.00% $ 684,379 $54,870 8.02% $ 652,172 $51,800 7.94%
Securities............. 339,384 21,487 6.33 410,876 27,765 6.76 480,728 31,902 6.64
Federal funds sold and
other earning assets.. 92,815 5,638 6.07 18,650 1,029 5.52 30,728 1,706 5.55
---------- ------- ---------- ------- ---------- -------
Total interest-earning
assets................ 1,138,899 83,661 7.35 1,113,905 83,664 7.51 1,163,628 85,408 7.34
Less allowance for loan
losses................ 9,055 -- 4,886 -- 5,003 --
---------- ------- ---------- ------- ---------- -------
Total earning assets,
net of allowance....... 1,129,845 83,661 1,109,019 83,664 1,158,625 85,408
Nonearning assets....... 157,912 182,276 94,016
---------- ---------- ----------
Total assets........... $1,287,756 $1,291,295 $1,252,641
========== ========== ==========
Liabilities and stockholders' equity
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 197,182 $ 3,787 1.92% $ 188,646 $ 3,925 2.08 $ 178,044 $ 3,770 2.12
Savings and money
market accounts....... 164,012 4,573 2.79 161,815 4,240 2.62 165,169 4,081 2.47
Certificates of
deposit............... 556,699 29,551 5.31 577,141 30,269 5.24 636,585 33,817 5.31
Borrowed funds......... 114,463 6,795 5.94 114,408 6,925 6.05 117,253 7,064 6.02
---------- ------- ---------- ------- ---------- -------
Total interest-bearing
liabilities........... 1,032,356 44,706 4.33 1,042,010 45,359 4.35 1,097,051 48,732 4.44
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits....... 73,418 67,635 62,122
Other liabilities...... 14,687 6,987 7,912
---------- ---------- ----------
Total liabilities...... 1,120,461 1,116,632 1,167,085
Stockholders' equity.... 167,296 174,663 85,556
---------- ---------- ----------
Total liabilities and
stockholders' equity.. $1,287,756 $1,291,295 $1,252,641
========== ========== ==========
Net interest income..... $38,955 $38,305 $36,676
======= ======= =======
Net interest spread..... 3.02% 3.16% 2.90%
==== ==== ====
Net interest margin..... 3.42% 3.44% 3.15%
==== ==== ====
</TABLE>
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. Changes not solely due to volume or
rate changes are allocated to rate.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1998 versus 1997 1997 versus 1996
------------------------- ---------------------
Increase Increase
(Decrease) (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....................... $ 1,790 $ (124) $ 1,666 $ 2,566 $504 $ 3,070
Securities.................. (4,831) (1,447) (6,278) (4,137) -- (4,137)
Federal funds sold and other
earnings assets............ 4,092 517 4,609 (677) -- (677)
------- ------- ------- ------- ---- -------
Total increase in interest
income.................... 1,051 (1,054) (3) (2,248) 504 (1,744)
------- ------- ------- ------- ---- -------
Interest-bearing liabilities:
Interest-bearing demand
deposits................... 178 (316) (138) 155 -- 155
Savings and money market
accounts................... 58 275 333 (84) 243 159
Certificates of deposits.... (1,072) 354 (718) (3,548) -- (3,548)
Borrowed funds.............. 3 (133) (130) (139) -- (139)
------- ------- ------- ------- ---- -------
Total increase in interest
expense................... (833) 180 (653) (3,616) 243 (3,373)
------- ------- ------- ------- ---- -------
Increase (decrease) in net
interest income............. $ 1,884 $(1,234) $ 650 $ 1,368 $261 $ 1,629
======= ======= ======= ======= ==== =======
</TABLE>
Noninterest Income
Non interest income for the year ended December 31, 1998 was $24.5 million,
an increase of $1.2 million or 5.12% over the same period in 1997. 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.
The following table presents for the periods indicated the major components
of noninterest income.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts................. $20,575 $20,241 $18,683
Mortgage operations, net............................ 2,201 1,796 1,330
Other noninterest income............................ 1,695 1,243 3,357
------- ------- -------
Total noninterest income.......................... $24,471 $23,280 $23,370
======= ======= =======
</TABLE>
Service charges were $20.6 million for the year ended December 31, 1998,
compared to $20.2 million for the year ended December 31, 1997, an increase of
$.4 million or 1.98%.The growth in service charges slowed in 1998 primarily
due to the sale of nine brances in the third quarter.
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 8.0%. This increase is attributed to the growth in the number
of deposit accounts from 263,904 at December 31, 1996 to 280,328.
Service charges on deposit accounts consist primarily of insufficient funds
fees charged to customers. As demonstrated by the trend from 1996 through
1998, management of the Company believes the growth will be sustained as the
number of transaction accounts (checking and savings accounts) increase. This
increase in the number of transactions and the related service fee generation
is largely due to the Company's successful execution of its "Totally Free
Checking" program to the lower to middle income customers in the markets in
which the Company operates.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Noninterest Expenses
For the year ended December 31, 1998, noninterest expenses totaled $42.0
million, an increase of $2.7 million, or 6.8%, from $39.3 million during 1997.
The efficiency ratio for the year ended December 31, 1998, was 66.34%,
compared to 63.84% in 1997. 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. For the same time periods the efficiency ratio was
63.84% in 1997 and 77.21% in 1996.
Salary and benefit expense for year ended December 31, 1998, was $18.2
million, compared to $16.3 million for the year ended December 31, 1997, an
increase of $1.9 million or 11.4%. 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. This increase was due primarily to the hiring of
additional personnel required to accommodate the Bank's growth and expanded
products and services.
Occupancy decreased $588,000, or 32.9% during 1998 due to the sale of the
nine branches during the third quarter. Occupancy expense rose $151,000 (5%)
and $69,000 (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 plus the income tax component of the applicable franchise taxes. The
amount of federal income tax expense is influenced by the amounts of taxable
income, tax-exempt income, nondeductible interest expense, and other
nondeductible expenses. For the twelve months ended December 31, 1998, income
tax expense was $6.2 million, a decrease of $3.0 million or 32% from the $9.2
million of income tax expense for the same period in 1997. The lower income
tax expense in 1998 compared to 1997 is due to the decrease in taxable income,
offset by an increase in the effective tax rate from 45.7% in 1997 to 49.4% in
1998. The higher effective tax rate in 1998 is due to the nondeductibility of
the provision for loan losses, which increased in the first quarter of 1998 of
$7.7 million. See discussion under "Allowance for Loan Losses".
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
Loans were $826 million at December 31, 1998, an increase of $128 million or
18.3% from $698 million at December 31, 1997. Consistent with the Bank's
historically high rate of growth, this increase is believed to be the result
of the Bank's style of relationship banking featuring professional, attentive
and responsive service to customers' needs, and focusing on commercial lending
to middle market companies.
At December 31, 1998, total loans represented 85% of deposits and 60% of
total assets. At December 31, 1997, total loans represented 71% of deposits
and 56% of total assets.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
The following table summarizes the loan portfolio of the Company by major
category of loans as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 10,800 1.31% $ 4,403 .63% $ 2,704 .40% $ 2,931 .46% $ 3,496 .66%
Consumer
Direct................. 99,704 12.08 75,268 10.79 70,179 10.40 39,612 6.19 39,292 7.43
Indirect............... 174,316 21.11 156,073 22.36 145,059 21.49 131,121 20.49 78,583 14.86
Real Estate:
Construction & land
development........... 15,920 1.93 12,734 1.82 13,304 1.97 24,285 3.80 23,780 4.50
1-4 family
residential........... 484,324 58.66 409,135 58.63 416,668 61.74 419,870 65.62 316,485 68.35
Commercial owner
occupied.............. 40,569 4.91 40,257 5.77 26,947 4.00 22,061 3.44 22,265 4.20
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans............. $825,633 100.00% $697,870 100.00% $674,861 100.00% $639,880 100.00% $528,901 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The primary lending focus of the Company is on small and medium-sized
commercial, residential mortgage and consumer loans. The Company offers a
variety of commercial lending products including term loans, lines of credit
and equipment financing. A broad range of short-to-medium-term commercial
loans, both collateralized and uncollateralized, are made available to
businesses for working capital (including inventory and receivables), business
expansion (including acquisitions of real estate and improvements) and the
purchase of equipment. The purpose of a particular loan determines its
structure.
Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such
debt from income. As a general practice, the Company takes as collateral a
lien on any available real estate, equipment or other assets. Working capital
loans are primarily collateralized by short-term assets whereas term loans are
primarily collateralized by long-term assets.
A substantial portion of the Company's real estate loans consists of single-
family residential mortgage loans collateralized by owner-occupied properties
located in the Company's primary market area. The Company 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 Company 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 by
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.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Maturity and Interest Rate Sensitivity of Loans
<TABLE>
<CAPTION>
Loans at December 31, 1998, maturing in:
----------------------------------------------
Over One
One Year Through Over Five
or Less Five Years Years Total
---------- ----------------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural.................. $ 557 $ 204 $ 10,039 $ 10,800
Real estate-construction....... 15,920 -- -- 15,920
---------- ------- ---------- ----------
Total........................ $ 16,477 $ 204 $ 10,039 $ 26,720
========== ======= ========== ==========
Predetermined rates............ $ 16,477 $ 204 $ 10,039 $ 26,720
Variable rates................. -- -- -- --
</TABLE>
Nonperforming Assets
The Company's conservative lending approach has resulted in strong asset
quality. Nonperforming assets at December 31, 1998 were $3.9 million, compared
with $5.8 million at December 31, 1997 and $5.3 million at December 31, 1996.
The decrease in nonperforming assets from 1997 to 1998 was primarily the
result of the charge-off of consumer loans during the first quarter of 1998.
This resulted in a ratio of nonperforming assets to loans plus other real
estate of .48%, .82% and .79% as of year end 1998, 1997 and 1996,
respectively.
The following table presents information regarding nonperforming assets as
of the dates indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans................... $3,348 $5,098 $4,715 $4,407 $7,972
Other real estate and repossessed
assets............................ 594 662 600 242 457
------ ------ ------ ------ ------
Total nonperforming assets....... $3,942 $5,760 $5,315 $4,649 $8,429
====== ====== ====== ====== ======
Nonperforming assets to total loans
and other real estate............. .48% .82% .79% .73% 1.59%
====== ====== ====== ====== ======
</TABLE>
The Company 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 Company also
monitors its delinquency levels for any negative or adverse trends, and
collection efforts are done on a centralized basis. The Company also has
procedures to bring rapid resolution of nonperforming loans and prompt and
orderly liquidation of real estate, automobiles and other forms of collateral.
The Company 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 Company is
sometimes required to revise a loan's interest rate or repayment terms in a
troubled debt restructuring. The Company 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
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
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 Company 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
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at
January 1...................... $ 4,660 $ 5,058 $ 4,930 $4,686 $4,884
Provision for loan losses....... 8,786 2,115 1,125 1,050 300
Charge-offs..................... (4,351) (2,969) (1,322) (911) (542)
Recoveries...................... 1,377 416 325 105 44
------- ------- ------- ------ ------
Allowance for loan losses at
December 31.................... $10,472 $ 4,660 $ 5,058 $4,930 $4,686
======= ======= ======= ====== ======
Allowance to period-end loans... 1.27% .67% .75% .77% .89%
Net charge-offs to average
loans.......................... 1.48 .37 .15 .14 .11
Allowance to period-end
nonperforming loans............ 312.00 91.00 107.00 112.00 59.00
</TABLE>
The principal area of risk continues to be in the indirect consumer loan
portfolio, as this category has experienced the highest level of charge-offs
during the past five years. Charge-offs for the years 1994-1998 have primarily
been in the indirect consumer loan portfolio.
In early 1995 Bank management initiated a series of actions designed to
increase the institution's net interest margin. Among these initiatives was
the redeployment of resources to aggressively grow the higher yielding, higher
risk consumer and commercial loan components of the balance sheet. This
involved a substantial increase in the number of "dual purpose" loan officers,
i.e., lenders who handled consumer loan requests as well as mortgage loan
originations, aggressive solicitation of indirect auto loan paper, and
reductions in mortgage origination staff. As a result the Bank experienced
significant growth in consumer loan balances, particularly indirect auto
paper, and a moderate decline in the mortgage loan portfolio as normal
amortization exceeded new mortgage loan production. These actions resulted in
an increase in the Bank's automobile loan portfolio (direct and indirect) over
the last five years as follows:
<TABLE>
<CAPTION>
Direct Indirect Total
----------- ------------ ------------
<S> <C> <C> <C>
1994................................. $21,967,000 $ 78,583,000 $100,550,000
1995................................. 22,969,000 131,121,000 154,090,000
1996................................. 22,038,000 145,059,000 167,097,000
1997................................. 27,321,000 156,073,000 183,394,000
1998................................. 25,308,000 174,316,000 199,624,000
</TABLE>
In May 1996, the loan officer in charge of the indirect automobile loans
left the Bank. During the fall of 1996, the Bank began to experience an
increase in delinquencies and write-offs on indirect automobile loans. This
resulted in an increase in net charge-offs to $997,000 in 1996, from $806,000
in 1995, a 23.70% increase. During 1997, Bank management began to sense that
some higher risk automobile loans had been made and
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
purchased by the Bank. In April 1997 senior management of the Bank changed
when the President and Chief Executive Officer retired. The new President and
Chief Executive Officer took a more aggressive approach to dealing with
problems in the automobile loan portfolio, particularly the indirect, and
implemented new controls and procedures to provide earlier indications of
problems and charge-offs of these loans. These new controls and procedures
indicated that the Bank had been purchasing higher risk automobile loans. The
Bank's net charge-offs increased significantly in 1997 and 1998 as the result
of the problems in the automobile loan portfolio.
This shift in the mix of the loan portfolio to higher yielding, higher risk
consumer loans and the significant increase in indirect automobile loans
resulted in the increase in the level of charge-offs from 1995 to 1998.
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 category of
loans.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------
Percent of Percent of
Allowance Loans to
to Total Total
Amount Allowance Loans
------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance of allowance loan losses applicable to:
Commercial..................................... $ 165 2% 1.31%
Real Estate:
Construction and land development............ -- -- 1.93
1-4 family residential....................... 1,466 14 58.66
Commercial owner occupied.................... 638 6 4.91
Consumer....................................... 6,527 62 33.19
Unallocated.................................... 1,676 16 --
------- --- ------
Total allowance for loan losses.............. $10,472 100% 100.00%
======= === ======
<CAPTION>
December 31, 1997
-----------------------------
Percent of Percent of
Allowance Loans to
to Total Total
Amount Allowance Loans
------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance of allowance loan losses applicable to:
Commercial..................................... $ -- 0% 0.63%
Real Estate:
Construction and land development............ -- 0 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 0.00
------- --- ------
Total allowance for loan losses.............. $ 4,660 100% 100.00%
======= === ======
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
<TABLE>
<CAPTION>
December 31, 1996
----------------------------
Percent of Percent of
Allowance Loans to
to Total Total
Amount Allowance Loans
------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance of allowance loan losses applicable to:
Commercial...................................... $ 0 0% 0.40%
Real Estate:
Construction and land development............. 0 0 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 0.00
------ --- ------
Total allowance for loan losses............... $5,058 100% 100.00%
====== === ======
<CAPTION>
December 31, 1995
----------------------------
Percent of Percent of
Allowance Loans to
to Total Total
Amount Allowance Loans
------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance of allowance loan losses applicable to:
Commercial...................................... $ 0 0% 0.46%
Real Estate:
Construction and land development............. 0 0 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 0.00
------ --- ------
Total allowance for loan losses............... $4,930 100% 100.00%
====== === ======
<CAPTION>
December 31, 1994
----------------------------
Percent of Percent of
Allowance Loans to
to Total Total
Amount Allowance Loans
------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance of allowance loan losses applicable to:
Commercial...................................... $ 0 0% .66%
Real Estate:
Construction and land development............. 0 0 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 0.00
------ --- ------
Total allowance for loan losses............... $4,686 100% 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
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
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.
Management believes that the allowance for loan losses at December 31, 1998
is adequate to cover losses inherent in the portfolio as of such date. During
the first quarter of 1998, the Bank made certain changes in accounting
estimates totaling approximately $7.7 million, and the allowance for loan
losses was significantly increased in the first quarter of 1998 to reflect the
increased risk of losses in automobile loans within the Bank's loan portfolio,
which experienced an increased level of losses in the first quarter of 1998.
The components of the provision for loan losses in the period January 1,
1998 through March 31, 1998 is as follows:
<TABLE>
<S> <C>
. To restore charge-offs on direct and indirect automobile
loans...................................................... $1,925,000(A)
. To provide quarterly provision on the loan portfolio....... 750,000(B)
. To provide an allowance for increased inherent risk in the
automobile loan portfolio.................................. 4,500,000(C)
. To provide additional unallocated allowance................ 590,000(D)
----------
Total provision for loan losses for three months ended March
31, 1998................................................... $7,765,000
==========
</TABLE>
- --------
(A) The higher level of delinquencies and charge-offs noted above for 1997 on
automobile loans, particularly the indirect automobile loans, continued
into the first quarter of 1998 and the losses in this portion of the
portfolio were determined to be significantly more than previously
estimated. Additionally, in the first quarter of 1998, the Bank
experienced increased historical losses attributed to a higher level of
repossessed automobiles and their associated liquidation losses. The Bank
charged-off additional problem automobile loans and took liquidation
losses on the repossessed automobiles during the first quarter, and made a
provision to restore the allowance for these charge-offs and losses.
(B) Represents the quarterly provision to the allowance for loan losses for
the remainder of the loan portfolio.
(C) In light of the trend of problems that began to surface during 1997 and
continued into the first quarter of 1998 in the automobile loan portfolio,
the allowance was increased to reflect management's assessment of
increased risk of loan losses due to the higher historical loss being
experienced by the Bank in the automobile portion of the loan portfolio.
Due to the problems discussed above in the direct and indirect automobile
loan portfolio, the actual losses the Bank was experiencing were running
at approximately 3.5% of the total automobile loan portfolio. The Bank had
been providing for historical losses using a 1% historical loss factor.
Since the Bank had more information on what actual losses on the
automobile portfolio
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
were running, a change of estimate was made in the first quarter as more
experience and additional information on the historical loss rate was
obtained. The following table provides a detail of the gross charge-offs
for direct and indirect loans for the years ended December 31, 1996 and
1997 and the three months ended March 31, 1998.
<TABLE>
<CAPTION>
Total Direct Total
and Charge-
Direct Loan Indirect Loan Indirect Loan offs for
Charge-offs Charge-offs Charge-offs All Loans
----------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
December 31, 1996........ $226,000 $1,067,000 $1,293,000 $1,322,000
December 31, 1997........ 340,000 2,629,000 2,969,000 2,969,000
March 31, 1998........... 307,000 1,626,000 1,933,000 2,034,000
-------- ---------- ---------- ----------
Total.................. $873,000 $5,322,000 $6,195,000 $6,325,000
======== ========== ========== ==========
</TABLE>
(D) During the first quarter of 1998, the Bank began shifting its management
philosophy and strategic direction more toward that of a commercial bank
rather than a thrift and began to make more commercial loans which have a
greater inherent risk of loss than the mortgage loans the Bank had
traditionally made. Commercial loans increased $7,387,000 or 21.68% during
the first quarter and continued to increase during the second quarter. An
additional general allowance in the first quarter of 1998 was provided due
to the shift to more commercial lending.
The sequence of events which lead to the $7,765,000 provision for loan
losses for the three months ended March 31, 1998 detailed above is as follows.
In October 1997 management of the Company was allowed five days to perform
due diligence on the Bank. During the due diligence review, rapid growth of
the indirect automobile loan portfolio was noted from 1993 to the date of the
review coupled with a deterioration in the credit quality of the portfolio as
shown by past due indirect automobile loans running at 3-4% of total indirect
consumer loans beginning in mid 1996 and a repossessed inventory of
automobiles exceeding 100 units (approximately 3-4 months inventory). Early
estimates of the potential loss based on the limited information and time for
review was $2 million, which was reflected in the 1998 pro-forma financial
data prepared by the Company and included in the private placement memorandum
provided to prospective investors.
On December 3, 1997, the Company entered into an agreement with NationsBank
to acquire the Bank. In January 1998 Messrs. C. Stanley Bailey and C. Marvin
Scott arrived at the Bank to assist in the transition process towards
acquisition and to more fully assess the potential loss in the indirect
automobile loan portfolio. Both of these gentlemen have had considerable
experience with indirect loan portfolio management at other regional banks.
When Messrs. Bailey and Scott began reviewing the indirect automobile loan
portfolio it was determined that the problems were worse than was earlier
estimated in October 1997. Based upon their experience, typical problem
indirect loan portfolios take two years from origination to become evident and
an additional two years to clean up.
Throughout February and March of 1998 further assimilation of indirect
automobile portfolio aging information was performed and a careful analysis of
loans originated by the terminated loan officer noted above was conducted.
Based upon the results of these procedures, Messrs. Bailey and Scott suggested
that the Bank's and NationsBank's management take actions to remedy the
indirect automobile loan quality as follows:
1. Liquidate all repossessed automobiles at auction and maintain no more
than one months inventory (25-35 automobiles). Anticipated liquidation
losses estimated at $3-$5 thousand per unit ($400-$500 thousand.)
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
2. Charge-off all delinquent indirect loans exceeding 120 days past due and
all bankruptcies. Estimated losses at $1.5 million.
3. Enhance credit scoring to originate "A" quality indirect loans only,
thus causing indirect automobile loan portfolio to shrink over time.
4. Eliminate dealers generating indirect paper with high delinquency
levels.
5. Increase the allowance for loan losses $4.5 million to provide an
adequate reserve for the risk of loss in the settling out process of the
remaining automobile loan portfolio over the next 12-18 months.
These suggestions were presented to Bank management and NationsBank
management during the first quarter 1998. All suggestions were accepted for
implementation during first quarter 1998.
By March 31, 1998, these initiatives resulted in the following:
. Indirect automobile loan delinquencies declined from 3.3% of total
indirect automobile loans at December 31, 1997 to 1.89% at March 31,
1998.
. Repossessed automobile inventory declined from 123 units at December 31,
1997 to 69 units at March 31, 1998.
. Allocated allowance for loan losses for indirect automobile loans was
increased from $1.2 million at December 31, 1997 to $4.5 million at
March 31, 1998.
. Unallocated allowance for loan losses was increased from $44,000 at
December 31, 1997 to $1.6 million at March 31, 1998.
Investments
The Company's investments portfolio is the second largest component of
earning assets. It provides a significant source of revenue for the Company
and acts as a source of funding should the Bank experience unanticipated
deposit withdrawals or loan demand. At the date of purchase, the Company 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 recorded as accumulated other
comprehensive income in stockholders' equity.
The following table summarizes the amortized cost of investments held by the
Company as of the dates shown:
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities........ $297,359 $369,555 $437,076 $524,410 $608,553
CMOs.............................. 59,139
Trust preferred stock............. 7,563
-------- -------- -------- -------- --------
Total investments............... $364,061 $369,555 $437,076 $524,410 $608,553
======== ======== ======== ======== ========
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
The decrease in the investments portfolio is the result of the Company's
strategy of increasing its net interest margin by growing the loan portfolio.
Mortgage-backed securities declined from $608.5 million in 1994 to $297.4
million in 1998, a $311.1 million decrease, while for the same period, total
loans rose from $528.9 million in 1994 to $825.6 million in 1998, a $296.7
million increase. With the anticipated growth in deposits and loans,
management of the Company believes the investments portfolio will remain at
approximately the December 31, 1998 balance.
All investments held by the Company as of December 31, 1998 and 1997 are
classified as available-for-sale. The following table presents the amortized
cost and estimated market values for investments as of the dates shown.
<TABLE>
<CAPTION>
Gross Estimated Amortized Unrealized Market
-------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997
--------------------------------------------- ---------------------------------------------
Unrealized Unrealized Estimated Fair Unrealized Unrealized Estimated Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- ---------- ---------- -------------- -------- ---------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities............. $296,895 $1,814 $(1,350) $297,359 $369,555 $4,098 $(323) $373,330
CMOs.................... 59,130 56 (47) 59,139
Trust preferred stock... 7,563 -- -- 7,563
-------- ------ ------- -------- -------- ------ ----- --------
Total investments...... $363,588 $1,870 $(1,397) $364,061 $369,555 $4,098 $(323) $373,330
======== ====== ======= ======== ======== ====== ===== ========
</TABLE>
At December 31, 1998, investments totaled $364 million, a decrease of $9
million from 1997. This decrease occurred in mortgage-backed securities. At
December 31, 1997, investments totaled $373 million, a decrease of $76 million
from $449 million at December 31, 1996. The decrease occurred in mortgage-
backed securities. The yield on the investments portfolio for 1998 was 6.33%
while the yield was 6.76% in 1997 and 6.64% in 1996.
The Company has no mortgage-backed securities that have been issued by non-
agency entities.
At December 31, 1998, 84% of investments available for sale held by the
Company had final maturities of more than 10 years. At December 31, 1998,
approximately $182 million of the Company'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 investments available-for-sale, federal funds sold and interest-
bearing deposits) and their weighted average yields at December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------------------
After One Year After Five Years
but Within but Within
Within One Year Five Years Ten Years After Ten Years
----------------- --------------- ----------------- ------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
--------- ------- -------- ------ --------- ------- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities............. $ $ 3,209 6.74% $ 55,485 5.97% $238,201 6.14% $296,895 6.17%
CMOs.................... 59,130 6.44 59,130 6.44
Trust preferred stock... 7,563 7.36 7,563 7.36
--------- ------ -------- ------ --------- ------ -------- ---- -------- ----
Total investments
available for sale.... $ -- 0% $ 3,209 6.74% $ 55,485 5.97% $304,894 6.23 $363,588 6.66
Federal Home Loan Bank
stock.................. 10,950 6.24 10,950 6.24
Interest-bearing
deposits............... 40,514 5.80 40,514 5.80
--------- ------ -------- ------ --------- ------ -------- ---- -------- ----
Total.................. $ 40,514 5.80% $ 3,209 6.74% $ 55,485 5.97% $315,844 6.23% $415,052 6.19%
========= ====== ======== ====== ========= ====== ======== ==== ======== ====
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Deposits
The Company's ratio of average demand deposits to average total deposits for
years ended December 31, 1998, 1997 and 1996 were 27%, 26%, and 23%,
respectively.
Average total deposits during 1998 decreased to $991 million from $995
million in 1997, a decrease of $4 million or .40%. In addition, average
noninterest-bearing deposits increased to $73 million in 1998 from $68 million
in 1997. Average deposits in 1997 decreased to $995 million from $1,042
million in 1996, a decrease of $47 million or 4.5%.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1998, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1998 1997 1996
------------- ------------- ---------------
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- ---------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts.................... $197,182 1.92% $188,646 2.08% $ 178,044 2.12%
Regular savings................. 105,400 2.33 104,787 2.37 106,476 2.37
Money market.................... 58,612 3.61 57,028 3.08 58,693 2.65
CD's............................ 556,699 5.31 577,141 5.24 636,585 5.31
-------- -------- ----------
Total interest-bearing
deposits..................... 917,893 4.13 927,602 4.35 979,798 4.44
Noninterest-bearing deposits.... 73,418 67,635 62,122
-------- -------- ----------
Total deposits................ $991,311 $995,237 $1,041,920
======== ======== ==========
</TABLE>
The decrease in daily average balance for deposits from $1,041.9 million in
1996 to $991.3 million in 1998 is primarily due to a planned strategy by the
Company of not aggressively pursuing the higher interest rate certificate of
deposit market and to the sale of two branches in 1996 and nine branches in
1998. The Company's strategy is focused on the growth of transaction accounts
(checking and savings accounts) through the "Totally Free Checking" product.
These transaction accounts have lower interest rates than certificates of
deposit, which will tend to increase the Company's net interest margin, and
generate service charge income. The Company continues to experience growth in
the non-interest bearing checking accounts and NOW accounts.
Maturity Distribution of Time Deposits $100,000 and Over
<TABLE>
<CAPTION>
December 31
-----------------------
Certificates
of Deposit Other Time
------------ ----------
(Dollars in thousands)
<S> <C> <C>
Three months or less.................................... $19,060 $ --
Over three months to six months......................... 25,279 --
Over six months to twelve months........................ 8,732 --
Over twelve months...................................... 7,492 --
------- -----
Total................................................. $60,563 $ --
======= =====
</TABLE>
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:
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
<TABLE>
<CAPTION>
December 31
------------------------
1998 1997 1996
-------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Other short-term borrowings:
Average............................................. $ 12,213 $ -- $ 4,317
Year-end............................................ 12,040 -- 8,000
Maximum month-end balance during year................. 162,217 -- 8,000
Interest rate:
Average............................................. 3.83% 0.00% 5.80%
Year-end............................................ 3.83 0.00 5.80
</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 Company
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 Company's asset and liability management strategy is
formulated and monitored by the Asset Liability Committee, which is composed
of senior officers of the Company, in accordance with policies approved by the
Company's Board of Directors. This committee meets regularly to review, among
other things, the sensitivity of the Company's assets and liabilities to
interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, 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 Company'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 Company 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, 1998, this ratio was a positive 10.5%. The
Company 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 this measure. Because different types of
assets and liabilities with the same or similar maturities may react
differently to changes in overall market rates or conditions, changes in
interest rates may affect net interest income positively or negatively even if
an institution were perfectly matched in each maturity category.
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.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Interest Rate Sensitivity and Liquidity
U.S. money market interest rate market presents the primary risk exposure to
the Company. In measuring and managing interest rate risk, the Company uses
gap analysis, net interest income simulation, and economic value equity
modeling. The following table sets forth a gap interest rate sensitivity
analysis for the Bank as of December 31, 1998:
<TABLE>
<CAPTION>
Period/Cumulative GAP Analysis
-------------------------------------------------------------
0-90 days 91-180 days 181-360 days After One Year Total
--------- ----------- ------------ -------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Short term
investments.......... $ 51,464 $ $ $ $ 51,464
Investments available-
for-sale............. 48,734 46,459 42,356 226,512 364,061
Loans................. 44,669 47,639 94,846 638,479 825,633
--------- --------- --------- -------- ----------
Total interest-
earning assets..... $ 144,867 $ 94,098 $ 137,202 $864,991 $1,241,158
========= ========= ========= ======== ==========
Interest-bearing
liabilities:
Demand, money market
and savings
deposits............. $ 368,742 $ $ $ $ 368,742
Certificates of
deposit and other
time deposits........ 143,457 127,850 165,742 89,179 526,228
Borrowings............ 12,000 204,500 216,500
--------- --------- --------- -------- ----------
Total interest-
bearing
liabilities........ $ 524,199 $ 127,850 $ 165,742 $293,679 $1,111,470
========= ========= ========= ======== ==========
Period GAP............ $(379,332) $ (33,752) $ (28,540) $571,312
Cumulative GAP........ (379,332) (413,084) (441,624) 129,688 $ 129,688
Period GAP to earning
assets............... (30.1)% (2.7)% (2.3)% 46.0% 10.5%
Cumulative GAP to
earning assets....... (30.1)% (33.3)% (35.6)% 10.5%
</TABLE>
The gap sensitivity analysis shows when balances may be repriced. Net
interest income, however, is also affected by how much the interest rates
change for each of the balances. For example, when national money market rates
change, interest rates on the Company's savings accounts may not change as
much as interest rates on its commercial loans. This is a limiting factor for
the gap analysis.
The Company's net interest income simulation model shows that a parallel 100
basis point increase in interest rates along the yield curve would lower net
interest income by 2% for the next 12 months while a 100 basis point decrease
would raise net interest income by 3%. The model includes balances, asset
prepayment speeds, and interest rate relationships among the balances that
management judges to be reasonable for the various interest rate environments.
Differences in actual occurrences from these assumptions, as well as non-
parallel changes in the yield curve, may change the Company's market risk
exposure. Among the interest rate relationships, there are caps and floors on
the Company's portfolios of adjustable rate mortgage loans and mortgage backed
securities. Additionally, Arkansas usury statutes impose interest rate caps on
certain commercial and consumer loans.
The Company manages its interest rate risk through investment in appropriate
fixed and variable rate assets, acquisition of non-rate sensitive core
deposits, and adjustments in maturities of Federal Home Loan Bank advances.
The Company does not use off-balance sheet instruments.
As of December 31, 1998, the Company's net interest income exposure has
decreased slightly and has remained slightly liability sensitive. The
simulation model indicates that a parallel 100 basis point increase in
interest rates would leave net interest income about unchanged, while a 100
basis point decrease would raise net
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
interest income by 1%. Intermediate and longer term interest rates have
declined moderately since year end. These lower rates may continue due to low
inflation, reduced borrowings by the U.S. Treasury from an anticipated federal
budget surplus, and preference for U.S. Dollar assets by worldwide investors.
The Federal Reserve may maintain low short term domestic interest rates to
help ameliorate any adverse effect of turmoil in international financial
markets.
Management of the Company does not believe the $20 million Note Payable and
the $60 million Senior Notes used to finance the acquisition of the Bank will
have a significant impact on the Company's interest rate exposure. The $20
million Note Payable has a two year maturity and a floating interest rate
based upon LIBOR. The Senior Notes have a term of five years with a fixed
interest rate. Management of the Company believes the combination of these two
financing options minimizes the impact of interest rate changes of the risk
profile of the Company.
The Company did not hold any securities classified as trading securities
during 1998.
Capital Resources
Shareholders' equity increased to $169 million at December 31, 1998 from
$162 million at December 31, 1997, an increase of $7 million, or 4%. This
increase was primarily the result of net income of $6.4 million. 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, 1998 to the minimum regulatory
standards:
<TABLE>
<CAPTION>
Well-Capitalized
Minimum Minimum
Bank Ratio Required Required
---------- -------- ----------------
<S> <C> <C> <C>
Tangible capital ratio............... 7.99% 1.50% 5.00%
Core capital ratio................... 7.99 4.00 6.00
Risk-based capital ratio............. 16.70 8.00 10.00
</TABLE>
Year 2000 Readiness Disclosure
Like most other financial institutions, the operations of the Bank are
particularly sensitive to potential problems arising form 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. The Company and its major third-party providers have completed
the awareness, assessment and renovation phases for all "mission critical"
deposit, loan and electronic services systems. The testing phase for these
system is well underway, and the Company expects that
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
such testing will be completed in the second quarter of 1999. In addition, the
Company is actively engaged in the testing phase of in-house supported
microcomputers, telecommunications, and other electronic/mechanical devices.
These tests are scheduled for completion during the second quarter of 1999.
The Company is also actively engaged, in concert with its third party
providers, in the development of its "business continuity plan". The Company
expects that the plan will be completed and validated by June 30, 1999. As of
December 31, 1998, the Company has spent $50,000 and expects to incur
additional internal and third-party costs totaling approximately $150,000
related to assessing the status of the Company's systems (including non-
information technology 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. The Company is actively engaged with its third
party providers in the test phase for all "mission critical" deposit, loan,
and electronic services. Testing of the century date rollover from December
31, 1999, to January 3, 2000, has been completed for all deposit and loan host
applications. Initial testing for leap year, year-end 2000, and 2001 rollover
is scheduled for completion in the first quarter of 1999. Third-party
interface testing with item processors, coupon vendors, credit bureaus, check
printers and other vendors is underway and is expected to continue throughout
the first quarter of 1999. Major vendors have also provided assurances that
their business continuity plans will be available in early 1999 for validation
by mid-year. 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.
Under a hypothetical "worst case scenario", neither the Company's mission
critical systems, nor those of its material third vendors, would be Year 2000
compliant on schedule. In that event, the Company could experience material
disruptions in its ability to process customer accounts and otherwise conduct
its business in the ordinary course. However, based on the current status of
its testing program, the Company does not anticipate material disruptions to
arise as a result of the readiness of its hardware and software systems.
Assuming that (i) the Company's completed testing has provided an accurate
assessment of the readiness of the systems tested and (ii) remaining testing
is completed on schedule and provides positive indications of system
readiness, the Company's operations could still be materially disrupted by
local or regional power and communications failures. The Company is developing
a contingency plan to address the challenges presented by such a worst case
scenario.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS--BANK
<TABLE>
<CAPTION>
1998--Three Months Ended For the
------------------------------------------- year ended
Mar. 31 (1) June 30 Sept. 30 Dec. 31 12/31/98
------------ --------- --------- --------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net interest income..... $ 9,035 $ 9,937 $ 9,819 $ 10,164 $ 38,955
Provision for loan
losses................. 7,765 290 426 305 8,786
--------- --------- --------- --------- ---------
Net interest income
after provision for
loan losses............ 1,270 9,647 9,393 9,859 30,169
Non-interest income..... 5,516 6,173 6,469 6,313 24,471
Non-interest expense.... 10,833 10,171 10,451 10,529 41,984
--------- --------- --------- --------- ---------
Income (loss) before
income taxes........... (4,047) 5,649 5,411 5,643 12,656
Income taxes (benefit).. (282) 2,216 2,117 2,196 6,247
--------- --------- --------- --------- ---------
Net income (loss)....... $ (3,765) $ 3,433 $ 3,294 $ 3,447 $ 6,409
========= ========= ========= ========= =========
- --------
1. A provision of approximately $7.7 million was recorded for the three months
ended March 31, 1998 to increase the allowance for loan losses for
increased risk of losses in the automobile loans, primarily indirect dealer
loans, within the Bank's portfolio. See discussion under "Allowance for
Loan Losses" in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<CAPTION>
1997--Three Months Ended For the
------------------------------------------- year ended
Mar. 31 June 30 Sept. 30 Dec. 31 12/31/97
------------ --------- --------- --------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net interest income..... $ 9,471 $ 9,566 $ 9,613 $ 9,655 $ 38,305
Provision for loan
losses................. 375 680 450 650 2,155
--------- --------- --------- --------- ---------
Net interest income
after provision for
loan losses............ 9,096 8,886 9,163 9,005 36,150
Non-interest income..... 5,664 5,966 5,805 5,844 23,279
Non-interest expense.... 10,259 9,975 10,358 8,724 39,316
--------- --------- --------- --------- ---------
Income before income
taxes.................. 4,051 4,877 4,610 6,125 20,113
Income taxes............ 2,156 2,424 2,319 2,292 9,191
--------- --------- --------- --------- ---------
Net income.............. $ 2,345 $ 2,453 $ 2,291 $ 3,833 $ 10,922
========= ========= ========= ========= =========
</TABLE>
35
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 32 through 33 herein.
Item 8. Financial Statements and Supplementary Data
36
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
SUPERIOR FINANCIAL CORP.
Year ended December 31, 1998 and for the
Period from November 12, 1997 (date of
inception) to December 31, 1997 with
Report of Independent Auditors
37
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 1998 and for the period from
November 12, 1997 (date of inception) to December 31, 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 39
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................. 40
Consolidated Statements of Operations....................................... 41
Consolidated Statements of Changes in Stockholders' Equity.................. 42
Consolidated Statements of Cash Flows....................................... 43
Notes to Consolidated Financial Statements.................................. 44
</TABLE>
38
<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 December 31, 1998 and the related
statements of operations, stockholders' equity and cash flows for the year
then ended and the accompanying balance sheet of the Company as of December
31, 1997 and the related statements of operations, stockholders' 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Superior
Financial Corp. at December 31, 1998 and 1997 and the consolidated results of
its operations and its cash flows for the year ended December 31, 1998 and 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
Little Rock, Arkansas
February 3, 1999
39
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
-------------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents.......................... $ 81,425,010 $ 94,072
Loans receivable................................... 825,632,882
Less: allowance for loan losses.................... 10,471,770
--------------
Loans receivable, net.............................. 815,161,112
Investments available-for-sale, net................ 364,061,312
Accrued interest receivable........................ 7,525,559
Federal Home Loan Bank stock....................... 10,949,600
Premises and equipment, net........................ 26,213,466
Mortgage servicing rights, net..................... 2,198,260
Prepaid expenses and other assets.................. 4,198,856
Goodwill........................................... 64,129,701
Real estate acquired in settlement of loans, net... 331,496
Deferred acquisition costs and other assets........ 2,521,769 328,520
-------------- --------
Total assets................................... $1,378,716,141 $422,592
============== ========
Liabilities and stockholders' equity
Liabilities:
Deposits.......................................... $ 970,821,417 $
Federal Home Loan Bank borrowings................. 216,500,000
Note payable...................................... 20,000,000
Senior notes...................................... 60,000,000
Custodial escrow balances......................... 4,010,366
Other liabilities................................. 5,572,079 182,549
-------------- --------
Total liabilities.............................. 1,276,903,862
Commitments and contingencies
Stockholders' 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, 10,080,503 issued and outstanding.... 100,805 --
Capital in excess of par value.................... 94,748,872 260,000
Retained earnings (deficit)....................... 6,655,064 (19,957)
Accumulated other comprehensive income............ 307,538 --
-------------- --------
Total stockholders' equity..................... 101,812,279 240,043
-------------- --------
Total liabilities and stockholders' equity..... $1,378,716,141 $422,592
============== ========
</TABLE>
See accompanying notes.
40
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period from
November 12,
1997 (date of
Year ended inception) to
December 31 December 31
1998 1997
----------- -------------
<S> <C> <C>
Interest income:
Loans................... $42,807,953 $
Investments............. 15,702,142
Interest-bearing
deposits............... 4,210,897
Other................... 373,440
-----------
Total interest income..... 63,094,432
Interest expense:
Deposits................ 28,229,805
Short-term borrowings... 1,886,745
Long-term borrowings.... 8,615,682
-----------
Total interest expense.... 38,732,232
-----------
Net interest income....... 24,362,200
Provision for loan
losses................... 1,021,000
-----------
Net interest income after
provision for loan
losses................... 23,341,200
Noninterest income
Service charges on
deposit accounts....... 15,792,664
Mortgage operations,
net.................... 1,758,089
Income from real estate
operations, net........ 374,318
Other................... 1,270,121
-----------
Total noninterest income.. 19,195,192
Noninterest expense:
Salaries and employee
benefits............... 13,689,847
Occupancy expense....... 2,135,500
Deposit insurance
premium................ 594,969
Data processing......... 1,814,420
Advertising and
promotion.............. 1,411,189
Amortization of
goodwill............... 2,715,172
Postage and supplies.... 2,199,977
Equipment expense....... 1,052,741
Other................... 6,002,704 19,957
----------- --------
Total noninterest
expense.................. 31,616,519 19,957
----------- --------
Income (loss) before
income taxes............. 10,919,873 (19,957)
Income taxes.............. 4,244,852
----------- --------
Net income (loss)......... $ 6,675,021 $(19,957)
=========== ========
Basic and diluted earnings
per common share......... $ 0.88 --
</TABLE>
See accompanying notes.
41
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year ended December 31, 1998 and for the period from
November 12, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Capital in Other Retained Total
Preferred Common Excess of Comprehensive Earnings Stockholders'
Stock Stock Par Value Income (Deficit) Equity
--------- -------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 12,
1997 (inception date).. $ -- $ -- $ -- $ -- $ -- $ --
Contribution from
investors.............. -- -- 260,000 -- -- 260,000
Net loss and
comprehensive loss..... -- -- -- -- (19,957) (19,957)
----- -------- ----------- -------- ---------- ------------
Balance, December 31,
1997................... -- -- 260,000 -- (19,957) 240,043
Original issuance of
common stock,
10,079,703 shares,
(less cost of issuance
of $3,429,417)......... -- 100,797 94,481,180 -- -- 94,581,977
Issuance of common stock
to employees, 800
shares................. -- 8 7,692 -- -- 7,700
Comprehensive income:
Net income............ -- -- -- -- 6,675,021 6,675,021
Other comprehensive
income, net of tax:
Net change in
unrealized gains on
investments available
for sale, net of
taxes of $165,598.... -- -- -- 307,538 -- 307,538
------------
Total comprehensive
income................. 6,982,559
----- -------- ----------- -------- ---------- ------------
Balance, December 31,
1998................... $ -- $100,805 $94,748,872 $307,538 $6,655,064 $101,812,279
===== ======== =========== ======== ========== ============
</TABLE>
See accompanying notes.
42
<PAGE>
SUPERIOR FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
period from
November 12,
1997 (date of
Year ended inception) to
December 31 December 31
1998 1997
------------- -------------
<S> <C> <C>
Operating activities
Net income (loss)................................. $ 6,675,021 $ (19,957)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for loan losses........................ 1,021,000
Deferred income taxes............................ 375,413
Depreciation..................................... 1,027,264
Amortization of mortgage servicing rights........ 144,979
Amortization of premiums on mortgage-backed
securities, net................................. 1,458,467
Amortization of goodwill......................... 2,715,172
Amortization of debt issuance costs.............. 769,500
Gain on sale of real estate...................... (9,115)
Mortgage loans originated for sale............... (39,016,175)
Proceeds from sale of mortgage loans held for
sale............................................ 30,750,271
Gain on sale of loans............................ (162,312)
Gain on sale of investments...................... (12,089)
Increase in accrued interest receivable.......... (1,465,756)
Increase in prepaid expenses and other assets.... (4,657,658)
Increase in other liabilities.................... 2,210,547
------------- ---------
Net cash provided by (used in) operating
activities....................................... 1,824,529 (19,957)
Investing Activities
Increase in loans receivable, net................ (128,032,122)
Principal payments on mortgage-backed
securities...................................... 68,765,626
Proceeds from sale of nine branches.............. (79,044,057)
Proceeds from sale or maturity of available-for-
sale investments................................ 15,903,093
Purchases of available-for-sale investment
securities...................................... (103,086,125)
Purchase of FHLB stock........................... (2,675,700)
Proceeds from sale of FHLB stock................. 4,381,100
Proceeds from sale of real estate................ 371,194
Purchases of premises and equipment.............. (3,923,015)
Purchase of Superior Federal Bank, F.S.B., net of
cash acquired................................... 127,575,515
Deferred acquisition costs....................... -- (145,971)
------------- ---------
Net cash used in investing activities............. (99,764,491) (145,971)
Financing Activities
Net increase in deposits......................... 38,534,397
Proceeds from FHLB borrowings.................... 126,500,000
Proceeds from borrowings under bank debt......... 20,000,000
Proceeds from borrowings under senior notes...... 60,000,000
Proceeds from common stock issued, net........... 94,589,677
Reduction in FHLB borrowings..................... (162,198,000)
Contribution from investors...................... -- 260,000
Net increase in advance payments by borrowers for
taxes and insurance............................. 1,844,826
------------- ---------
Net cash provided by financing activities......... 179,270,900 260,000
------------- ---------
Net increase in cash.............................. 81,330,938 94,072
Cash and cash equivalents at beginning of period.. 94,072 --
------------- ---------
Cash and cash equivalents at end of period........ $ 81,425,010 $ 94,072
============= =========
</TABLE>
See accompanying notes.
43
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Summary of Significant Accounting Policies
Nature of Operations
Superior Financial Corp. ("SFC" or "Company") is a unitary thrift 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-and medium-sized businesses and to
consumers, primarily in Arkansas and 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 Company and 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. 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
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand and interest bearing deposits in other depository institutions.
Interest bearing deposits were $40,514,000 at December 31, 1998.
Liquidity Requirements
Regulations require the Bank to maintain an amount equal to 4% of deposits
(net of loans on deposits) and short-term borrowings in cash and U.S.
Government and other approved securities.
Investments
Investments 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.
44
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments 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 operating results until realized
and reported net of tax as other comprehensive income in stockholders' equity.
Investments 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 mortgage-backed securities included in
investments depends on the amount of interest collected over 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
mortgage-backed securities included in investments 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 an investment available-for-sale declines for reasons
other than temporary market conditions, the carrying value of such an
investment would be written down to current value by a charge to operations.
Gains and losses on the sale of investments available-for-sale are determined
using the specific-identification method.
The Bank did not hold any investments classified as held-to-maturity or as
trading securities at December 31, 1998 and 1997.
Loans Receivable
Loans generally are stated at their unpaid principal balances plus premium
from acquisition less allowance for loan losses and deferred fees. The premium
arising from fair value adjustments of loans in business combinations is being
accreted over the remaining contractual lives of the loans using the level-
yield method adjusted for actual experience.
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.
Uncollectible interest on loans that are contractually past due 90 days or
greater and is not probable of collection is charged off and the loan is
placed on nonaccrual status. Income is subsequently recognized when cash
payments for interests are received. When collectibility is determined to be
probable, the loan is returned to accrual status.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely, and subsequent recoveries, if
any, are credited to the allowance.
45
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The allowance is maintained at a level that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, historical loan loss experience and
current economic and business conditions that may affect the borrowers'
ability to pay or the value of the collateral securing the loans.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred.
Income Taxes
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.
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.
Premises and Equipment
Premises 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. Depreciation expense is included in occupancy expense in the statement
of operations.
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 note
payable 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.
46
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mortgage Servicing Rights
Purchased mortgage 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 mortgage 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 the disaggregated 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 mortgage servicing rights do not
purport to represent the amount that would be realized by a sale of these
assets in the open market. Mortgage 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.
Comprehensive Income
As of January 1, 1998, Company adopted the Financial Accounting Standards
Board Statement No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS 130
establishes new rules for the reporting and display of comprehensive income
and its components; however the adoption of this Statement had no impact on
the Company's net income or stockholders' equity. SFAS 130 requires unrealized
gains or losses on available for sale securities be included in other
comprehensive income. The components of comprehensive income are disclosed in
the Consolidated Statement of Changes in Stockholders' Equity.
Segment Disclosures
On December 31, 1998, the Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 established
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major customers.
As the Company operates in only one segment--community banking--the adoption
of SFAS 131 did not have a material effect on the financial statements or the
disclosure of segment information. All the Company's revenues result from
services offered by its bank subsidiary. No revenues are derived from foreign
countries and no single external customer comprises more than 10% of the
Company's revenues.
Effect of Pending Statements of Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133,
which requires the Company to recognize all derivatives on the balance sheet
at fair value, is effective for years beginning after June 15, 1999. SFAS 133
permits early adoption as of the beginning of any fiscal quarter that begins
after June 1998. The Company expects to adopt FAS 133 effective January 1,
2000. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change
in fair value of the assets, liabilities, or firm commitments through
operating results or recognized in other comprehensive income until the hedged
item is recognized in operating results. The ineffective portions of a
derivative's change in fair value will be immediately recognized in operating
results. The Company has not yet determined what effect the adoption of this
statement will have on its results of operations or financial positions.
47
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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% bank debt
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 and completed a Shelf Registration Statement on
December 10, 1998 to register the common stock and senior notes with the
Securities and Exchange Commission.
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 operations of
the Company.
The following table sets forth selected unaudited financial information for
the Company as if the above described transaction had been consummated as of
January 1, 1997 and January 1, 1998, with adjustments primarily for interest
charges attributable to the financing of the purchase and amortization of
goodwill. The pro forma data is based on pre-acquisition earnings and is
therefore not necessarily indicative of future performance.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(dollars in thousands)
<S> <C> <C>
Total revenue....................................... $ 108,547 $ 106,944
Income before income taxes.......................... 6,681 12,831
Net income.......................................... 2,898 7,777
Earnings per common share-diluted................... 0.29 0.77
</TABLE>
During the third quarter of 1998, the Company completed the sale of nine (9)
branch facilities located in Oklahoma and Arkansas. The sale of these branches
resulted in a gain of $4.5 million which was recorded as an adjustment to the
purchase price allocation for the acquisition of the Bank and resulted in a
related reduction in goodwill. The total deposits for the 9 branches sold were
approximately $84.5 million. These deposits were funded by the Company through
the reduction of interest bearing deposits held by the Company at the Federal
Home Loan Bank. In addition, after the completion of an appraisal in the third
quarter of 1998, the Company recorded an adjustment to the purchase price
allocation based on the fair value of the Bank's headquarters building in Ft.
Smith. This resulted in a $5.7 million increase to office premises and
equipment and an equal reduction to goodwill.
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 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.
48
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimated fair values of financial instruments at December 31, 1998,
consist of the following:
<TABLE>
<CAPTION>
Carrying Estimated Fair
Value Value
----------- --------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents....................... $81,425,010 $81,425,010
Loans receivable, net........................... 815,161,112 820,691,833
Investments available-for-sale, net............. 364,061,312 364,061,312
Accrued interest receivable..................... 7,525,559 7,525,559
Federal Home Loan Bank stock.................... 10,949,600 10,949,600
Financial liabilities:
Demand deposits................................. 444,593,896 444,593,896
Time deposits................................... 526,227,521 527,730,970
Federal Home Loan Bank borrowings............... 216,500,000 216,500,000
Notes payable................................... 80,000,000 80,755,886
Off-balance sheet financial instruments......... 3,348,000 3,348,000
</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.
The fair value of mortgage-backed securities, collateralized mortgage
obligations and trust preferred stock included in investments available-for-
sale 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, Federal Home
Loan Bank borrowings and notes payable 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, 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.
49
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Loans Receivable and Financial Instruments with Off-Balance Sheet Risk
Loans receivable consisted of approximately the following at December 31,
1998:
<TABLE>
<S> <C>
First mortgage loans (principally conventional):
Collateralized by one-to-four family residences................ $484,324,000
Collateralized by other properties............................. 40,569,000
Construction loans............................................. 21,610,000
Other.......................................................... 2,753,000
------------
549,256,000
------------
Undisbursed portion of construction loans...................... (8,443,000)
------------
Total first mortgage loans..................................... 540,813,000
Consumer and other loans:
Automobile..................................................... 174,316,000
Savings........................................................ 6,624,000
Home equity and second mortgage................................ 29,494,000
Commercial, financial, and agricultural........................ 10,800,000
Other.......................................................... 63,365,000
------------
Total consumer and other loans................................. 284,599,000
Deferred loan costs, net....................................... 220,882
Allowance for loan losses...................................... (10,471,770)
------------
Loans receivable, net.......................................... $815,161,112
============
</TABLE>
Loans to directors and executive officers totaled $1,988,330 at December 31,
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 released. Loans held for sale at December 31,
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.
50
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $38,581,000 and
standby letters of credit of approximately $3,348,000 at December 31, 1998.
5. Mortgage Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of these loans at
December 31, 1998 are summarized as follows:
<TABLE>
<S> <C>
FHLMC........................................................... $ 59,069,544
GNMA............................................................ 109,088,314
Private investors............................................... 21,906,354
------------
$190,064,212
============
</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 cash 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
$3,047,000 at December 31, 1998. Of the loans serviced by the Bank at December
31, 1998, approximately $3,675,000 were sold with recourse.
Errors and omissions and fidelity bond insurance coverage under the
Company's loan servicing bond was $2,000,000 at December 31, 1998.
Additionally, at December 31, 1998, the Company was covered by an excess
liability umbrella policy in the amount of $20 million.
6. Investments Available-for-Sale
The amortized cost and estimated fair value of investments available-for-
sale are summarized as follows at December 31, 1998:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
GNMA....................... $ 75,818,061 $ 103,255 $ (621,059) $ 75,300,257
FNMA....................... 165,168,316 1,161,525 (242,869) 166,086,972
FHLMC...................... 55,908,327 549,249 (486,105) 55,971,471
CMOs....................... 59,130,262 56,325 (47,185) 59,139,402
Trust Preferred Stock...... 7,563,210 -- -- 7,563,210
------------ ---------- ----------- ------------
$363,588,176 $1,870,354 $(1,397,218) $364,061,312
============ ========== =========== ============
</TABLE>
51
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amortized cost and estimated fair value by contractual maturity of
investments available-for-sale at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less........................... $ -- $ --
Due from one year to five years................... 3,209,000 3,209,000
Due from five years to ten years.................. 55,485,000 55,930,000
Due after ten years............................... 304,894,000 304,922,000
------------ ------------
Totals.......................................... $363,588,000 $364,061,000
============ ============
</TABLE>
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
For purposes of the maturity table, investments which are not due at a
single maturity date have been allocated over maturity groupings based on
anticipated maturities. The investments may mature earlier than their weighted
average contractual maturities because of principal prepayments.
Mortgage-backed securities with carrying values of approximately
$182,456,000 at December 31, 1998 were subject to adjustable rates.
The carrying value of mortgage-backed securities pledged for letters of
credit, treasury, tax and loan accounts, and public fund deposits at December
31, 1998 was approximately $13,356,000.
7. Allowance for Loan Losses
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<S> <C>
Balance, January 1, 1998...................................... $ --
Allowance resulting from acquisition of Bank on April 1,
1998....................................................... 10,592,718
Provision for loan losses................................... 1,021,000
Charge-offs, net of recoveries.............................. (1,141,948)
-----------
Balance, December 31, 1998.................................. $10,471,770
===========
</TABLE>
8. Premises and Equipment
Premises and equipment consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Land............................................................ $ 6,114,646
Buildings and improvements.................................... 15,217,095
Furniture and equipment....................................... 5,067,859
Construction in progress...................................... 841,130
-----------
27,240,730
Accumulated depreciation...................................... (1,027,264)
-----------
Premises and equipment, net................................... $26,213,466
===========
</TABLE>
52
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Debt Issuance Costs
At December 31, 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
Million
Colonial $60 Million
Bank Note 8.65% Senior
Payable Notes
--------- ---------------
<S> <C> <C> <C>
Capitalized debt issuance costs................... $ 404,742 $2,465,272
Amortization...................................... (404,742) (364,758)
--------- ----------
Net debt issuance costs........................... $ -- $2,100,514
========= ==========
</TABLE>
10. Deposits
Deposits consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Demand and NOW accounts, including noninterest-bearing
deposits of $75,851,452..................................... $283,030,331
Money market................................................. 60,391,549
Statement and passbook savings............................... 101,172,016
Certificates of deposit...................................... 526,227,521
------------
$970,821,417
============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was $60,562,838 at December 31, 1998.
At December 31, 1998, the scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<S> <C>
1999......................................................... $433,928,544
2000......................................................... 54,242,175
2001......................................................... 22,376,735
2002......................................................... 9,111,111
2003......................................................... 5,200,087
Thereafter................................................... 1,368,869
------------
$526,227,521
============
</TABLE>
11. Federal Home Loan Bank ("FHLB") Borrowings
The Bank had borrowings from the FHLB as follows at December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Interest Rate Borrowings
---------------- ------------
<S> <C> <C>
Maturing in year ending December 31:
1999........................................ 4.95% $ 12,000,000
2000........................................ 4.95 31,500,000
2001........................................ 4.94 18,000,000
2002........................................ -- --
Thereafter.................................. 5.17% 155,000,000
------------
$216,500,000
============
</TABLE>
53
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 December 31, 1998, the Bank has unused commitments totaling
$50 million which expire on March 31, 1999. There is no commitment fee to
maintain this credit line.
12. Long Term Debt
At December 31, 1998, long term debt consisted of a $20 million note payable
to Colonial Bank ("Colonial Note") and $60 million of Senior Notes ("Senior
Notes"). These notes are obligations of the parent company, Superior Financial
Corp.
The $20 million Colonial Note bears interest at LIBOR plus 1.75% (6.81% at
December 31, 1998) and requires quarterly interest payments. In January 1999,
the interest rate was reduced to LIBOR plus 1.25%. 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 December 31, 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 that began October 1, 1998. The entire principal balance is
due April 1, 2003. The agreement requires the Company to 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 December
31, 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 investments available-for-sale 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 for dividends. At December 31, 1998, the
Company was not in violation of these covenants.
13. Regulatory Matters
The Company is a unitary thrift holding company and, as such, is subject to
regulation, examination and supervision by the Office of Thrift Supervision
("OTS").
The Bank is also subject to various regulatory requirements administered by
the OTS. 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) and Tier
1 to risk weighted assets (as defined). Management believes, as of December
31, 1998, that the Bank meets all capital adequacy requirements to which it is
subject.
54
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The most recent notification from the 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 Company's and Bank's actual capital amounts and ratios as of December
31, 1998 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
Required to be
Categorized as
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Company Bank Purposes Provisions
------------- -------------- ------------------ -------------------
Actual Actual
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
------- ----- -------- ----- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Tangible capital to
adjusted total
assets................ $37,389 2.85% $104,324 7.99% $ 19,589 1.5% N/A N/A
Core capital to
adjusted total
assets................ 37,389 2.85 104,324 7.99 39,178 4.0 $ 65,296 5.0%
Total capital to risk
weighted assets....... 47,861 5.50 114,770 16.70 54,975 8.0 68,719 10.0
Tier I capital to risk
weighted assets....... 37,389 4.30 104,324 15.18 N/A N/A 59,231 6.0
</TABLE>
14. Income Taxes
Included in other liabilities are deferred income taxes which reflect the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
liabilities and assets as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
Prepaid assets................................................... $261,299
Goodwill amortization............................................ 517,698
Unrealized gain on investments available-for-sale................ 165,598
Premises and equipment........................................... 7,396
--------
Total deferred liabilities..................................... 951,991
Deferred tax assets:
Accrued bonuses.................................................. 9,190
Allowance for loan losses........................................ 390,941
Mortgage servicing rights........................................ 10,659
Other............................................................ 190
--------
Total deferred tax assets...................................... 410,980
--------
Net deferred tax liabilities....................................... $541,011
========
</TABLE>
55
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the provision for income taxes for the year ended
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Current:
Federal......................................................... $3,242,030
State........................................................... 627,409
----------
Total current................................................. 3,869,439
Deferred:
Federal 295,110
State........................................................... 80,303
----------
375,413
----------
$4,244,852
==========
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. Federal statutory tax rates to income tax expense for the
year ended December 31, 1998 is:
<TABLE>
<S> <C>
Tax at U.S. statutory rate............................................. 35.0%
State income tax expense, net of Federal income tax benefit............ 3.9
----
38.9%
====
</TABLE>
The Company files a consolidated federal income tax return with the Bank.
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. Earnings Per Common Share
The Company computes earnings per share ("EPS") in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128. Basic EPS is computed by
dividing reported earnings available to common stockholders by weighted
average shares outstanding. No dilution for any potentially dilutive
securities is included. Diluted EPS includes the dilutive effect of stock
options. In computing dilution for stock options, the average share price is
used for the period presented.
Basic and diluted earnings per common share is computed as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended
December 31,
1998
------------
<S> <C>
Common shares--weighted averages (basic)........................ 7,594,520
Common share equivalents--weighted averages..................... --
Common shares weighted average (diluted)........................ 7,594,520
Net income...................................................... $6,675,021
Basic and diluted earnings per common share..................... $ 0.88
==========
</TABLE>
16. Mortgage Servicing Rights
Following is a summary of the changes in purchased mortgage servicing rights
follows:
<TABLE>
<S> <C>
Balance, January 1, 1998......................................... $ --
Acquired in Bank acquisition on April 1, 1998.................. 2,343,239
Amortization................................................... (144,979)
----------
Balance, December 31, 1998..................................... $2,198,260
==========
</TABLE>
56
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. Commitments and Contingencies
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 December 31, 1998 follows:
<TABLE>
<S> <C>
1999.............................................................. $ 527,102
2000.............................................................. 431,340
2001.............................................................. 415,480
2002.............................................................. 258,457
2003.............................................................. 197,237
Thereafter........................................................ 1,589,391
----------
$3,419,007
==========
</TABLE>
On April 1, 1998, the Company became the legal successor to NationsBank's
right and interest in the related proceedings brought under the action
Superior Federal Bank, F.S.B. vs. United States (No. 95-769C) (the "Goodwill
Litigation"). Within five (5) business days following the Company's receipt of
payment pursuant to irrevocable settlement or other resolution of the Goodwill
Litigation by final judgment subject to no further appeal, and, as further
consideration for the sale of the Bank to the Company, the Company shall pay
NationsBank fifty percent (50%) of the "net recovery" from the Goodwill
Litigation. "Net recovery" shall be the gross aggregate amount the Company
receives from such settlement or resolution, net of the total litigation
expenses incurred and paid by the Company after the Closing Date. "Total
litigation expense" shall include, without limitation, attorneys' fees, court
costs, expenses, fees of experts and consultants, filing fees and all other
costs reasonably incurred in prosecution of the Goodwill Litigation.
The Company and its legal counsel are unable to estimate the amount or
likelihood of any potential settlement, if any, that may result from the
Goodwill Litigation. Although the outcome of the Goodwill Litigation cannot be
determined, the Company's legal counsel and management are of the opinion that
such final outcome should not have a material effect on the Company's results
of operations or financial condition.
The Company is involved in various lawsuits and litigation matters on an
ongoing basis as a result of its day-to-day operations. However, the Company
does not believe that any of these or any threatened lawsuits and litigation
matters will have a materially adverse effect on the Company or its business.
57
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Supplemental Disclosure of Cash Flow Information and Noncash Activity
Cash Flow Information
The Company purchased all of the capital stock of Superior Federal Bank,
F.S.B. on April 1, 1998. In conjunction with the acquisition, liabilities were
assumed as follows:
<TABLE>
<S> <C>
Fair value of noncash assets acquired...................... $1,081,435,551
Cash acquired.............................................. 288,692,364
Cash paid for the capital stock............................ (162,500,000)
Transaction costs.......................................... (8,757,618)
Excess of investment over fair value of net assets
acquired.................................................. 76,426,482
--------------
Liabilities assumed........................................ $1,275,296,779
==============
Cash paid during the period for:
Interest................................................. $ 37,727,773
Taxes.................................................... $ 4,199,000
Costs paid from the proceeds of the issuance of common
stock and borrowings under the bank debt and senior notes:
Debt issuance costs...................................... $ 2,870,014
Stock issuance costs..................................... $ 3,429,417
Noncash Activity:
Additions to other real estate from settlement of loans.. $ 343,968
Repayment of funds advanced by the Placement Agent and
Lead Investor to pay transaction costs through issuance
of 200,000 shares of common stock....................... $ 1,000,000
Deferred acquisition costs incurred but not paid......... $ 182,549
</TABLE>
19. Employee Benefit Plan
In April 1998 the Company established a qualified retirement plan, with a
salary deferral feature designed to qualify under Section 401 of the Internal
Revenue Code (the "401(k) Plan"). The 401(k) Plan permits the employees of the
Company to defer a portion of their compensation in accordance with the
provisions of Section 401(k) of the Code. Matching contributions may be made
in amounts and at times determined by the Company. Certain other statutory
limitations with respect to the Company's contribution under the 401(k) Plan
also apply. Amounts contributed by the Company for a participant will vest
over four years and will be held in trust until distributed pursuant to the
terms of the 401(k) Plan.
Employees of the Company are eligible to participate in the 401(k) Plan when
they meet certain requirements concerning minimum age and period of credited
service. All contributions to the 401(k) Plan will be invested in accordance
with participant elections among certain investment options. Distributions
from participant accounts will not be permitted before age 59 1/2, except in
the event of death, permanent disability, certain financial hardships or
termination of employment. The Company made matching contributions to the
401(k) Plan during 1998 of $203,863.
20. Stock Option Plan
On June 17, 1998, the Company adopted the 1998 Long-Term Incentive Plan (the
"LTIP"). The LTIP is an omnibus plan administered by the Company's
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
58
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 (1,008,000 total shares limit). 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 (100,800 annual shares limit). 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 (33,932 annual restricted shares limit). As
of December 31, 1998 there were no shares granted or exercisable under the
LTIP.
As of December 31, 1998, 487,500 options were granted to the Chairman and
Chief Executive Officer of the Company and 243,750 options were granted to the
President of the Company pursuant to their Founder's Agreements and Employment
Agreements, respectively. Those options were issued before the 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 exercise price of these
options is $10.00 per share. These stock options are not exercisable unless
the following occurs:
<TABLE>
<CAPTION>
Number of
Shares
Exercisable
-----------
<S> <C>
Successful acquisition of the Bank and consummation of public
offering of equity securities................................ 292,500
Company's stock reaches price of $15 per share................ 146,250
Company's stock reaches price of $20 per share................ 146,250
Company's stock reaches price of $25 per shares............... 146,250
</TABLE>
These stock options have a term of 10 years. As of December 31, 1998,
292,500 stock options were exercisable.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123). Under the provisions of SFAS No. 123,
companies can elect to account for stock-based compensation plans using a fair
value based method or continue measuring compensation expense for those plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123
requires that companies electing to continue using the intrinsic value method
must make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting had been applied. The Company elected to
account for its stock-based compensation plans using the intrinsic value
method. Accordingly, no compensation cost has been recognized for the stock
option plans. The pro forma effects on reported net income and earnings per
share for the year ended December 31, 1998 assuming the Company had elected to
account for its stock option grants in accordance with SFAS No. 123 would have
been net income of $6,441,509 or $0.85 basic and diluted earnings per share.
Such pro forma effects are not necessarily indicative of the effect on future
years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for the 731,250 options granted in 1998: dividend yield
of 0%; expected volatility of 0%; risk-free interest rate of 6.73% and
expected life of 10 years.
59
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
21. Parent Company Financial Information
Presented below are the condensed balance sheets, statements of operations
and cash flows for the parent company, Superior Financial Corp., as of
December 31, 1998 and 1997 and for the year ended December 31, 1998 and for
the period from November 12, 1997 (date of inception) to December 31, 1997.
<TABLE>
<CAPTION>
1998 1997
--------- -------
(In Thousands)
<S> <C> <C>
Balance Sheets
Assets
Cash and cash equivalents................................. $ 3,848 $ 94
Investment in subsidiary.................................. 168,968 --
Investment securities..................................... 5,330 --
Other..................................................... 5,160 329
--------- -----
Total assets............................................ $ 183,306 $ 423
========= =====
Liabilities and Stockholders' Equity
Notes payable............................................. $ 80,000 $ --
Accrued interest and other liabilities.................... 1,494 183
--------- -----
Total liabilities....................................... 81,494 183
Stockholders' equity........................................ 101,812 240
--------- -----
Total liabilities and stockholders' equity.................. $ 183,306 $ 423
========= =====
<CAPTION>
1998 1997
--------- -------
(In thousands)
<S> <C> <C>
Statements of Operations
Income
Dividends from subsidiary................................. $ 4,000 $ --
Expenses
Interest, net............................................. 5,582 --
Other..................................................... 194 20
--------- -----
Total expenses.......................................... 5,776 20
Income (loss) before income tax benefit and equity in
undistributed earnings of subsidiary....................... (1,776) (20)
Income tax benefit.......................................... 2,291 --
Equity in undistributed earnings of subsidiary.............. 6,160 --
--------- -----
Net income (loss)........................................... $ 6,675 $ (20)
========= =====
</TABLE>
60
<PAGE>
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1998 1997
-------- -----
(In thousands)
<S> <C> <C>
Statements of Cash Flows
Operating Activities
Net income (loss)............................................ $ 6,675 $ (20)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Undistributed earnings of subsidiary........................ (6,160) --
Increase in other assets.................................... (4,831) --
Increase in accrued interest and other liabilities.......... 1,311 --
-------- -----
Net cash used in operating activities....................... (3,005) (20)
Investing Activities
Deferred acquisition costs.................................. -- (146)
Purchase of investment securities........................... (5,330) --
Purchase of Superior Federal Bank, F.S.B.................... (162,500) --
-------- -----
Net cash used in investing activities....................... (167,830) (146)
Financing Activities
Contribution from investors................................. -- 260
Proceeds from common stock issued, net...................... 94,589 --
Proceeds from notes payable................................. 80,000 --
Net cash provided by financing activities................... 174,589 260
Net increase in cash........................................ 3,754 94
Cash and cash equivalents at beginning of period............ 94 --
-------- -----
Cash and cash equivalents at end of period.................. $ 3,848 $ 94
-------- -----
Supplemental disclosures of noncash activity:
Deferred acquisition costs incurred but not paid............ $ -- $ 183
======== =====
</TABLE>
61
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
In April, 1998, Management of the Company recommended that Ernst & Young LLP
serve as the Company's independent auditor and replace Deloitte & Touche LLP
as the Bank's independent auditor. The Board of Directors approved retaining
Ernst & Young LLP in March, 1998. No report by Deloitte & Touche LLP on the
Bank's financial statements for either of 1996 or 1997 contained an adverse
opinion, disclaimer of opinion, modification or qualification. During the last
two fiscal years there were no disagreements between the Company and Deloitte
& Touch LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
62
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item as to the Company directors is
contained in the Company's proxy statement dated April 12, 1999, under the
captions "Election of Directors" and "Section 16 (a) Beneficial Ownership
Reporting Compliance," and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name, Age and Position and Office Held Present and Principal
Year with the Company and Occupation
Became Director Superior Federal Bank, F.S.B. for the Last Five Years
--------------- ---------------------------- ------------------------------
<C> <C> <S>
C. Stanley Bailey Chairman of the Board, Chief Chief Executive Officer and
49, 1998........ Executive Officer of both Chairman of the Board of the
Superior and Superior Company and the Bank, Fort
Federal Bank, F.S.B. Smith, Arkansas, 1998-
present, Chief Financial
Officer and Executive Vice
President of Hancock Holding
Company and Hancock Bank,
Gulfport, Mississippi, 1995-
1998, Vice Chairman of the
Board of Directors, AmSouth
Bancorporation and AmSouth
Bank, Birmingham, Alabama
1971-1994.
C. Marvin Scott President and Director, of President and Director of the
49, 1998........ both Superior and Superior Company and the Bank, Fort
Federal Bank, F.S.B. Smith, Arkansas, 1998-
present, Chief Retail Officer
and Senior Vice President,
Hancock Holding Company and
Hancock Bank, Gulfport
Mississippi, 1996-1998;
Executive Vice President--
Consumer Banking, AmSouth
Bank Birmingham, Alabama
1988-1996.
Rick D. Gardner Chief Financial Officer and Chief Financial Officer and
39, 1998........ Treasurer of Superior and Treasurer of the Company and
Superior Federal Bank, the Bank, Fort Smith,
F.S.B. Arkansas, 1998-present, Chief
Executive Officer, First
Commercial Mortgage Company
Little Rock, Arkansas 1997-
1998; Chief Financial
Officer, First Commercial
Mortgage Company, Little
Rock, Arkansas, 1996-1997;
Chief Financial Officer,
Metmor Financial Inc., Kansas
City, Missouri, 1990-1995.
</TABLE>
Item 11. Executive Compensation
The information required by this item is contained in the Company's proxy
statement dated April 12, 1999 under the caption "Executive Compensation" and
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained in the Company's proxy
statement dated April 12, 1999, under the caption "Voting Securities and
Principal Stockholders" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is contained in the Company's proxy
statement dated April 12, 1999, under the captions "Compensation committee
Interlocks and Insider Participation" and "Executive Compensation" and is
incorporated herein by reference.
63
<PAGE>
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995:
This report contains "forward-looking statements" within the meaning of the
federal securities laws. The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among other things, the following
possibilities: (i) deposit attrition, customer loss, or revenue loss in the
ordinary course of business; (ii) increases in competitive pressure in the
banking industry; (iii) costs or difficulties related to the separation of the
business of the Bank from the business of NationsBank are greater than
expected and the Company's ability to attract new business through merger
related customer dislocation is less than expected; (iv) changes in the
interest rate environment which reduce margins; (v) general economic
conditions, either nationally or regionally, that are less favorable then
expected, resulting in, among other things, a deterioration in credit quality,
vendor representations, technological advancements, and economic factors
including liquidity availability; (vi) changes which may occur in the
regulatory environment; (vii) a significant rate of inflation (deflation);
(viii) changes in the securities markets and (ix) contingencies and losses
specifically related to Year 2000 readiness. When used in this Report, the
words "believes," "estimates," "plans," "expects," "should," "may," "might,"
"outlook," and "anticipates," and similar expressions as they relate to the
Company (including its subsidiaries), or its management are intended to
identify forward-looking statements.
64
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
<TABLE>
<S> <C>
Superior Financial Corp.
Audited Financial Statements December 31, 1998
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for year ended December 31, 1998
and for the period from November 12, 1997 (date of inception) to
December 31, 1997
Consolidated Statements of Changes in Stockholders' Equity for the year
ended December 31, 1998 and for the period from November 12, 1997 (date
of inception) to December 31, 1997
Consolidated Statement of Cash Flows for the year ended December 31, 1998
and for the period from November 12, 1997 (date of inception) to
December 31, 1997
Notes to Consolidated Financial Statements, including parent company only
information.
2. Financial Statements Schedules
Superior Federal Bank, F.S.B.
Audited Financial Statements March 31, 1998
Report of Independent Auditors
Consolidated Statement of Operations for the three months ended March 31,
1998
Consolidated Statement of Changes in Stockholder's Equity for the three
months ended March 31, 1998
Consolidated Statement of Cash Flows for the three months ended March 31,
1998
Notes to Consolidated Statements of Operations, Changes in Stockholder's
Equity and Cash Flows for the three months ended March 31, 1998.
December 31, 1997
Independent Auditors' Report
Consolidated Statement of Financial Condition as of December 31, 1997
Consolidated Statement of Income for the period from January 7, 1997 to
December 31, 1997
Consolidated Statement of Stockholder's Equity for the period from
January 7, 1997 to December 31, 1997
Consolidated Statement of Cash Flows for the period from January 7, 1997
to December 31, 1997
Notes to Consolidated Financial Statements for the period from January 7,
1997 to December 31, 1997
December 31, 1996 and 1995
Independent Auditors' Report
Consolidated Statement of Financial Condition as of December 31, 1996
Consolidated Statements of Income for the years ended December 31, 1996
and 1995
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995
Notes to Consolidated Financial Statements for the years ended December
31, 1996 and 1995
</TABLE>
65
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <C> <S>
Exhibit 3 -- Articles of Incorporation and Bylaws:
-- Restated and Amended Certificate of Incorporation of
3.1 Superior Financial Corp. ("Superior")
3.2 -- Bylaws of Superior
Exhibit 4 -- Instruments defining the rights of security holders:
4.1 -- Form of Equity Subscription Agreement among Superior, Keefe,
Bruyette & Woods, Inc. ("KBW") and various investors named
therein, 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 -- Form of Common Stock Certificate of Superior
4.4 -- Article 4 of Superior's Amended amd Restated Certficate of
Incorporation (included in Exhibit 3.1)
4.5 -- All instruments defining the rights of holders of long-term
debt of Superior and its subsidiaries. Not filed pursuant
to clause 4 (iii) of Item 601(b) of Regulation S-K; to be
furnished upon request of the Commission
Exhibit 10 -- Material Contracts:
10.1 -- Custody and Security Agreement between Superior and Bank of
New York ("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 Financial Stocks,
Inc., dated December 2, 1997
10.6 -- Agreement between C. Marvin Scott and Superior, dated
January 1, 1998
10.7 -- 1998 Long Term Incentive Plan
10.8 -- Stock Purchase Agreement by and among Superior, NB Holdings
Corporation and Superior Federal Bank, F.S.B. providing for
the acquisition of the stock of Superior Federal Bank,
F.S.B. by Superior, dated as of December 3, 1997
10.9 -- Agreement between Rick D. Gardner and Superior dated
September 21, 1998
Statement Regarding Computation of Ratio of Earnings to
Exhibit 12 -- Fixed Charges
Exhibit 16 -- Letter regarding change in certifying accountant
16.1 -- Letter of Deloitte & Touche LLP
Exhibit 21 -- List of subsidiaries of the Registrant.
Exhibit 24 -- Power of Attorney.
Exhibit 27 -- Financial Data Schedules
</TABLE>
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Fort Smith, Arkansas on the 30th day of March, 1999.
SUPERIOR FINANCIAL CORP.
/s/ C. Stanley Bailey
By: _________________________________
C. Stanley Bailey
Its Chairman of the Board of
Directors and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ C. Stanley Bailey Chairman of the Board of **
____________________________________ Directors and Chief
C. Stanley Bailey Executive Officer
/s/ C. Marvin Scott President and Director **
____________________________________
C. Marvin Scott
/s/ Rick D. Gardner Chief Financial Officer and **
____________________________________ Treasurer (Principal
Rick D. Gardner Financial Officer and
Principal Accounting
Officer)
* Director **
____________________________________
Boyd W. Hendrickson
* Director **
____________________________________
John M. Stein
* Director **
____________________________________
David E. Stubblefield
</TABLE>
* The undersigned, acting pursuant to a power of attorney, has signed this
Annual Report on Form 10-K for and on behalf of the persons indicated above
as such persons' true and lawful attorney-in-fact and in their names, places
and stead, in the capacities indicated above and on the date indicated
below.
/s/ C. Stanley Bailey
*By: __________________________
C. Stanley Bailey
Attorney-in-Fact
** Dated: March 30, 1999
67
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FINANCIAL STATEMENT SCHEDULES
TO FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 0-25239
----------------
SUPERIOR FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<S> <C>
Superior Federal Bank, F.S.B.
Audited Financial Statements March 31, 1998
Report of Independent Auditors
Consolidated Statement of Operations for the three months ended March 31,
1998
Consolidated Statement of Changes in Stockholder's Equity for the three
months ended March 31, 1998
Consolidated Statement of Cash Flows for the three months ended March 31,
1998
Notes to Consolidated Statements of Operations, Changes in Stockholder's
Equity and Cash Flows for the three months ended March 31, 1998.
December 31, 1997
Independent Auditors' Report
Consolidated Statement of Financial Condition as of December 31, 1997
Consolidated Statement of Income for the period from January 7, 1997 to
December 31, 1997
Consolidated Statement of Stockholder's Equity for the period from
January 7, 1997 to December 31, 1997
Consolidated Statement of Cash Flows for the period from January 7, 1997
to December 31, 1997
Notes to Consolidated Financial Statements for the period from January 7,
1997 to December 31, 1997
December 31, 1996 and 1995
Independent Auditors' Report
Consolidated Statement of Financial Condition as of December 31, 1996
Consolidated Statements of Income for the years ended December 31, 1996
and 1995
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995
Notes to Consolidated Financial Statements for the years ended December
31, 1996 and 1995
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Audit Committee
of the Board of Directors
Superior Federal Bank, F.S.B.
We have audited the accompanying consolidated statement of operations of
Superior Federal Bank, F.S.B. and Subsidiary (the "Bank") and the related
consolidated statements of changes in stockholder's equity and cash flows for
the three months ended March 31, 1998. These consolidated financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and changes in stockholder's equity of Superior Federal Bank,
F.S.B. and Subsidiary and their cash flows for the three months ended March
31, 1998 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Little Rock, Arkansas
July 22, 1998
S-1
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended March 31, 1998
<TABLE>
<S> <C>
Interest income:
Loans:
First mortgage loans............................................ $ 8,194,236
Consumer and other loans........................................ 5,534,227
Mortgage-backed securities....................................... 5,959,658
Interest-bearing deposits........................................ 831,649
Other............................................................ 221,463
-----------
Total interest income........................................... 20,741,233
Interest expense:
Deposits......................................................... 9,657,058
Short-term borrowings............................................ 230,363
Long-term borrowings............................................. 1,818,863
-----------
Total interest expense.......................................... 11,706,284
-----------
Net interest income............................................... 9,034,949
Provision for loan losses (Note 2)................................ 7,765,000
-----------
Net interest income after provision for loan losses............... 1,269,949
Other income:
Deposit account and other fees................................... 4,781,705
Loan servicing fees, net......................................... 443,145
Income from real estate operations, net.......................... 22,345
Other............................................................ 268,861
-----------
5,516,056
Other expense:
Salaries and employee benefits................................... 4,528,829
Net occupancy expense of premises................................ 817,487
Deposit insurance premium........................................ 151,683
Data processing.................................................. 784,126
Advertising and promotion........................................ 499,597
Amortization of core deposit premium............................. 217,519
Amortization of goodwill......................................... 938,551
Postage and supplies............................................. 683,608
Equipment expense................................................ 500,348
Other............................................................ 1,711,196
-----------
Total other expenses............................................ 10,832,944
-----------
Loss before income taxes benefit.................................. (4,046,939)
Income taxes benefit.............................................. 281,794
-----------
Net loss.......................................................... $(3,765,145)
===========
</TABLE>
See accompanying notes.
S-2
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Three months ended March 31, 1998
<TABLE>
<CAPTION>
Capital in Accumulated
Excess of Other Total
Common Par Comprehensive Retained Stockholders'
Stock Value Income (loss) Earnings Equity
------ ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... $1,000 $150,603,054 $1,887,334 $9,340,588 $161,831,976
Comprehensive income
(loss):
Net loss.............. (3,765,145) (3,765,145)
Other comprehensive
income (loss), net of
tax:.................
Net change in
unrealized gains on
securities available
for sale............. 931,022 931,022
------------
Total comprehensive
income (loss).......... (2,834,123)
------ ------------ ---------- ---------- ------------
Balance, March 31,
1998................... $1,000 $150,603,054 $2,818,356 $5,575,443 $158,997,853
====== ============ ========== ========== ============
</TABLE>
See accompanying notes.
S-3
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 1998
<TABLE>
<S> <C>
Operating activities
Net loss........................................................ $ (3,765,145)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for loan losses..................................... 7,765,000
Depreciation.................................................. 504,676
Amortization of loan servicing rights......................... 108,001
Amortization of core deposit premium.......................... 217,519
Amortization of premiums on mortgage-backed securities, net... 499,361
Amortization of goodwill...................................... 938,551
Loss on sales of real estate.................................. 14,433
Gain on sales of loans........................................ (34,176)
Mortgage loans originated for resale.......................... 6,956,469
Proceeds from sale of mortgage loans held for sale............ (5,456,725)
Decrease in accrued interest receivable....................... 178,881
Decrease in prepaid expenses and other assets................. 6,308,423
Increase in other liabilities................................. 221,375
------------
Net cash provided by operating activities................... 14,456,643
Investing activities
Decrease in loans receivable, net............................... $ (2,407,484)
Principal payments on mortgage-backed securities................ 18,605,494
Proceeds from sales of loans.................................... 5,490,901
Proceeds from sales of property and equipment................... 56,084
Proceeds from sales of real estate.............................. 76,115
Purchases of office property and equipment...................... (672,179)
------------
Net cash provided by investing activities................... 21,148,931
Financing activities
Net change in deposits.......................................... 34,332,698
Borrowings of Federal Home Loan Bank Advances................... 147,198,000
Net decrease in advance payments by borrowers for taxes and
insurance...................................................... (1,764,266)
------------
Net cash provided by financing activities................... 179,766,432
------------
Net increase in cash............................................ 215,372,006
Cash and cash equivalents at December 31, 1997.................. 73,320,358
------------
Cash and cash equivalents at March 31, 1998..................... $288,692,364
============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest...................... $ 11,648,661
============
Cash paid during the period for income taxes.................. 1,407,681
============
</TABLE>
See accompanying notes.
S-4
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS OF
OPERATIONS, CHANGES IN STOCKHOLDER'S EQUITY AND CASH FLOWS
Three months ended March 31, 1998
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 December 3, 1997, NationsBank entered into an agreement with SFC
Acquisition Corporation ("SFC") whereby SFC acquired 100% of the issued and
outstanding shares of common stock of the Bank. The transaction closed on
April 1, 1998. The transaction was accounted for using the purchase method of
accounting for business combinations.
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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may 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.
Interest Revenue Recognition
Loans generally are stated at their unpaid principal balances plus premium
from acquisition less allowance for loan losses and deferred fees. The premium
arising from fair value adjustments of loans in business combinations is being
accreted over the remaining contractual lives of the loans using the level-
yield method adjusted for actual experience.
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.
S-5
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS OF
OPERATIONS, CHANGES IN STOCKHOLDER'S EQUITY AND CASH FLOWS--(Continued)
Three months ended March 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(continued)
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.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred.
Goodwill
Goodwill is being amortized on a straight-line basis over 25 years.
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.
2. 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...................................... $ 4,659,949
Provision for losses........................................ 7,765,000
Charge-offs, net of recoveries.............................. (1,924,949)
-----------
Balance, March 31, 1998....................................... $10,500,000
===========
</TABLE>
S-6
<PAGE>
SUPERIOR FEDERAL BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS OF
OPERATIONS, CHANGES IN STOCKHOLDER'S EQUITY AND CASH FLOWS--(Continued)
Three months ended March 31, 1998
2. ALLOWANCE FOR LOAN LOSSES--(continued)
During the first quarter of 1998, the Bank made certain changes in
accounting estimates totaling approximately $7.7 million due to the rapid
deterioration of the performance of automobile loans. The changes included
increasing the provision for loan losses for the charge-off of problem
automobile loans and liquidation losses of repossessed automobiles of
approximately $1.9 million following a change in management's approach to
handling delinquencies. This change resulted in expedited repossession and
rapid wholesaling of collateral. Management also increased the provision for
loan losses by $4.5 million to reflect management's assessment of the
increasing risk of loan losses due to the greater losses experienced by the
Bank in the automobile portion of the loan portfolio during the first three
months of 1998.
3. INCOME TAXES
The income tax benefit for the period from January 1, 1998 to March 31,
1998, consists of the following:
<TABLE>
<S> <C>
Current:
Federal......................................................... $239,525
State........................................................... 42,269
--------
$281,794
========
</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.
4. 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 $139,574 for the
three month period ended March 31, 1998.
S-7
<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.
/s/ Deloitte & Touche LLP
Little Rock, Arkansas
January 16, 1998
S-8
<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.
S-9
<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.
S-10
<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.
S-11
<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.
S-12
<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
S-13
<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.
S-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
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.
S-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
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.
S-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
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.
S-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
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>
S-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
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...................................... 11,301,694
Furniture and equipment......................................... 3,851,173
-----------
Total.......................................................... 20,050,275
Accumulated depreciation........................................ (2,068,445)
-----------
Office properties and equipment, net........................... $17,981,830
===========
</TABLE>
S-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
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>
S-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
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>
S-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
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.
S-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
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>
S-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
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.
* * * * * *
S-24
<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 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, 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.
/s/ Deloitte & Touche LLP
Little Rock, Arkansas
January 13, 1997
S-25
<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.
S-26
<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.
S-27
<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.
S-28
<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.
S-29
<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.
S-30
<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.
S-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
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.
S-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
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.
S-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
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
S-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
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>
S-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
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>
S-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
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
passbook 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.
S-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
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.
S-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
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
assets........................... $80,191 6.60% $36,456 3.00% $60,761 5.00%
Total capital to risk weighted
assets........................... $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.
S-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
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.
S-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
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
S-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
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.
* * * * * *
S-42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
EXHIBITS TO FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 0-25239
----------------
SUPERIOR FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibits Description Page
-------- ----------- ------------
<C> <C> <S> <C>
Exhibit 3 -- Articles of Incorporation and Bylaws:
3.1 -- Restated and Amended Certificate of
Incorporation of Superior Financial Corp.
("Superior")................................
3.2 -- Bylaws of Superior...........................
-- Instruments defining the rights of security
Exhibit 4 holders:
4.1 -- Form of Equity Subscription Agreement among
Superior, Keefe, Bruyette & Woods, Inc.
("KBW") and various investors named therein,
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 -- Form of Common Stock Certificate of
Superior....................................
4.4 -- Article 4 of Superior's Amended and Restated
Certificate of Incorporation (included in
Exhibit 3.1)................................
4.5 -- All instruments defining the rights of
holders of long-term debt of Superior and
its subsidiaries. Not filed pursuant to
clause 4 (iii) of Item 601(b) of Regulation
S-K, to be furnished upon request of the
Commission..................................
Exhibit 10 -- Material Contracts:
10.1 -- Custody and Security Agreement between
Superior and Bank of New York ("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
Financial Stocks, Inc., dated December 2,
1997........................................
10.6 -- Agreement between C. Marvin Scott and
Superior, dated January 1, 1998.............
10.7 -- 1998 Long Term Incentive Plan................
10.8 -- Stock Purchase Agreement by and among
Superior, NB Holdings Corporation and
Superior Federal Bank, F.S.B. providing for
the acquisition of the stock of Superior
Federal Bank, F.S.B. by Superior, dated as
of December 3, 1997.........................
10.9 -- Agreement between Rick D. Gardner and
Superior dated September 21, 1998...........
-- Statement Regarding Computation of Ratio of
Exhibit 12 Earnings to Fixed Charges...................
-- Letter regarding change in certifying
Exhibit 16 accountant
16.1 -- Letter of Deloitte & Touche LLP
Exhibit 21 -- List of subsidiaries of the Registrant.......
Exhibit 24 -- Power of Attorney............................
Exhibit 27 -- Financial Data Schedules.....................
</TABLE>
(b) Reports on Form 8-K. None.
<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.
2
<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
3
<PAGE>
(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
6
<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
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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
4
<PAGE>
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.
5
<PAGE>
(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
6
<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.
7
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<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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(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
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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
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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
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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
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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.
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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
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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
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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.
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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:
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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
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<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,
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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
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<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
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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
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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
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<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
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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
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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
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<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
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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.
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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
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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
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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.
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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
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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
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<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
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<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
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<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
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<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
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<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;
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(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
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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
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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
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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
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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
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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
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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
- --------------------------------------------------------------------------------
-----NUMBER----- [LOGO OF SUPERIOR -----SHARES-----
FINANCIAL CORP.
SFC APPEARS HERE]
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 868161 10 0
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
SUPERIOR FINANCIAL CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
[CORPORATE SEAL OF
SUPERIOR FINANCIAL CORP.
APPEARS HERE]
/s/ Rick D. Gardner /s/ C. Stanley Bailey
Treasurer Chairman and Chief
Executive Officer
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
Transfer Agent
and Registrar
By
Authorized Officer
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SUPERIOR FINANCIAL CORP.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A STATEMENT OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST SHALL BE MADE IN WRITING AND MAY BE MADE
TO THE CORPORATION OR TO THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed
as though they were written out in full according to applicable laws or regulations:
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-________________ Custodian__________________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with
right of survivorship and under Uniform Gifts to Minors
not as tenants in common
Act____________________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------
__________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
__________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________
___________________________________________________________________________________________________________ shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
_________________________________________________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in
the premises.
Dated _________________________________
_________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<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
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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
2
<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.
3
<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 10.8
STOCK PURCHASE AGREEMENT
BY AND AMONG
SFC ACQUISITION CORP.,
NB HOLDINGS CORPORATION
AND
SUPERIOR FEDERAL BANK, F.S.B.
PROVIDING FOR THE ACQUISITION OF THE STOCK OF
SUPERIOR FEDERAL BANK, F.S.B.
BY
SFC ACQUISITION CORP.
DATED AS OF DECEMBER 3, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF SHARES
Page
1.1 General............................................................ 1
1.2 Manner of Payment.................................................. 1
1.3 Delivery of Certificates........................................... 1
1.4 Time and Place of Closing.......................................... 2
1.5 Closing Date....................................................... 2
1.6 Goodwill Litigation; Further Consideration......................... 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PURCHASER
2.1 Organization and Good Standing of Purchaser........................ 2
2.2 Authorization of Agreement......................................... 3
2.3 No Violation....................................................... 3
2.4 Consents and Approvals of Governmental Authorities................. 3
2.5 Legal Proceedings.................................................. 4
2.6 Purchase for Investment............................................ 4
2.7 Disclosure......................................................... 4
2.8 Other Matters...................................................... 4
2.9 Brokers and Finders................................................ 4
2.10 Financing.......................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND SUPERIOR
3.1 Capitalization..................................................... 5
3.2 Ownership of Shares................................................ 5
3.3 Organization and Good Standing of Superior......................... 5
3.4 Subsidiaries....................................................... 6
3.5 Authorization of Agreement......................................... 6
3.6 No Violation....................................................... 6
3.7 Consents and Approvals of Governmental Authorities................. 7
3.8 Legal Proceedings.................................................. 7
3.9 Compliance with Laws............................................... 7
3.10 Financial Statements............................................... 8
3.11 No Adverse Change.................................................. 8
ii
<PAGE>
3.12 Undisclosed Liabilities............................................ 8
3.13 Taxes.............................................................. 9
3.14 Title to Properties................................................ 10
3.15 Software........................................................... 10
3.16 Trademarks and Tradenames.......................................... 10
3.17 Properties......................................................... 11
3.18 Contracts.......................................................... 12
3.19 Benefit Plans...................................................... 13
3.20 Employees.......................................................... 14
3.21 Labor.............................................................. 14
3.22 Environmental Matters.............................................. 14
3.23 Insurance.......................................................... 15
3.24 Disclosure......................................................... 15
3.25 Other Matters...................................................... 16
3.26 Brokers and Finders................................................ 16
ARTICLE IV
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
4.1 Conduct Prior to Closing............................................ 16
4.2 Forbearances........................................................ 17
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Current Information................................................. 19
5.2 Access; Information................................................. 19
5.3 Regulatory Matters.................................................. 20
5.4 Employee Benefits and Other Matters................................. 20
5.5 Certain Tax Matters................................................. 22
5.6 Press Releases...................................................... 27
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent to Obligations of Parties Hereto............... 27
6.2 Conditions Precedent to Obligations of Seller and Superior.......... 28
6.3 Conditions Precedent to Obligations of Purchaser.................... 28
ARTICLE VII
CLOSING DELIVERIES
7.1 Seller's Deliveries................................................. 29
iii
<PAGE>
7.2 Purchaser's Deliveries.............................................. 29
ARTICLE VIII
INDEMNITY
8.1 Indemnity........................................................... 30
8.2 Claims.............................................................. 31
8.3 Survival............................................................ 32
ARTICLE IX
TERMINATION
9.1 Termination......................................................... 33
ARTICLE X
CERTAIN DEFINITIONS
ARTICLE XI
MISCELLANEOUS
11.1 Third-Party Beneficiaries......................................... 39
11.2 Expenses.......................................................... 39
11.3 Notices........................................................... 39
11.4 Captions.......................................................... 40
11.5 Further Assurances................................................ 40
11.6 Entire Agreement.................................................. 40
11.7 Amendment; Waiver................................................. 40
11.8 Assignment........................................................ 41
11.9 Successors........................................................ 41
11.10 Severability...................................................... 41
11.11 Governing Law..................................................... 41
11.12 Counterparts...................................................... 41
iv
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (including the Schedules hereto, this "Agreement")
dated as of December 3, 1997 by and among NB Holdings Corporation, a bank
holding company and a Delaware corporation ("Seller"), Superior Federal Bank,
F.S.B., a federal savings bank ("Superior"), and SFC Acquisition Corp., a
Delaware corporation ("Purchaser").
RECITALS
WHEREAS, Purchaser wishes to acquire Superior upon the terms and conditions set
forth in this Agreement; and
WHEREAS, Seller wishes to sell Superior upon the terms and conditions set forth
in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 General. Subject to the terms and conditions of this Agreement, at
-------
the Closing (as hereinafter defined), Seller shall sell, assign, transfer and
convey unto Purchaser 1,000 shares of common stock, par value $1.00 per share,
of Superior (the "Shares"), which shares constitute all of the issued and
outstanding capital stock of Superior, and Purchaser shall purchase the Shares
for an aggregate purchase price of $162.5 million (the "Purchase Price"),
payable in cash, subject to any additional consideration payable pursuant to
Section 1.6 hereof.
1.2 Manner of Payment. The Purchase Price shall be paid by Purchaser at
-----------------
the Closing by wire transfer of immediately available funds to the account or
accounts designated by Seller.
1.3 Delivery of Certificates. Against receipt of the Purchase Price, at
------------------------
the Closing, Seller shall deliver to Purchaser the certificates for the Shares,
together with such stock powers as will entitle Purchaser to immediate
registration of the transfer of the Shares in its name and as will convey the
Shares to Purchaser free and clear of all liens and
<PAGE>
encumbrances (other than transfer restrictions imposed by applicable securities
laws).
1.4 Time and Place of Closing. The closing of the transactions
-------------------------
contemplated hereby (the "Closing") shall take place at 10:00 a.m. on the
Closing Date (as hereinafter defined) at the offices of Seller in Charlotte,
North Carolina or at such other time and place as may be mutually agreed upon by
the parties.
1.5 Closing Date. Unless otherwise mutually agreed upon in writing by the
------------
parties, subject to the terms and conditions hereof, the "Closing Date" shall be
the first business day following the last to occur of: (i) the effective date of
the last order, approval, or exemption of any federal or state regulatory agency
approving or exempting the transactions contemplated hereby, if such action is
required; and (ii) the expiration of all required waiting periods after the
filing of all notices to all federal or state regulatory agencies required for
consummation of the transactions contemplated hereby.
1.6 Goodwill Litigation; Further Consideration. On the Closing Date,
------------------------------------------
Purchaser shall become the legal successor to Seller's right and interest in the
related proceedings brought under the action Superior Federal Bank, F.S.B. vs.
---------------------------------
United States (No. 95-769C) (the "Goodwill Litigation"). Within five (5)
- -------------
business days following Purchaser's receipt of payment pursuant to irrevocable
settlement or other resolution of the Goodwill Litigation by final judgment
subject to no further appeal, and, as further consideration for the sale of the
Shares to Purchaser, Purchaser shall pay Seller fifty percent (50%) of the "net
recovery" from the Goodwill Litigation. "Net recovery" shall be the gross
aggregate amount Purchaser receives from such settlement or resolution, net of
the total litigation expenses incurred and paid by Purchaser after the Closing
Date. "Total litigation expenses" shall include, without limitation, attorneys'
fees, court costs, expenses, fees of experts and consultants, filing fees and
all other costs reasonably incurred in prosecution of the Goodwill Litigation.
Purchaser agrees to employ as counsel for prosecution of the Goodwill Litigation
the firm of Cooper & Carvin, PLLC, provided, however, that Purchaser and Seller
may mutually agree at any time to retain other or additional counsel.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
<PAGE>
2.1 Organization and Good Standing of Purchaser. Purchaser is a
-------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware. Purchaser is duly qualified to do business as a foreign
corporation under the laws of each jurisdiction where it is required to be
qualified or where it would be required to be qualified to conduct its business,
except where failure to so qualify would not have a Material Adverse Effect.
2.2 Authorization of Agreement. Purchaser has the full right, power and
--------------------------
authority to enter into and perform this Agreement and to consummate the
transactions contemplated hereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action.
This Agreement, when executed by the parties hereto, constitutes or will
constitute a legal, valid and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms, subject to: (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application, heretofore or hereafter enacted or in effect, affecting the rights
and remedies of creditors generally and (ii) the exercise of judicial or
administrative discretion in accordance with general equitable principles,
including, without limitation, as to the availability of the remedy of specific
performance or other injunctive relief.
2.3 No Violation. The authorization, execution, delivery and performance
------------
of this Agreement, the consummation of the transactions contemplated hereunder,
and the compliance with the terms, conditions and provisions hereof and thereof
by Purchaser, do not and will not: (i) violate, conflict with, result in a
breach or termination of, constitute a default under, require any notice,
approval or consent under, give rise to a right of termination of, or accelerate
the performance required by, any term or provision of any agreement, commitment
or other instrument, or any order, judgment or decree to which either Purchaser
is a party or by which Purchaser is bound that would have a Material Adverse
Effect; (ii) violate any provision of the Certificate of Incorporation or Bylaws
of Purchaser; or (iii) violate, result in a breach of, conflict with or require
any notice, filing or consent under, any statute, rule, regulation or other
provision of law, or any order, judgment or other direction of a court or other
tribunal, or any other governmental requirement, permit, registration, license
or authorization applicable to Purchaser that would have a Material Adverse
Effect or that would threaten or impede the consummation of the transactions
contemplated by this Agreement.
<PAGE>
2.4 Consents and Approvals of Governmental Authorities. Except as set
--------------------------------------------------
forth on Schedule 2.4 hereto, no consent, license, approval or authorization of,
or designation, declaration or filing with, any governmental or regulatory
agency or authority is required on the part of Purchaser in connection with the
authorization, execution, delivery and performance of this Agreement. Purchaser
is not aware of any reason why any such required consent or approval will not be
received.
2.5 Legal Proceedings. There are no legal, administrative, arbitral or
-----------------
other actions, claims, suits or proceedings or investigations instituted or
pending or, to the knowledge of Purchaser's management, threatened against
Purchaser, or against any property, asset, interest or right of Purchaser, that
might reasonably be expected to have a Material Adverse Effect or that might
reasonably be expected to threaten or impede the consummation of the
transactions contemplated by this Agreement.
2.6 Purchase for Investment. Purchaser is purchasing the Shares for
-----------------------
investment and for the purpose of acquiring Superior and its business, and not
for the purpose of any resale or distribution of the Shares. Purchaser
acknowledges that the Shares have not been registered under the Securities Act
of 1933, as amended, and may not be sold or otherwise disposed of in the absence
of such registration or the availability of an applicable exemption therefrom.
2.7 Disclosure. No representation or warranty of Purchaser contained in
----------
this Agreement or in any statement or certificate furnished or to be furnished
to Seller pursuant hereto in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements made
herein or therein, in the light of the circumstances under which they were made,
not misleading.
2.8 Other Matters. Purchaser has not taken and has not agreed to take any
-------------
action, and has no knowledge of any fact or circumstances, that would materially
impede or delay the consummation of the transactions contemplated hereby.
2.9 Brokers and Finders. Other than Keefe, Bruyette & Woods, Inc., neither
-------------------
Purchaser nor any of its officers, directors or employees has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or finder has acted
directly or indirectly for Purchaser in connection with this Agreement or the
transactions contemplated hereby.
<PAGE>
2.10 Financing. Seller acknowledges that Purchaser intends to raise the
---------
funds required to pay the Purchase Price through a private placement of common
stock of Purchaser (the "Private Placement") and through a public or private
offering of debt instruments of Purchaser and a bank financing (the "Debt
Offering").
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND SUPERIOR
Seller and Superior (and, to the extent applicable, Superior on behalf of each
of its Subsidiaries) hereby represents and warrant jointly and severally to
Purchaser as follows:
3.1 Capitalization. The authorized capital stock of Superior consists
--------------
solely of the Shares. No shares of the capital stock of Superior are in the
treasury of Superior. There are no outstanding subscriptions, shares of capital
stock, calls, warrants, options, contract commitments or demands relating to the
capital stock of Superior or other agreements of any character under which
Superior would be obligated to issue or purchase shares of its capital stock.
Superior has no commitments to issue or sell any securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire from Superior, any shares of its capital stock, and no
securities or obligations evidencing any such rights are outstanding.
3.2 Ownership of Shares. Seller is the legal owner of the Shares, holds
-------------------
the Shares of record and beneficially owns the Shares free and clear of all
liens and encumbrances (other than restrictions on transfer imposed by
applicable securities laws). The Shares have been duly and validly issued and
are fully paid, nonassessable and not subject to call. Seller has or will have
full power and authority to sell the Shares to Purchaser at the Closing, and
upon the delivery to Purchaser of the certificates for the Shares and
accompanying instruments pursuant to Section 1.3, Purchaser shall have acquired
good, valid and exclusive title to the Shares free and clear of all liens and
encumbrances (other than restrictions on transfer imposed by applicable
securities laws) and will be entitled to the registration of the Shares in its
name on the books of Superior and entitled to all rights of a shareholder of
Superior evidenced thereby.
3.3 Organization and Good Standing of Superior. Superior is a federal
------------------------------------------
stock savings bank chartered under Section 5 of the Home Owners' Loan Act.
Superior is regulated by the Office of Thrift Supervision (the "OTS"), the
Federal Deposit Insurance Corporation (the "FDIC") and the Federal Housing
Finance Board. The deposits of Superior are insured by the Savings Association
Insurance Fund of the FDIC. Superior is a member of the Federal Home Loan Bank
of Dallas, and has purchased all stock and paid all membership and other fees
required in connection therewith. Seller is duly qualified to do business under
the laws of each jurisdiction in which it is conducting business
<PAGE>
and where it is required to be so qualified, except where failure to so qualify
would not have a Material Adverse Effect.
3.4 Subsidiaries. The subsidiaries of Superior (other than Superior's
------------
inactive subsidiaries, Premier Management, Inc. and Superior Financial Services
of Oklahoma, Inc.) are set forth on Schedule 3.4 (individually, a "Subsidiary,"
and collectively, the "Subsidiaries"). Each Subsidiary is a corporation duly
organized and in good standing under the laws of its state of incorporation and
is duly qualified to do business under the laws of each jurisdiction in which it
is conducting business and where it is required to be so qualified, except where
failure to so qualify would not have a Material Adverse Effect. Seller has
provided or will provide Purchaser with copies of the Articles or Certificates
of Incorporation and the Bylaws of each Subsidiary. Seller owns all of the
issued and outstanding stock of each Subsidiary either directly, or indirectly
through ownership of one or more of the Subsidiaries, free and clear of all
liens and encumbrances (other than restrictions on transfer imposed by
applicable securities laws). All of the issued and outstanding capital stock of
each Subsidiary is validly issued, fully paid and non-assessable. There are no
outstanding subscriptions, shares of capital stock, calls, warrants, options,
contract commitments or demands relating to the capital stock of any Subsidiary.
3.5 Authorization of Agreement. Seller has the full right, power and
--------------------------
authority to enter into and perform this Agreement and to consummate the
transactions contemplated hereunder. The execution, delivery and performance of
this Agreement by Seller have been or will be duly authorized by all necessary
corporate action of Seller. This Agreement, when executed by the parties
hereto, constitutes or will constitute a legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, subject to: (i)
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application, heretofore or hereafter enacted or in effect, affecting the
rights and remedies of creditors generally and (ii) the exercise of judicial or
administrative discretion in accordance with general equitable principles,
including, without limitation, as to the availability of the remedy of specific
performance or other injunctive relief.
3.6 No Violation. The authorization, execution, delivery and performance
------------
of this Agreement, the consummation of the transactions contemplated hereunder,
and the compliance with the terms, conditions and provisions hereof by Seller do
not and will not: (i) violate, conflict with, result in a breach or termination
of, constitute a default under, require any notice, approval or consent under,
give rise to a right of
<PAGE>
termination of, or accelerate the performance required by, any term or provision
of any agreement, commitment or other instrument, or any order, judgment or
decree to which either Seller or Superior is a party or by which Seller,
Superior or any of their respective assets are bound that would have a Material
Adverse Effect; (ii) violate any provision of the Charter or Bylaws of Superior
or any provision of the Certificate of Incorporation or Bylaws of Seller; or
(iii) violate, result in a breach of, conflict with or require any notice,
filing or consent under, any statute, rule, regulation or other provision of
law, or any order, judgment or other direction of a court or other tribunal, or
any governmental requirement, permit, registration, license or authorization
applicable to Seller or Superior that would have a Material Adverse Effect or
that would threaten or impede the consummation of the transactions contemplated
by this Agreement.
3.7 Consents and Approval of Governmental Authorities. No consent, license,
-------------------------------------------------
approval or authorization of, or designation, declaration or filing with, any
governmental or regulatory agency or authority is required on the part of Seller
or Superior in connection with the authorization, execution, delivery and
performance of this Agreement.
3.8 Legal Proceedings. Except as set forth on Schedule 3.8 hereto, there
-----------------
are no legal, administrative, arbitral or other actions, claims, suits or
proceedings or investigations instituted or pending or, to the knowledge of the
respective managements of Superior or Seller, threatened against Superior that
might reasonably be expected to have a Material Adverse Effect.
3.9 Compliance with Laws.
--------------------
(a) To the knowledge of the respective managements of Seller and Superior,
Superior is in compliance with all laws, rules, regulations, reporting and
licensing requirements and orders applicable to its business or to its
employees conducting its business (including, without limitation, all
applicable banking laws, federal and state securities laws, and laws and
regulations concerning discrimination, truth-in-lending, usury, fair credit
reporting, fair lending, consumer protection, occupational safety, fair
employment practices and fair labor standards, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act, and the
Community Reinvestment Act) and with its internal policies and procedures,
except where the failure to be in
<PAGE>
such compliance would not individually or in the aggregate have a Material
Adverse Effect.
(b) Neither Seller nor Superior has received any written notification or
communication from any agency or department of any federal or state
government (i) asserting that Superior is not in compliance with any of the
statutes, regulations, or ordinances which such agency or department
enforces, unless such non-compliance would not have a Material Adverse
Effect; (ii) threatening to revoke any license, franchise, permit or
governmental authorization; (iii) requiring or threatening to require
Superior, or indicating that Superior may be required to enter into a cease
and desist order, agreement (including any capital maintenance agreement)
or memorandum of understanding or any other agreement restricting or
limiting or purporting to restrict or limit in any manner the operations of
Superior, including, without limitation, any restriction on the payment of
dividends; or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit in any material respect the operations of
Superior.
3.10 Financial Statements. The audited financial statements of Superior
--------------------
for the fiscal year ended December 31, 1996 and the unaudited financial
statements of Superior for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997 (collectively, the "Superior Financial Statements") present
fairly the financial position, results of operations and cash flows of Superior
at the dates and for the fiscal periods then ended, in accordance with GAAP with
respect to the December 31, 1996 financial statements, and in accordance with
regulatory accounting principles with respect to the March 31, 1997, June 30,
1997 and September 30, 1997 financial statements, subject to normal recurring
adjustments (the effect of which will not individually or in the aggregate have
a Material Adverse Effect). Seller has delivered true and complete copies of
the Superior Financial Statements to Purchaser. Since September 30, 1997,
Superior has not declared, set aside, made or paid any dividend or other
distribution with respect to its capital stock or otherwise purchased or
redeemed directly or indirectly any shares of its capital stock.
3.11 No Adverse Change. Since December 31, 1996, except (i) as
-----------------
contemplated by this Agreement or in connection with the transactions
contemplated by this Agreement; or (ii) as disclosed by Seller in any Schedule
to this Agreement, to the knowledge of the respective managements of Superior
and Seller, there has not been any material
<PAGE>
adverse change in the business, financial condition, operation, or results of
operation of Superior.
3.12 Undisclosed Liabilities. To the knowledge of the respective
-----------------------
managements of Superior and Seller, Superior has no material liabilities (and
there is no currently known basis for any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand (including claims relating to
lender liability of Superior) against Superior giving rise to any such material
liability), except for (i) liabilities set forth on the face of the Superior
Financial Statements (rather than in any notes thereto); (ii) liabilities which
have arisen after September 30, 1997 in the ordinary course of business; or
(iii) liabilities set forth in any Schedule to this Agreement.
<PAGE>
3.13 Taxes. Except as set forth on Schedule 3.13 hereto:
-----
(a) All Tax Returns required to be filed by or on behalf of Superior have
been timely filed, or requests for extensions have been timely filed,
granted and have not expired, for periods ending on or before December 31,
1996, and all such returns filed are complete and accurate in all material
respects.
(b) There is no audit examination, deficiency or refund litigation or
matter that has been raised by a taxing authority with respect to any
previously filed Tax Returns of Superior or any prior Tax payments or
periods that could reasonably be expected to result in a determination the
effect of which would have a Material Adverse Effect. All Taxes due with
respect to completed and settled examinations or concluded litigation have
been paid or adequately reserved for.
(c) Superior has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any Tax due that is
currently in effect.
(d) Adequate provision for any Taxes due or to become due for Superior for
any period or periods through and including September 30, 1997, has been
made and is reflected on the September 30, 1997 financial statements
included in the Superior Financial Statements. Deferred Taxes of Superior
reflected in the Superior Financial Statements are adequate, subject in the
case of interim financial statements to normal recurring year end
adjustments.
(e) Superior has collected and withheld all Taxes which it has been
required to collect or withhold and has timely submitted all such collected
and withheld amounts to the appropriate authorities. Superior is in
compliance with the back-up withholding and information reporting
requirements under the Code and any state, local or foreign laws, and the
rules and regulations thereunder.
(f) Superior has not made any payments, is not obligated to make any
payments, and is not a party to any contract, agreement or other
arrangement that could obligate it to make any payments that would be
disallowed as a deduction under Section 280G of the Code.
<PAGE>
(g) There are no liens with respect to Taxes upon any of the assets of
Superior.
(h) Superior has not filed any consent under Section 341(f) of the Code
concerning collapsible corporations.
(i) Superior does not have and has not had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
3.14 Title to Properties. Except as disclosed in the Superior Financial
-------------------
Statements, Superior has good and marketable title, free and clear of all
claims, liens, pledges and encumbrances ("Liens"), other than Permitted
Exceptions, to all its properties and assets whether tangible or intangible,
real, personal or mixed, reflected in the Superior Financial Statements as being
owned by Superior as of the date hereof, except for such defects in title which
would not have a Material Adverse Effect. All buildings, and all fixtures,
equipment and other property and assets, held under leases or subleases by
Superior are held under valid instruments enforceable in accordance with their
respective terms, except where the failure to have such valid and enforceable
instruments would not have a Material Adverse Effect.
"Permitted Exceptions" shall mean (i) mechanic's, materialman's,
warehouseman's and carrier's liens and purchase money security interests arising
in the ordinary course of business or arising by operation of law; (ii) liens
for taxes and assessments not yet payable; (iii) liens for taxes, assessments
and charges and other claims, the validity of which Superior or Seller is
contesting in good faith; and (iv) imperfections of title, liens, security
interests, claims and other charges and encumbrances the existence of which does
not or will not have a Material Adverse Effect.
3.15 Software. Schedule 3.15 hereto contains a list or description by type
--------
of all operating systems and applications for computer programs and data bases
("Software") which Superior uses or has available for use and plans to use, and
such Software constitutes all the Software which is used to operate the
business of Superior as currently conducted. The owner of such Software is
identified on Schedule 3.15, and Superior has the right to use the same pursuant
to valid leases or licenses therefor. To the knowledge of the respective
managements of
<PAGE>
Superior and Seller, none of the Software used by or available to Superior, and
no use thereof, infringes upon or violates any patent, copyright, trade secret
or other proprietary right of anyone else and no claim with respect to any such
infringement or violation is known to be threatened.
3.16 Trademarks and Tradenames. To the knowledge of the respective
-------------------------
managements of Superior and Seller, Superior has the right to use any tradenames
and trademarks used by it in the business as now conducted by it, and, to the
knowledge of the respective managements of Superior and Seller, such use does
not conflict with, infringe on, or otherwise violate any rights of others.
3.17 Properties. Superior owns or leases all property and tangible assets
----------
used in the conduct of its business as presently conducted. To the knowledge of
the respective managements of Superior and Seller, all of the property of
Superior is in good condition and repair, except for reasonable wear and tear,
and in conformity in all material respects with all building, zoning, OSHA,
safety, ADA or other applicable ordinances, regulations, or laws.
(a) Schedule 3.17(a) lists and describes briefly all real property which
Superior owns. With respect to each such parcel of owned real property
(collectively, the "Owned Real Property"):
(i) Superior has good and marketable title to the parcel of real
property, free and clear of any security interest, easement, covenant,
or other restriction, except for (A) installments of special
assessments not yet delinquent; (B) recorded easements, covenants, and
other restrictions which do not materially impair the current use,
occupancy, or value of the Owned Real Property subject thereto; (C)
Permitted Exceptions; (D) mortgages or security interests reflected in
the Superior Financial Statements or incurred since September 30, 1997
in connection with the purchase of Owned Real Property; and (E) zoning
laws and other land use restrictions which do not materially impair
the present or anticipated use of the Owned Real Property subject
thereto;
(ii) to the knowledge of the respective managements of Superior and
Seller, no parcel of Owned Real Property serves any adjoining property
for any purpose inconsistent with the
<PAGE>
use of the land, and the Owned Real Property is not located within any
flood plain;
(iii) there are no outstanding options or rights of first refusal to
purchase any parcel of Owned Real Property, or any portion thereof or
interest therein; and
(iv) there are no parties (other than Superior) in possession of the
parcel of Owned Real Property, other than tenants in possession of
property leased or subleased by Superior under any leases or subleases
disclosed on Schedule 3.17(b) which tenants are in possession of space
to which they are entitled.
(b) Schedule 3.17(b) lists and describes briefly all real property,
including Owned Real Property, leased or subleased by or to Superior
(whether as lessor or as lessee) pursuant to any lease, sublease, license,
concession, or other agreement granting to any party or parties the right
of use or occupancy of such property ("Leased Real Property"). Superior
has made available to Purchaser correct and complete copies of the leases
and subleases listed in Schedule 3.17(b) (as amended to date) . With
respect to each lease and sublease listed in Schedule 3.17(b), except as to
matters which, individually or in the aggregate, will not result in a
Material Adverse Effect:
(i) to the knowledge of the respective managements of Superior and
Seller, the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(ii) to the knowledge of the respective managements of Superior and
Seller, no party to the lease or sublease is in breach or default, and
no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iii) to the knowledge of the respective managements of Superior and
Seller, no party to the lease or sublease has repudiated any provision
thereof;
(iv) to the knowledge of the respective managements of Superior and
Seller, there are no disputes, oral agreements,
<PAGE>
or forbearance programs in effect as to the lease or sublease; and
(v) Superior has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold.
(c) Schedule 3.17(c) sets forth a depreciation schedule of the fixed assets
by asset category of Superior as of October 31, 1997.
3.18 Contracts. Except as set forth on Schedule 3.18 and except for
---------
commitments for loans and deposits entered into in the ordinary course of
business, no agreement to which Superior is a party either obligates Superior to
pay in excess of $50,000 over the life of such agreement, or is not terminable
by Superior without penalty at will or upon notice of not more than 30 days.
Superior is not, and neither Superior nor Seller has received any notice or has
any knowledge that any other party is in default in any respect under any such
agreement, except for those defaults which would not have, individually or in
the aggregate, a Material Adverse Effect, and there has not occurred any event
that with the lapse of time or the giving of notice or both would constitute
such a default.
3.19 Benefit Plans.
-------------
(a) Schedule 3.19(a) hereto lists all existing employee benefit plans (as
defined in Section 3 (3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), in which Employees or former employees of
Superior currently participate (the "Plans"). Seller has provided or will
provide to Purchaser a summary description of each Plan.
(b) Each Plan is and has been in substantial compliance, in form and
operation, in all material respects with all applicable laws and has been
administered in all material respects in accordance with its terms.
Superior has not incurred any liability with respect to a Plan including,
without limitation, under ERISA (including, without limitation, Title I or
Title IV of ERISA, other than liability for premiums due to the Pension
Benefit Guaranty Corporation ("PBGC")), the Code or other applicable law,
which has not been satisfied in full, and, to the knowledge of the
respective managements of Seller and Superior, no event has occurred, and
there exists no known condition or set of circumstances, which
<PAGE>
could result in the imposition of any liability with respect to a Plan,
including, without limitation, under ERISA (including, without limitation,
Title I or Title IV of ERISA), the Code or other applicable law with
respect to the Plan. To the knowledge of the respective managements of
Superior and Seller, no event has occurred and no condition exists with
respect to any Plan which is likely to subject Purchaser, directly or
indirectly (through an indemnification agreement or otherwise), to any
material liability (including, without limitation, liability for taxes,
breach of fiduciary duty, or for a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code). There is no
action, suit, or claim (other than routine claims for benefits in the
ordinary course) with respect to any Plan pending or threatened which is
reasonably likely to have a Material Adverse Effect. No Plan is currently
under investigation or audit by any governmental agency and, to the
knowledge of Seller's management, no such investigation or audit is
contemplated or under consideration. Each Plan intended to be a qualified
plan under Section 401(a) of the Code is so qualified and a favorable
determination letter as to qualification under Section 401(a) of the Code
has been issued and the related trust has been determined to be exempt from
taxation under Section 501(a) of the Code.
(c) Superior has no outstanding commitments to provide or to cause to be
provided any severance or other post-employment benefit, salary
continuation, termination, disability, death, retirement, health or medical
benefit or similar benefit to any person (including, without limitation,
any Employee or former employee) that either has not been reflected in the
Superior Financial Statements or is not included in any Plan disclosed in
Schedule 3.19(a). All contributions and premium payments required to have
been made or accrued under or with respect to any Plan have been timely
made or accrued. Except as set forth in Schedules 3.19(c) and 5.4(e), the
consummation of the transactions contemplated hereby will not give rise to
any right to severance, separation or similar pay or benefits.
(d) Superior has never maintained, adopted or established, contributed or
been required to contribute to, or otherwise participated or been required
to participate in, a "multiemployer plan" (as
<PAGE>
defined in Section 3(37) of ERISA). No amount is due as owing from Superior
on account of a "multiemployer plan" (as defined in Section 3(37) of ERISA)
or on account of any withdrawal therefrom.
3.20 Employees. Set forth in Schedule 3.20 hereto is a list of all
---------
employees of Superior as of the date of this Agreement (the "Employees"),
including a list of Superior's current directors. Also set forth on Schedule
3.20 with respect to each Employee are the amount of base salary currently being
paid on an annualized basis, the amount of any raise or bonus that Superior is
currently committed to pay and the principal amount as of October 31, 1997 of
any loans or advances to such Employee by Superior. Seller has made available
to Purchaser all written employment, severance, non-competition, and similar
agreements between Superior and Employees.
3.21 Labor. No material work stoppage involving Superior is pending or, to
-----
the knowledge of the respective managements of Superior and Seller, threatened.
Superior is not involved in, or, to the knowledge of Seller's management,
threatened with or affected by, any labor or other employment related dispute,
arbitration, lawsuit or administrative proceeding, which might reasonably be
expected to have a Material Adverse Effect. The Employees are not represented
by any labor union, and, to the knowledge of the respective managements of
Superior and Seller, no labor union is attempting to organize employees of
Superior.
3.22 Environmental Matters. To the knowledge of the respective managements
---------------------
of Superior and Seller, neither Superior, nor any Owned Real Properties or
Leased Real Properties, has been or is in violation of or liable under any
Environmental Law, except for such violations or liabilities that, individually
or in the aggregate, are not reasonably likely to have a Material Adverse
Effect. There are no actions, suits or proceedings, or demands, claims, notices
or investigations (including, without limitation, notices, demand letters or
requests for information from any environmental agency) instituted or pending,
or to the knowledge of the respective managements of Superior and Seller,
threatened, relating to the liability of any such properties under any
Environmental Law, except for such violations or liabilities that, individually
or in the aggregate, are not reasonably likely to have a Material Adverse
Effect. Seller has provided Purchaser copies of Phase I audits on certain of the
Owned Real Properties which Purchaser acknowledges were not prepared for the
purposes of the transactions contemplated by this Agreement and as to which
neither Seller nor Superior makes any representations or warranties.
<PAGE>
"Environmental Law" means any federal, state, local or foreign law
(including, without limitation, the comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976 and OSHA, each as amended), statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any regulatory authority
relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil,
plant and animal life or any other natural resource), and/or (ii) the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a
component.
3.23 Insurance. Schedule 3.23 identifies each insurance policy (including
---------
policies providing property, casualty, liability, directors and officers
liability, and workers' compensation coverage and bond arrangements) under which
Superior is currently insured. To the knowledge of the respective managements of
Superior and Seller, with respect to Superior's coverage under each such policy,
the policy is legally valid, binding, enforceable, and in full force and effect
as of the date of this Agreement.
3.24 Disclosure. No representation or warranty of Seller contained in this
----------
Agreement or in any statement or certificate furnished or to be furnished to
Purchaser pursuant hereto in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements made
herein or therein, in the light of the circumstances under which they were made,
not misleading.
3.25 Other Matters. Seller has not taken and has not agreed to take any
-------------
action, and has no knowledge of any fact or circumstances, that would materially
impede or delay the consummation of the transactions contemplated hereby.
3.26 Brokers and Finders. Neither Seller nor Superior nor any of their
-------------------
respective employees has employed any broker or finder or incurred any liability
for any financial advisory fees, brokerage fees, commissions
<PAGE>
or finder's fees, and no broker or finder has acted directly or indirectly for
Seller in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE IV
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
4.1 Conduct Prior to Closing. Seller hereby covenants and agrees with
------------------------
Purchaser, that, prior to the Closing, unless the prior written consent of
Purchaser shall have been obtained, which consent shall not be unreasonably
withheld, and except as otherwise contemplated in this Agreement, it shall cause
Superior and its Subsidiaries to, and Superior and its Subsidiaries shall,
operate their respective businesses only in the usual, regular and ordinary
course and in accordance with their respective prior practices, and shall use
their reasonable best efforts to preserve intact their respective business
organizations and assets and maintain their respective rights, franchises and
businesses and customer relations necessary to run their respective businesses
as currently run, to maintain present relationships with licensors, suppliers,
distributors and others having significant business relationships with them, and
to keep available the services of their respective officers and employees.
Notwithstanding anything to the contrary contained herein, Purchaser
acknowledges that, prior to the Closing, Superior intends to sell to Seller or
one of its affiliates all of its automatic teller machines located in Wal-Mart,
Sam's Club and Wal-Mart Supercenter properties. Without limiting the generality
of the foregoing and except as otherwise affected by matters contemplated by
this Agreement or in connection with the transactions contemplated by this
Agreement, from the date hereof until the Closing, Seller will cause each of
Superior and its Subsidiaries to, and each of Superior and its Subsidiaries
will:
(a) carry on its business in substantially the same manner as heretofore
carried on and neither introduce any material new method of management,
operation or accounting, nor provide discounted services outside the
ordinary course of business;
(b) maintain its properties, facilities, equipment and other assets,
including those held under leases, in good working order, condition and
repair, ordinary wear and tear excepted;
(c) maintain its present debt and lease instruments (unless same are
otherwise mature), perform all of its obligations thereunder and refrain
from entering into new or amended debt or lease instruments, except for
debt incurred or leases entered into
<PAGE>
in the ordinary course of business, without prior written notice to
Purchaser;
(d) not incur any indebtedness outside of the ordinary course of business
other than deposits or ordinary trade accounts payable at market rates with
no prepayment penalty which are used to fund operations in the ordinary
course of business;
(e) keep in full force and effect its present insurance policies or other
comparable insurance coverage;
(f) maintain its present salaries and commission levels for all officers,
directors, employees or agents, except for raises and bonuses that may be
awarded to Employees in keeping with past practices of Superior in the
ordinary course of its business, refrain from entering into employment
agreements except in the ordinary course of business, and refrain from
entering into any collective bargaining agreement;
(g) comply with and cause to be complied with all applicable laws, rules,
regulations and orders of all federal, state and local governments or
governmental agencies affecting or relating to Superior or its assets,
properties, operations, businesses or Employees except where the failure to
comply will not have a Material Adverse Effect; and
(h) make adequate provision for any Taxes due for Superior.
4.2 Forbearances. From the date hereof until the Closing, Seller
------------
covenants and agrees to ensure that neither Superior nor any of its Subsidiaries
does and Superior covenants and agrees that neither it nor any of its
Subsidiaries will do (other then as contemplated in this Agreement) any of the
following without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld:
(a) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock or otherwise purchase or redeem, directly or
indirectly, any shares of its capital stock;
(b) issue, sell or deliver or enter into any agreement to issue, sell or
deliver any shares of its capital stock or any options, warrants, or other
rights, agreements, commitments, arrangements or understandings of any
kind, contingent or otherwise, to purchase,
<PAGE>
sell or deliver any such shares, or any securities convertible into or
exchangeable for any such shares, or effect any stock split, or otherwise
change its authorized capitalization, except in the ordinary course of
business consistent with its past practice;
(c) incur any indebtedness or issue or sell any debt securities or prepay
any debt, except in the ordinary course of business consistent with its
past practice;
(d) mortgage, pledge or otherwise subject to any material lien or lease,
any of its properties or assets, tangible or intangible or permit or suffer
any such property or asset to be subjected to any material lien or lease,
except in the ordinary course of business consistent with its past practice
and for Permitted Exceptions;
(e) forgive or cancel any debts or claims, or waive any rights, except for
fair value or in the ordinary course of business consistent with its past
practice;
(f) except for loans and deposits in the ordinary course of business, enter
into (i) any agreement, commitment or other transaction involving an
expenditure, a liability or an obligation of Superior of more than
$200,000 or, (ii) any other agreement or commitment that, pursuant to its
terms, is not terminable by Superior without penalty at will or on less
than 31 days' notice;
(g) except in the ordinary course of its business, pay any bonus to any
Employee or grant to any Employee any increase in compensation;
(h) except as contemplated by this transaction or disclosed in any Schedule
to this Agreement, enter into any severance agreement or salary
continuation agreement with any Employee or, except in the ordinary course
of business consistent with past practice, enter into any employment
agreement;
(i) amend its Charter or Bylaws or any other organizational documents;
(j) make any material changes in policies or practices relating to selling
practices or other terms of sale or accounting therefor or in policies of
employment;
<PAGE>
(k) enter into any type of business not conducted by Superior as of the
date of this Agreement or create or organize any subsidiary of Superior or
enter into or participate in any joint venture or partnership;
(l) except as otherwise expressly contemplated by this Agreement and except
in the ordinary course of business consistent with past practice, enter
into any agreement or transactions with Seller or any affiliate of Seller
or make any amendment or modification to any such agreement; or
(m) take any action or omit to take any action that is reasonably likely to
result in the occurrence of, or agree or commit to do, any of the
foregoing.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Current Information. During the period from the date of this
-------------------
Agreement to the Closing Date, each of Seller and Purchaser will cause one or
more of its representatives to confer on a regular and frequent basis with
representatives of the other with respect to the status of the ongoing
operations of Superior. Each party will notify the other of the status of any
required regulatory applications and third-party consents related to the
transactions contemplated hereby.
5.2 Access; Information.
-------------------
(a) During the period from the date of this Agreement to the Closing Date,
Seller shall, upon reasonable notice, cause Superior to afford to Purchaser
and its representatives (including, without limitation, officers and
employees of Purchaser and counsel, accountants and other professionals
retained by Purchaser), such access during normal business hours to its
books, records, properties and such other information as Purchaser may
reasonably request for the purpose of conducting any review or
investigation reasonably related to the transactions contemplated hereby,
provided that such access shall not interfere with the normal business
operations of Superior.
(b) Purchaser agrees that it will keep confidential any information
furnished to it in connection with the transactions contemplated by this
Agreement in accordance with the terms of the Confidentiality Agreement
dated August 12, 1997 between
<PAGE>
Seller and Purchaser, as amended by letter dated November 24, 1997 (the
"Confidentiality Agreement"), which agreement shall remain in effect in
accordance with its terms.
5.3 Regulatory Matters. Purchaser shall use its reasonable best efforts
------------------
(i) to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties, regulatory
authorities and other governmental authorities necessary to consummate the
transactions contemplated by this Agreement, including, without limitation, any
such approvals or authorizations required by any state or regulatory authority,
including, without limitation, the Board of Governors of the Federal Reserve
System (the "Federal Reserve"), the OTS, and any state insurance commissioner;
and (ii) to cause the transactions contemplated hereby to be consummated as
expeditiously as reasonably practicable. Provided that Seller has cooperated
with Purchaser in providing information necessary to the completion of requisite
applications, Purchaser agrees to file the requisite applications to be filed by
it with any required regulatory authorities no later than 45 days after the date
of this Agreement.
5.4 Employee Benefits and Other Matters.
-----------------------------------
(a) Purchaser will continue to employ Employees on an "at will" basis.
Seller shall remain responsible for the payment of any benefit accrued by
Employees prior to the Closing Date under any severance, salary
continuation, incentive or similar agreement between Superior and/or Seller
and any Employees entered into prior to the Closing Date.
(b) Effective as of the Closing Date, Seller shall cause Superior to
withdraw from participation in, and Employees shall cease accruing benefits
under, all of Seller's employee benefit plans and policies. On or before
the Closing Date, Seller or Superior, as the case may be, shall, to the
extent permitted under applicable law, cause Employees participating in any
qualified defined benefit pension Plan or qualified defined contribution
Plan to become fully vested under the terms of such Plans. Seller shall
amend its defined contribution Plan to provide that Employees shall be
eligible to receive the employer matching contribution for the year in
which the Closing Date occurs without regard to the requirement that a
participant be employed by Seller on December 31 of such year. Purchaser
shall, as soon as practicable after the Closing Date, establish a
retirement plan which Purchaser deems reasonable and competitive among
employers in the markets where
<PAGE>
Purchaser will conduct business. For the purposes of such plans established
by Purchaser, prior continuous service of Employees with Superior or Seller
shall be counted as continuous service with Purchaser for satisfaction of
enrollment, eligibility and vesting requirements. Seller remains
responsible for all benefits accrued by Employees as of the Closing Date
resulting from participation in Seller's defined benefit and defined
contribution Plans.
(c) On the Closing Date, Purchaser will have established and will make
available to Employees reasonable and competitive employee welfare plans,
including, without limitation, medical, life and disability plans, and will
use its best efforts to enroll all participating Employees in such plans
without consideration of pre-existing conditions. Purchaser will also use
its best efforts to permit plan-year payments toward satisfaction of
participant deductible amounts and other employee payment limits to carry
forward to the plan established by Purchaser. Plan design and premium
distribution under such plan or plans will rest solely with Purchaser.
Purchaser and Seller agree that liability for medical claims of Employees
incurred but unpaid before the Closing Date shall remain with Seller.
Seller shall offer retiree medical coverage and retiree medical
reimbursement account benefits to Employees eligible for such benefits as
of the Closing Date and liabilities for such coverage shall remain with
Seller. Purchaser will provide such other insured and uninsured welfare
plans as it deems appropriate. With respect to such plans, continuous
service of Employees with Superior will be counted as continuous service
with Purchaser for satisfaction of enrollment and other eligibility
requirements of such plans and for determining eligibility for vacation,
personal leave and other similar employee benefit and recognition programs
which Purchaser may implement. As of the Closing Date, Purchaser shall
have established a health care reimbursement plan and a dependent care
reimbursement plan, and Seller shall transfer the balances in its health
care reimbursement fund and dependent care reimbursement fund to the extent
of unused Employee accounts in such plans to Purchaser's plans. To the
extent a participant's health care reimbursement account has a negative
account balance as of the Closing Date, Purchaser will continue to
administer its medical reimbursement plan and withhold amounts from such
participant's paychecks in accordance with the Employee's election, and if
such participant has a positive account balance in Purchaser's health care
reimbursement fund following the close of
<PAGE>
all claims for the year in which the Closing occurs, Purchaser shall
transfer such positive amounts to Seller.
(d) Seller makes no representations or warranties about whether any
Employees will remain employed by Superior after the date of this
Agreement. Seller will use its best efforts to maintain the Employees as
employees of Superior until the Closing Date.
(e) Purchaser agrees that, for a period of six (6) months after the Closing
Date, it will not terminate without "good cause" (as defined in Schedule
5.4(e)) a transferred Employee without paying to such Employee a severance
benefit no less than the applicable severance benefit set forth on Schedule
5.4(e).
5.5 Certain Tax Matters. Seller and Purchaser hereby covenant and agree
-------------------
with respect to certain tax matters as follows:
(a) The NationsBank Group, or a successor common parent, and Purchaser
shall jointly make a timely Section 338(h)(10) Election in accordance with
federal and applicable state Tax Laws and as set forth herein. Seller and
Purchaser will supply in advance to one another copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) to be sent or made by Seller or Purchaser or their
respective representatives to or with the IRS or any other Governmental
Entity relating to such election. Seller and Purchaser agree to report the
transfers under this Agreement consistent with such Section 338(h)(10)
Election and shall take no position or action contrary thereto.
(b) (i) Seller and Purchaser shall be jointly responsible for the
preparation and filing of all Section 338 Forms to be prepared by them
in accordance with applicable Tax Laws and the terms of this
Agreement, and each party shall deliver to the other party such Forms
and related documents as soon as practicable prior to the date such
Section 338 Forms are required to be filed under applicable Tax Laws.
As soon as practicable after the Closing Date, Seller and Purchaser
shall jointly prepare a schedule calculating the "modified aggregate
deemed sale price" for the deemed sale of assets under Section 338 of
the Code and showing an allocation of that amount among the assets of
Superior in accordance with the regulations thereunder. Any such
agreed allocation
<PAGE>
shall be binding upon Seller, Purchaser and their respective
affiliates unless a different allocation is required pursuant to a
determination within the meaning of Section 1313 of the Code.
(ii) Seller and Purchaser shall reduce such allocation to writing,
including jointly and properly executing necessary copies of completed
Section 338 Forms. Seller and Purchaser shall file timely any such
Section 338 Forms with the IRS.
(iii) To the extent consistent with applicable law, Seller and
Purchaser shall not file any Tax Return or other documents or
otherwise take any position with respect to Taxes which is
inconsistent with such allocation of the "modified aggregate deemed
sale price", provided, however, that neither Seller nor Purchaser
shall be obligated to litigate any challenge to such allocation of the
Purchase Price by a Taxing Authority.
(iv) Seller and Purchaser shall promptly inform one another of any
challenge by any government body to any allocation made pursuant to
this Section 5.5(b) and agree to consult with and keep one another
informed with respect to the status of, and any discussion, proposal
or submission with respect to, such challenge.
(c) Seller shall pay and shall indemnify and hold Purchaser harmless
against any and all Taxes of Superior or Seller for any Taxable Period
ending on or before the Closing Date, including any Taxes resulting from
the making of the Section 338(h)(10) Election, and any liability for Taxes
pursuant to Treasury Regulation Section 1.1502-6; in each case, after
giving effect to any credits for the amount of Tax, if any, paid on or
prior to the Closing Date. The indemnification provided herein is separate
from and in addition to the indemnification provided in Section 8.1 hereof
and is not subject to any minimum or maximum amount in such section. All
liabilities and obligations between Superior, on the one hand, and Seller
and any of Sellers' affiliates, on the other hand, under any Tax allocation
agreement or arrangement in effect on or prior to the Closing Date (other
than this Agreement or as set forth herein) shall cease to exist as of the
Closing Date.
<PAGE>
(d) Purchaser shall be liable for, shall pay and shall indemnify and hold
Seller harmless against, any and all Taxes of Superior for any taxable year
or Taxable Period commencing after the Closing Date. Purchaser shall be
liable for, and Purchaser agrees to indemnify Seller and its affiliates
against, any and all liability for Taxes arising, directly or indirectly,
from a liquidation, merger, sale or other disposition of assets of Superior
(other than in the ordinary course of business), or from any income
otherwise recognized by Superior, on or subsequent to the Closing, other
than Taxes resulting from the Section 338(h)(10) Election. The
indemnification provided herein is separate from and in addition to the
indemnification provided in Section 8.1 hereof and is not subject to any
minimum or maximum amount in such section.
(e) Any Taxes for a Taxable Period beginning before the Closing Date and
ending after the Closing Date (the "Straddle Period") with respect to
Superior (other than the consolidated Tax Returns described in paragraph
(f)) shall be apportioned between the portion of such period ending on the
Closing Date (the "Pre-Closing Straddle Period") and the portion of such
period beginning on the date following the Closing Date (the "Post-Closing
Straddle Period") based upon the interim closing of the books for Superior
as of the Closing Date (except that ad valorem Taxes and other Taxes not
based upon income or receipts will be apportioned to the Pre-Closing
Straddle Period based upon the number of days covered by such payment which
are on or before the Closing Date and total number of days covered by the
payment). For purposes of this Section 5.5, each portion of such period
shall be deemed to be a Taxable Period. Seller shall be responsible for
all Taxes of Superior apportioned to the Pre-Closing Straddle Period, and
Purchaser shall be responsible for all Taxes of Superior apportioned to the
Post-Closing Straddle Period. With respect to any Taxes for the Pre-
Closing Straddle Period which are payable by Superior (other than the
consolidated Tax Returns described in paragraph (f) and for which the
applicable Tax Return is a Post Return (as defined below)), upon agreement
by Purchaser and Seller as to the form and substance of such Tax Return,
but not later than ten business days prior to the due date for the payment
of such Pre-Closing Straddle Period Taxes, Purchaser shall present Seller
with a copy of such Tax Return indicating the Pre-Closing Straddle Period
Taxes payable with respect thereto and a schedule detailing the amount of
such Taxes shown as due on such Tax Return which are in excess of the
amount of any estimated Tax payments made with
<PAGE>
respect to these Taxes on or prior to the Closing Date and within ten
business days after Purchaser presents Seller with such Return, Seller
shall pay to Purchaser the amount due. In the event Seller disputes,
pursuant to paragraph (k), Purchaser's computation and if, upon such
resolution, it is determined that any of such disputed amount was not
payable to Purchaser and such amount has been paid to Purchaser, then
Purchaser shall refund to Seller such amount, plus interest at the Federal
Funds Rate.
(f) Seller shall cause to be included in the consolidated federal income
Tax Returns (and the state income Tax Returns of any state that permits
consolidated, combined or unitary income Tax Returns, if any) of the
NationsBank Group for all periods ending on or before or which include the
Closing Date, all taxable income, gain, loss, deduction and credit of
Superior which are required to be included therein, including any liability
for Taxes resulting from the making of the Section 338(h)(10) Election,
shall file timely all such Tax Returns with the appropriate taxing
authorities and shall pay timely all Taxes due with respect to the periods
covered by such Tax Returns. Prior to the Closing Date, Superior shall pay
to Seller all amounts for current or deferred federal and state Tax
liability. Seller shall prepare and file or cause Superior to prepare and
file all Tax Returns (other than consolidated, combined or unitary, Tax
Returns), reports and forms for Superior which are due prior to the Closing
Date, and shall pay all Taxes or shall cause Superior to pay all Taxes set
forth on such Tax Returns. Purchaser, in consultation with Seller, shall
prepare all Tax Returns (other than consolidated, combined or unitary, Tax
Returns) due after the Closing Date with respect to taxable periods ending
on or before the Closing Date ("Post Returns") in a manner consistent with
Superior's prior practices, except for changes necessary to comply with
changes in, or application of, Tax Law. Seller shall have the right to
review and comment on and consent to the form and substance of such Post
Returns. Upon agreement with respect to the form and substance of a Post
Return, Seller shall pay to Superior the amount of Taxes due and Purchaser
will cause such Post Return to be timely filed. If Purchaser does not
prepare and timely submit a Post Return, Seller shall have the right to
prepare and file (or cause to be prepared and filed) such Post Return in a
manner consistent with Superior's prior practices, except for changes
necessary to comply with changes in, or application of, Tax Law and shall
be subject to the review and
<PAGE>
comment on and consent to by Purchaser, which consent shall not be
unreasonably withheld.
(g) Seller shall have exclusive control over any dispute with any Taxing
Authority relating to any Tax liability or Tax Return of Seller or any
affiliate of Seller (including Superior for periods prior to the Closing
Date) filed by the NationsBank Group, Seller or Superior for or with
respect to any Taxable Period, or partial period, ending on or prior to the
Closing Date, including Post Returns and other Tax Returns described in
Section 5.5(f); provided that Seller shall keep Purchaser informed of the
progress of any such dispute with respect to Superior. Purchaser shall
cooperate and shall cause its affiliates to cooperate with Seller and its
affiliates in connection with any and all such disputes and will execute
all lawful, true and correct powers-of-attorney, affidavits, and other
papers necessary in connection therewith, and will provide Seller
reasonable access during normal business hours to the employees and
business, financial and Tax records or other similar information of
Superior relating to such dispute.
(h) Purchaser and Superior shall have exclusive control over any dispute
with any Taxing Authority relating to any Tax liability or Tax Return of
Purchaser or Superior filed for or with respect to any Taxable Period (or
portion thereof) beginning on or after the Closing. Seller shall cooperate
and shall cause its affiliates to cooperate with Purchaser and its
affiliates in connection with any and all such disputes and will execute
all lawful, true and correct powers-of-attorney, affidavits, and other
papers necessary in connection therewith, and will provide Purchaser and
Superior reasonable access during normal business hours to the employees
and business, financial and Tax records or other similar information of
Seller and its affiliates to the extent relating to such dispute.
(i) Purchaser shall cause Superior to elect, where permitted by law, to
carry forward any net operating loss, charitable contribution or other item
arising after the Closing Date that could, in the absence of such an
election, be carried back to a Taxable period of Superior ending on or
before the Closing Date in which Superior filed a consolidated, combined or
unitary Tax Return with Seller or any of its affiliates. Purchaser, on its
own behalf and on behalf of its Tax Affiliates, hereby waives any right to
use or apply any net operating loss, net capital loss, charitable
contribution or
<PAGE>
other item of Superior for any Tax year ending on any date following the
Closing Date to part or all of the period prior to the Closing Date.
(j) As soon as practicable, but in any event within fifteen days after
Seller's or Purchaser's request, as the case may be, Purchaser shall
deliver to Seller, or Seller shall deliver to Purchaser, as the case may
be, such information and other data relating to the Tax Returns and Taxes
of Superior and shall make available such knowledgeable employees of
Seller, Purchaser, Superior or any of their affiliates, as the case may be,
as Seller or Purchaser, as the case may be, may reasonably request,
including providing the information and other data customarily required by
Seller or Purchaser, as the case may be, to cause the completion and filing
of all Tax Returns for which it has responsibility or liability under this
Agreement or to respond to audits by any Taxing Authority with respect to
any Tax Returns or Taxes for which it has any responsibility or liability
under this Agreement or to otherwise enable Seller or Purchaser, as the
case may be, to satisfy its accounting or Tax requirements.
(k) If Seller and Purchaser disagree as to the amount of Taxes for which
either of them is liable to the other under this Section 5.5, Seller and
Purchaser shall promptly consult each other in an effort to resolve such
dispute. If any such point of disagreement cannot be resolved within
fifteen days of the date of consultation, the Independent Accounting Firm
shall act as an arbitrator to resolve all points of disagreement concerning
Tax matters with respect to this Agreement. All fees and expenses relating
to the work performed by the arbitrator in accordance with this Section
5.5(k) shall be borne equally by Seller, on the one hand, and Purchaser, on
the other hand.
(l) Seller and Purchaser shall (i) each give the other prompt written
notice of the receipt of any claim by any Taxing Authority that, if
successful, may result in an indemnity payment pursuant to this Section 5.5
and (ii) each transmit to the other a written description reasonably
detailing the nature of the claim, a copy of all papers served with respect
to such claim and the basis of its claim for indemnification under this
Section 5.5.
(m) Purchaser shall be responsible for, and shall pay when due and payable,
all recording, transfer and other similar taxes and
<PAGE>
fees payable as a result of the filing or recording of any document or
instrument of conveyance or transfer contemplated by this Agreement.
5.6 Press Releases. Prior to the public dissemination of any press
--------------
release or other public disclosure of information related to this Agreement or
the transactions contemplated hereby, Purchaser and Seller shall mutually agree
as to the form, substance and timing of such release or disclosure.
Notwithstanding the foregoing, the parties may make such disclosures as are
required by law after making reasonable efforts under the circumstances to
consult in advance with the other party.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent to Obligations of Parties Hereto. The
-----------------------------------------------------
obligations of each of the parties to consummate the transactions contemplated
hereby are subject to the fulfillment or waiver by such party in writing, at or
before the Closing, of each of the following conditions:
(a) Regulatory Approvals. All requisite consents, waivers, authorizations
--------------------
and approvals from or filings with all governmental and regulatory
authorities to the consummation of the transactions contemplated by the
Agreement shall have been obtained or made.
(b) No Prohibition. No statute, rule, regulation, executive order, decree
--------------
or injunction shall have been enacted, entered, promulgated or enforced by
any court of competent jurisdiction or by any governmental or regulatory
agency or authority which has the effect of restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated by
this Agreement.
(c) Litigation. No order, injunction or decree issued by any court of
----------
competent jurisdiction or by any governmental or regulatory agency or
authority or any other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect. No action or proceeding shall be pending or threatened before any
court, tribunal or governmental or regulatory agency or authority, and no
claim or demand shall have been made, that is reasonably likely to
<PAGE>
prevent the consummation of the transactions contemplated by this
Agreement.
6.2 Conditions Precedent to Obligations of Seller and Superior. The
----------------------------------------------------------
obligations of Seller and Superior to consummate the transactions contemplated
by this Agreement are also subject to the fulfillment or waiver by Seller or
Superior in writing, at or before the Closing, of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
Purchaser in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date (as
though made on and as of the Closing Date except to the extent such
representations and warranties are by their express provisions made as of a
specified date).
(b) Performance by Purchaser. Purchaser shall have performed and complied
------------------------
in all material respects with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by it at or
before the Closing.
(c) Deliveries. Purchaser shall have delivered on or prior to the Closing
----------
all certificates, forms, agreements, and other documents and deliveries
required by Section 7.2.
(d) No Adverse Change. There shall be no material adverse change between
-----------------
the date hereof and the Closing Date in the financial condition, results of
operations, assets or liabilities of Purchaser.
6.3 Conditions Precedent to Obligations of Purchaser. The obligations of
------------------------------------------------
Purchaser to consummate the transactions contemplated by this Agreement are also
subject to the fulfillment or waiver by Purchaser in writing, at or before the
Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
Seller in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date (as though made
on and as of the Closing Date except to the extent such representations and
warranties are by their express provisions made as of a specified date).
<PAGE>
(b) Performance by Seller. Seller shall have performed and complied in all
---------------------
material respects with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by Seller at or before the
Closing.
(c) Deliveries. Seller shall have delivered on or prior to the Closing all
----------
certificates, forms, agreements, and other documents and deliveries
required by Section 7.1.
(d) No Adverse Change. There shall be no material adverse change between
-----------------
the date hereof and the Closing Date in the financial condition, results of
operations, assets or liabilities of Superior.
ARTICLE VII
CLOSING DELIVERIES
7.1 Seller's Deliveries. At the Closing, Seller shall deliver to
-------------------
Purchaser the following:
(a) Certified resolutions of the Board of Directors of Seller authorizing
Seller to enter into and perform this Agreement.
(b) A certified copy of the Charter and Bylaws of Superior.
(c) An officers' certificate for Seller as to fulfillment of the conditions
in Section 6.3.
(d) A certificate or certificates for the Shares, duly endorsed in blank or
with a stock power duly endorsed in blank.
(e) An opinion of counsel for Seller reasonably satisfactory to Purchaser's
counsel.
7.2 Purchaser's Deliveries. At the Closing, Purchaser shall deliver to
----------------------
Seller the following:
(a) Certified resolutions of the Board of Directors of Purchaser
authorizing Purchaser to enter into and perform this Agreement.
(b) A certified copy of the Certificate of Incorporation and Bylaws of
Purchaser.
<PAGE>
(c) An officers' certificate for Purchaser as to fulfillment of the
conditions in Section 6.2.
(d) The Purchase Price pursuant to and in the manner provided in Section
1.2.
(e) An opinion of counsel for Purchaser reasonably satisfactory to Seller's
counsel.
ARTICLE VIII
INDEMNITY
8.1 Indemnity. Until the first anniversary of the Closing Date, Seller
---------
shall indemnify and hold harmless Purchaser and each of its directors,
officers, employees and agents, and each of the heirs, executors, successors and
assigns of any of the foregoing (the "Purchaser Indemnified Parties") from and
against any and all Losses (as defined below) incurred by or asserted against
any of such parties in connection with or arising out of any breach by Seller of
any representation or warranty, or any failure by Seller to comply with any
covenant or agreement set forth herein, except as provided in Section 5.5(c);
provided, however, that (i) the Purchaser Indemnified Parties shall be entitled
to indemnification under this Section 8.1 only if and to the extent their
aggregate amount of Losses hereunder (notwithstanding limitations on materiality
contained in Seller's representations and warranties) exceeds $250,000, and then
only to the extent of such excess; (ii) the Purchaser Indemnified Parties shall
not be entitled to indemnification for any Losses resulting from or incurred in
connection with the Private Placement or the Debt Offering; and (iii) in no
event shall Seller's aggregate liability hereunder exceed $5,000,000.
Until the first anniversary of the Closing Date, Purchaser shall indemnify and
hold harmless Seller, and its directors, officers, employees and agents, and
each of the heirs, executors, successors, and assigns of any of the foregoing
(the "Seller Indemnified Parties") from and against any and all Losses (as
defined below) incurred by or asserted against any of such parties in connection
with or arising out of any breach by Purchaser of any representation or
warranty, or any failure by Purchaser to comply with any covenant or agreement
set forth herein, except as provided in Section 5.5(d); provided, however, that
the Seller Indemnified Parties shall be entitled to indemnification under this
Section 8.1 only if and to the extent their aggregate amount of Losses hereunder
(notwithstanding limitations on materiality contained in Purchaser's
representations and warranties) exceeds $250,000, and then only to the
<PAGE>
extent of such excess; and provided further, however, that in no event shall
Purchaser's aggregate liability hereunder exceed $5,000,000.
"Losses" means, with respect to any of Purchaser, Seller or Superior, any and
all losses, liabilities, claims, damages, obligations (including those arising
out of any action, such as any settlement or compromise thereof or judgment or
award therein), and any reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees and expenses incurred in defending any lawsuit or
other action).
8.2 Claims.
------
(a) The party being indemnified hereunder (the "Indemnified Party") shall
give written notice to the party against whom a claim for indemnification
is asserted hereunder (the "Indemnifying Party") within the earlier of
twenty (20) days of receipt of written notice or forty (40) days from
discovery by the Indemnified Party of any matters which may give rise to a
claim for indemnification or reimbursement under this Agreement (a
"Claim"). The failure to give such notice shall not affect the right of
the Indemnified Party to indemnity hereunder unless such failure has
materially and adversely affected the rights of the Indemnifying Party.
(b) In the event an action brought by a third party (a "Third-Party Claim")
shall be brought or asserted in respect of which indemnity may be sought by
an Indemnified Party under this Section 8.2, the Indemnified Party shall
notify the Indemnifying Party in writing thereof within such period of time
as to not prejudice the defense thereof, but in any case within twenty (20)
days thereof. Subject to this Section 8.2, the Indemnifying Party shall
have the opportunity to defend and/or settle such Third-Party Claim, and
employ counsel reasonably satisfactory to the Indemnified Party, and the
Indemnifying Party shall pay all expenses related thereto, including,
without limitation, all fees and expenses of counsel. After receipt of
such notice, the Indemnifying Party shall notify the Indemnified Party
within twenty (20) days (or such shorter period if necessary so as not to
prejudice the defense thereof) in writing whether it will assume the
defense thereof.
(c) Upon receipt of notice by the Indemnified Party from the Indemnifying
Party of its election to assume the defense of such an action and approval
of the Indemnified Party of counsel to the Indemnifying Party, which
approval shall not be unreasonably
<PAGE>
withheld or delayed, the Indemnifying Party shall not be liable to the
Indemnified Party for any legal or other expense subsequently incurred by
the Indemnified Party unless (i) the Indemnifying Party agrees in writing
to pay such fees and expenses, (ii) the Indemnifying Party fails either to
assume the defense of such action or to employ counsel reasonably
satisfactory to the Indemnified Party, or (iii) the Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to the Indemnified Party that are different from or in addition
to those available to the Indemnifying Party or that there shall exist some
other legal conflict between the interests of the Indemnifying Party and
the Indemnified Party.
(d) If the Indemnifying Party shall not elect to assume the defense of any
Third-Party Claim, or if any of the events specified in clauses (i) through
(iii) in the preceding subsection (c) occurs, the Indemnified Party shall
have the right to maintain the defense of and to settle such Third-Party
Claim, with counsel reasonably satisfactory to the Indemnifying Party;
provided, however, that the Indemnifying Party shall retain the right to
assume the defense of such Third-Party Claim pursuant to paragraph (c)
above, provided that such assumption does not prejudice the defense of such
Third-Party Claim.
(e) In the event that an offer to settle a Third-Party Claim is received,
each of the Indemnified Party and the Indemnifying Party shall notify the
other thereof, in writing, and shall consult with one another in
considering such offer. Such offer shall be accepted if the Indemnifying
Party so directs in writing unless either (A) the Indemnified Party shall
agree in writing that any liability arising out of such Third-Party Claim
shall not be a Loss covered hereunder, in which case the Indemnified Party
shall have full right to maintain the defense thereof, or (B) the failure
to accept such settlement offer is based on the Indemnified Party's
reasonable objection to a sanction, restriction, fine, or other penalty
that would be imposed on it or its affiliates under the settlement.
(f) Notwithstanding anything herein, and whichever party shall have the
right to maintain the defense of a Third-Party Claim, each of the
Indemnifying Party and the Indemnified Party shall consult with the other
with respect thereto, provide each other with such assistance as the other
may reasonably require in order to
<PAGE>
promptly and adequately defend such action, and have the right to
participate at its own expense in the defense thereof, with counsel
reasonably satisfactory to the other.
8.3 Survival. The representations, warranties, covenants and agreements
--------
of each party set forth herein shall survive the Closing for a period of one (1)
year. Neither party hereto shall have any liability (for indemnification or
otherwise) with respect to any representation, warranty, covenant or agreement
set forth herein, unless on or before the first anniversary of the Closing Date
the other party shall notify such party of a claim specifying the factual basis
of that claim in reasonable detail.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated:
-----------
(a) by written agreement of the parties; or
(b) by Purchaser (if it is not in breach of any of its obligations
hereunder) pursuant to notice in the event of a breach or failure to
perform by Seller that is material in the context of the transactions
contemplated hereby of any representation, warranty, covenant or agreement
by Seller contained herein which has not been, or cannot be, cured within
30 days after written notice of such breach or failure to perform is given
to Seller; or
(c) by either Seller or Superior (if it is not in breach of any of its
obligations hereunder) pursuant to notice in the event of a breach or
failure to perform by Purchaser that is material in the context of the
transactions contemplated hereby of any representation, warranty, covenant
or agreement by Purchaser contained herein which has not been, or cannot
be, cured within 30 days after written notice of such breach or failure to
perform is given to Purchaser; or
(d) by any party, following ten (10) days' written notice to the other
parties, if, at any time prior to the Closing Date any event shall have
occurred or facts and circumstances shall exist that render any of the
conditions to such party's obligations as provided in this Agreement
incapable of fulfillment unless caused by the breach of any covenant or
agreement under this Agreement by the terminating party; or
<PAGE>
(e) by any party upon notice to the other parties if the Closing has not
taken place on or before November 30, 1998; or
(f) by Seller or Superior, in its sole discretion, if Purchaser shall not
have done any of the following: (i) by January 15, 1998, received firm
commitments for $95.0 million in connection with the Private Placement; or
(ii) within 90 days of this Agreement, escrowed $33.0 million of such firm
commitments and received written expressions of interest for $80.0 million
in connection with the Debt Offering; or (iii) within 180 days of this
Agreement, taken all steps necessary to consummate the Private Placement
and the Debt Offering, including, without limitation, the receipt of at
least $80.0 million in firm commitments with respect to the Debt Offering,
subject only to the receipt of the regulatory approvals set forth in
Schedule 2.4, with consummation of the Private Placement and the Debt
Offering to occur as soon as practicable following the receipt of such
regulatory approvals.
ARTICLE X
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings as
set forth below:
"ADA" shall mean the Americans with Disabilities Act.
"Agreement" shall have the meaning set forth in the introduction hereto.
"Claim" shall have the meaning set forth in Section 8.2(a).
"Closing" shall have the meaning set forth in Section 1.4.
"Closing Date" shall have the meaning set forth in Section 1.5.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
"Confidentiality Agreement" shall have the meaning set forth in Section
5.2(b).
"Debt Offering" shall have the meaning set forth in Section 2.10.
<PAGE>
"Employees" shall have the meaning set forth in Section 3.20.
"Environmental Law" shall have the meaning set forth in Section 3.22.
"ERISA" shall have the meaning set forth in Section 3.19(a).
"FDIC" shall have the meaning set forth in Section 3.3.
"Federal Funds Rate" shall mean, for any day, the rate for that day set
forth opposite the caption "Federal Funds" (Effective) in the daily
statistical release designated as "Composite 3:30 p.m. Quotations for U.S.
Government Securities" published by the Federal Reserve Bank of New York.
"Federal Reserve" shall have the meaning set forth in Section 5.3.
"GAAP" shall mean generally accepted accounting principles in the United
States.
"Goodwill Litigation" shall have the meaning set forth in Section 1.6.
"Governmental Entity" shall mean any court, any administrative, judicial or
regulatory agency or commission, any government-sponsored enterprise, or
any other governmental or quasi-governmental authority or instrumentality,
domestic (federal, state or local) or foreign.
"Indemnified Party" shall have the meaning set forth in Section 8.2(a).
"Indemnifying Party" shall have the meaning set forth in Section 8.2(a).
"Independent Accounting Firm" shall mean a nationally recognized accounting
firm jointly selected by Purchaser and Seller. In the event Purchaser and
Seller propose different accounting firms and cannot agree on a selection,
one of the remaining nationally recognized accounting firms not originally
selected by Purchaser or Seller shall be selected at random to serve as the
Independent Accounting Firm.
"IRS" shall mean the Internal Revenue Service.
<PAGE>
"Leased Real Property" shall have the meaning set forth in Section 3.17(b).
"Liens" shall have the meaning set forth in Section 3.14.
"Losses" shall have the meaning set forth in Section 8.1.
"Material Adverse Effect" shall have the following meaning:
(a) with respect to Purchaser, the term "Material Adverse Effect"
shall mean (A) a material adverse effect (whether taken individually
or in the aggregate with all other such effects) on the financial
condition, business, results of operations or properties of Purchaser,
(B) an effect which would materially impair Purchaser's ability timely
to consummate the transactions contemplated hereby or (C) any event,
circumstance or condition affecting Purchaser which would prevent or
materially delay the consummation of the transactions contemplated by
this Agreement; and
(b) with respect to Seller or Superior, the term "Material Adverse
Effect" shall mean (A) a material adverse effect (whether taken
individually or in the aggregate with all other such effects) on the
financial condition, business, results of operations or properties of
Superior, (B) an effect which would materially impair Seller's ability
timely to consummate the transactions contemplated hereby or (C) any
event, circumstance or condition affecting Seller or Superior which
would prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
"NationsBank Group" shall mean the affiliated group of corporations filing
a consolidated federal income Tax Return of which NationsBank Corporation
is the common parent and of which Seller is a member.
"OSHA" shall mean the Occupational Safety and Health Act.
"OTS" shall have the meaning set forth in Section 3.3.
"Owned Real Property" shall have the meaning set forth in Section 3.16(a).
<PAGE>
"PBCG" shall have the meaning set forth in Section 3.19(b).
"Permitted Exceptions" shall have the meaning set forth in Section 3.14.
"Person" shall mean an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, or an unincorporated organization.
"Plans" shall have the meaning set forth in Section 3.19.
"Post Return" shall have the meaning set forth in Section 5.5(f).
"Post-Closing Straddle Period" shall have the meaning set forth in Section
5.5(e).
"Pre-Closing Straddle Period" shall have the meaning set forth in Section
5.5(e).
"Private Placement" shall have the meaning set forth in Section 2.10.
"Prohibited Transaction" shall have the meaning set forth in Section
3.19(b).
"Purchase Price" shall have the meaning set forth in Section 1.1.
"Purchaser" shall have the meaning set forth in the introduction to this
Agreement.
"Purchaser Indemnified Parties" shall have the meaning set forth in Section
8.1.
"Section 338 Forms" shall mean all Tax Returns, documents statements, and
other forms that are required to be submitted to any federal, state,
county, or other local Taxing Authority in connection with a Section
338(h)(10) Election. Section 338 Forms shall include, without limitation,
any "statement of section 338 election" and United States Internal Revenue
Service Form 8023-A (together with any schedules or attachments thereto)
that are required pursuant to relevant Treasury Regulations and any
<PAGE>
substantially similar forms under a state or local statute corresponding to
federal Tax Laws.
"Section 338(h)(10) Election" shall mean an election described in Section
338(h)(10) of the Code with respect to the acquisition of the Shares by
Purchaser pursuant to this Agreement. "Section 338(h)(10) Election" shall
also include any substantially similar election under a state or local
statute corresponding to federal Tax Laws.
"Seller" shall have the meaning set forth in the introduction to this
Agreement.
"Seller Indemnified Parties" shall have the meaning set forth in Section
8.1.
"Shares" shall have the meaning set forth in Section 1.1.
"Software" shall have the meaning set forth in Section 3.14.
"Straddle Period" shall have the meaning set forth in Section 5.5(e).
"Subsidiary" or "Subsidiaries" shall have the meaning set forth in Section
3.4.
"Superior" shall have the meaning set forth in the introduction to this
Agreement.
"Superior Financial Statements" shall have the meaning set forth in Section
3.10.
"Tax" or "Taxes" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
<PAGE>
"Tax Affiliate" shall mean any corporation with respect to which a
specified Person joins or at any time has joined the filing of any
consolidated, combined or unitary Tax Return for any Taxable Period.
"Tax Laws" shall mean the Code, federal state, county, local or foreign
laws relating to Taxes and any regulations or official administration
pronouncements released thereunder.
"Tax Return" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Taxable Period" shall mean any period for which or with respect to which
the Taxes of any Person are determined or calculated.
"Taxing Authority" shall mean any Governmental Entity having jurisdiction
over the assessment, determination, collection, of other imposition of Tax.
"Third-Party Claim" shall have the meaning set forth in Section 8.2(b).
"Treasury Regulations" shall mean the regulations promulgated under the
Code.
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Third-Party Beneficiaries. This Agreement is solely for the mutual
-------------------------
benefit of the parties hereto and no other party is intended or shall be deemed
to be a third-party beneficiary hereof.
11.2 Expenses. Except as otherwise provided herein, whether or not the
---------
transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring
such cost or expense; provided, however, that Purchaser shall pay all costs,
fees and expenses (including attorneys' fees and expenses) incurred in
connection with Section 5.3, all costs, fees and expenses of the Goodwill
Litigation, all costs, fees and expenses relating to the Private Placement and
the Debt Offering and all fees and expenses of Keefe, Bruyette & Woods, Inc.
11.3 Notices. All notices or other communications required or permitted
-------
under this Agreement shall be given in writing sent by hand delivery, telecopy
or by certified or registered mail, postage prepaid, return receipt requested to
the address set forth below:
If to Seller or Superior:
NB Holdings Corporation
NationsBank Corporate Center
100 North Tryon Street
NC1-007-33-02
Charlotte, North Carolina 28255
Telecopy Number: (704) 386-6416
Confirmation Number: (704) 386-5450
Attention: Frank L. Gentry, Executive Vice President
---------
With a copy to:
NationsBank Corporation
NationsBank Corporate Center
100 North Tryon Street
NC1-007-20-01
Charlotte, North Carolina 28255
Telecopy Number: (704) 386-6453
Confirmation Number: (704) 386-9036
Attention: Jacqueline Jarvis Jones, Senior Counsel
---------
<PAGE>
If to Purchaser:
SFC Acquisition Corp.
c/o Miller, Hamilton, Snider & Odom, L.L.C.
One Commerce Street
Montgomery, Alabama 36104
Telecopy Number: (334) 265-4533
Confirmation Number: (334) 834-5550
Attention: Willard H. Henson
----------
With a copy to:
Miller, Hamilton, Snider & Odom, L.L.C.
254 State Street
Mobile, Alabama 36603
Telecopy Number: (334) 431-9406
Confirmation Number:(334) 432-1414
Attention: John C. H. Miller, Jr.
----------
11.4 Captions. The captions contained in this Agreement are for reference
--------
purposes only and shall not be construed as a part of this Agreement.
11.5 Further Assurances. The parties shall cooperate and take such
------------------
actions, and execute and deliver such other documents, at and after the Closing
or subsequently, without further consideration, as any other party hereto may
reasonably request in order to carry out the provisions or purposes of this
Agreement and the transactions contemplated hereby.
11.6 Entire Agreement. This Agreement sets forth the parties' final and
----------------
entire agreement with respect to its subject matter and supersedes any and all
prior understandings and agreements with respect thereto other than the
Confidentiality Agreement, which shall remain in full force and effect. The
Schedules attached to this Agreement shall be deemed as fully a part of this
Agreement as if set forth herein in full. None of the parties has made any
representation, warranty, covenant or undertaking of any nature whatsoever,
express or implied, in connection with or relating to the subject matter of this
Agreement other than as expressly set forth herein.
11.7 Amendment; Waiver. This Agreement can be amended, supplemented or
-----------------
changed, and any provision hereof can be waived, only
<PAGE>
in a writing making specific reference to this Agreement signed by each of the
parties hereto.
11.8 Assignment. None of the parties hereto may assign any of its rights
----------
or delegate any of its obligations under this Agreement to any other person or
entity. Any such purported assignment or delegation that is made without the
prior written consent of the other parties to this Agreement shall be void and
of no effect.
11.9 Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that no party may assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of the
other parties.
11.10 Severability. If any one or more of the provisions of this
------------
Agreement shall be held invalid or unenforceable by a court or other tribunal of
competent jurisdiction, such provision shall be modified or eliminated to the
minimum extent necessary to make it valid and enforceable, and the validity and
enforceability of all other provisions hereof shall not be affected thereof.
11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
11.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
NB HOLDINGS CORPORATION
By: /s/ Frank L. Gentry
------------------------
Name: Frank L. Gentry
--------------------
Title: Senior Vice President
--------------------------
SUPERIOR FEDERAL BANK, F.S.B.
By: /s/ Joe Edwards, Jr.
-------------------------
Name: Joe Edwards, Jr.
--------------------
Title: President/C.E.O.
----------------------
SFC ACQUISITION CORP.
By: /s/ John C. H. Miller, Jr.
-------------------------------
Name: John C. H. Miller, Jr.
-------------------------
Title: Acting Chairman
--------------------
<PAGE>
[LETTERHEAD OF SUPERIOR FINANCIAL CORP. APPEARS HERE]
Exhibit 10.9
C. Stanley Bailey
Chairman & CEO
September 21, 1998
Mr. Rick D. Gardner
29 Chatel Drive
Little Rock, AR 72211
Dear Rick:
We are very excited about the prospects of you joining Superior Federal
Bank. The purpose of this letter is to confirm our discussions with respect to
your employment by Superior Federal Bank as follows:
Effective Date: October 1, 1998 or earlier at your discretion.
Position: You will serve as Chief Financial Officer of
Superior Financial Corp. and Superior Federal
Bank, FSB. Also, you will be a member of the
bank's management committee.
Compensation: For all services rendered by you during your
employment, you will be paid an annual base
salary of $125,000, subject to an annual
performance review. You will also be eligible
for the Senior Management Incentive Plan which
allows for a bonus of up to 50% of base
compensation, with a targeted payout of 30% if
the bank and the participant meet their goals.
During the remainder of 1998, your goals will
consist primarily of the steps necessary to
become fully familiarized with the company's
current financial position, it's strategic plan
and financial proforma for the near future and
planning and preparing for the company to go
public during 1998 whether by registration of
its current equity or by IPO. Also, you will
need to become familiar with the functions
reporting to you: Accounting, Investment
Portfolio, Personnel, Administrative Services,
etc.
Benefits: You will be provided the right to participate in
the normal employee benefit plans. During the
required waiting periods for benefits
eligibility, we will reimburse you for
- --------------------------------------------------------------------------------
<PAGE>
Page 2.
Mr. Rick D. Gardner
continuation of COBRA medical coverage with your
former employer. Due to your extensive business
travel requirements, you will be provided with a
monthly automobile stipend of $500 plus business
mileage reimbursement of $.15 per mile.
Stock Options: You will receive options, for a term of ten (10)
years, to acquire an amount of common stock of
an aggregate value of $60,000. The per share
grant value will be established within 90 days
of the anticipated initial public offering.
Vesting shall be in accordance with the
following schedule:
25% vesting upon successful consummation of a
public offering of equity securities of the
Parent;
25% 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 ten (10) consecutive days (the
"Market Value") of at least $15 per share;
25% vesting when such Market Value reaches $20
per share; and
25% vesting when such Market Value reaches $25
per share.
If a public offering is not consummated by
December 8, 2002, options shall vest in
accordance with the following schedule:
25% vesting upon the Company's annual return on
average assets ("ROAA") attaining 125 basis
points;
25% vesting upon the Company's annual ROAA
attaining 140 basis points;
25% vesting upon the Company's annual ROAA
attaining 155 basis points; and
25% vesting upon the Company's annual ROAA
attaining 175 basis points.
Vesting shall be cumulative and accelerated upon
the Company's having attained a stated annual
ROAA basis point target in any fiscal year.
<PAGE>
Page 3
Mr. Rick D. Gardner
All options shall become fully vested upon a
change in control.
Change in Control: A "Change in Control" of the Company or Parent
shall mean the occurence of a transaction the
result of which is that more than twenty-five
(25) 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 (25) percent of the shares of the
Company or of the Parent except that this
definition shall not apply to a corporated
reorganization.
In the event of a Change in Control of the
Company or the Parent subsequent to the date
thereof, 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.
I believe this letter summarizes the conditions of your employment
previously discussed. Except as to the explicit provisions expressed herein, no
contract or other arrangement exists between the undersigned parties. If you
concur, please sign the enclosed copy of this letter and return it to me.
We look forward to having you join the Superior family!
Sincerely yours,
/s/ C. Stanley Bailey
----------------------
C. Stanley Bailey
AGREED TO:
/s/ Rick D. Gardner
- ------------------------------
<PAGE>
Exhibit 12
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.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 (A) 1997 1996 1995 1994
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings to Fixed Charges--Company:
Excluding interest on deposits
Actual........................................... 1.53 -- -- -- --
Pro Forma........................................ 1.34 -- -- -- --
Including interest on deposits
Actual........................................... 1.13 -- -- -- --
Pro Forma........................................ 1.09 -- -- -- --
Earnings to Fixed Charges--Bank:
Excluding interest on deposits
Actual........................................... 2.83 3.83 2.73 3.47 5.64
Pro Forma........................................ 2.77 4.25 -- -- --
Including interest on deposits
Actual........................................... 1.28 1.44 1.26 1.35 1.44
Pro Forma........................................ 1.28 1.46 -- -- --
</TABLE>
- --------
(A) The twelve months ended December 31, 1998, include a $7.7 million
provision for loan losses--See Allowance for Loan Losses beginning on page
36. This should be considered in comparing the results of the twelve
months ended December 31, 1998.
<PAGE>
EXHIBIT 16.1
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments in Item 9 of Form 10-K
of Superior Financial Corp. for the year ended December 31, 1998.
/s/ Deloitte & Touch LLP
Little Rock, Arkansas
March 26, 1998
<PAGE>
EXHIBIT 21
List of Subsidiaries of Registrant
Superior Financial Corp.'s principal subsidiary is Superior Federal
Bank, F.S.B. (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.
<PAGE>
Exhibit 24
SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints C. Stanley Bailey, C. Marvin Scott and Rick D.
Gardner, and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign on his behalf, Superior Financial Corp, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998.
Hereby executed by the following persons in the capacities indicated on
March 25, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ C. Stanley Bailey Chairman of the Board and
_________________________________ Chief Executive Officer
C. Stanley Bailey
/s/ C. Marvin Scott Director
_________________________________
C. Marvin Scott
/s/ Boyd W. Henderson Director
_________________________________
Boyd W. Henderson
/s/ John M. Stein Director
_________________________________
John M. Stein
/s/ David E. Stubblefield Director
_________________________________
David E. Stubblefield
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 87,832
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 338,828
<INVESTMENTS-CARRYING> 338,828
<INVESTMENTS-MARKET> 338,828
<LOANS> 702,844
<ALLOWANCE> 10,403
<TOTAL-ASSETS> 1,232,813
<DEPOSITS> 920,583
<SHORT-TERM> 115,000
<LIABILITIES-OTHER> 13,936
<LONG-TERM> 80,000
0
0
<COMMON> 100
<OTHER-SE> 103,193
<TOTAL-LIABILITIES-AND-EQUITY> 1,232,813
<INTEREST-LOAN> 27,929
<INTEREST-INVEST> 14,114
<INTEREST-OTHER> 248
<INTEREST-TOTAL> 42,291
<INTEREST-DEPOSIT> 19,497
<INTEREST-EXPENSE> 26,276
<INTEREST-INCOME-NET> 16,015
<LOAN-LOSSES> 716
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 20,997
<INCOME-PRETAX> 7,134
<INCOME-PRE-EXTRAORDINARY> 7,134
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,334
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,500
<CHARGE-OFFS> 914
<RECOVERIES> 101
<ALLOWANCE-CLOSE> 10,403
<ALLOWANCE-DOMESTIC> 10,404
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,653
</TABLE>
