-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MceZrqd82A6sLpBLzq66e5flulXMyS2ag2vmO5ilUb6aCFiKPD2RiB5to74QlLMp lgm0kNgxT08hDaATjAWnPA== 0000950123-10-023654.txt : 20100311 0000950123-10-023654.hdr.sgml : 20100311 20100311170805 ACCESSION NUMBER: 0000950123-10-023654 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100311 DATE AS OF CHANGE: 20100311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERIOR BANCORP CENTRAL INDEX KEY: 0001065298 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 631201350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25033 FILM NUMBER: 10674778 BUSINESS ADDRESS: STREET 1: 17 NORTH 20TH STREET CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053262265 MAIL ADDRESS: STREET 1: 17 NORTH 20TH STREET CITY: BIRMINGHAM STATE: AL ZIP: 35203 FORMER COMPANY: FORMER CONFORMED NAME: BANC CORP DATE OF NAME CHANGE: 19980702 10-K 1 g22315e10vk.htm FORM 10-K e10vk
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-K
 
     
(Mark One)
   
 
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2009
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from                 to                
Commission file number 0-25033
 
SUPERIOR BANCORP
(Exact Name of Registrant as Specified in Its Charter)
 
     
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  63-1201350
(I.R.S. Employer
Identification No.)
     
17 North 20th Street
Birmingham, Alabama
(Address of Principal Executive Offices)
  35203
(Zip Code)
 
(205) 327-1400
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of each Class
 
Name of each exchange on which registered
Common Stock, par value $.001 per share
  NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
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 þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
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 this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  o Accelerated filer  o Non-accelerated filer  þ Smaller reporting company  o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes o     No þ
 
The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2009, based on a closing price of $2.61 per share of common stock, was $23,029,643.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: the number of shares outstanding as of March 3, 2010, of the registrant’s only issued and outstanding class of common stock, its $.001 per share par value common stock, was 11,687,406.
DOCUMENTS INCORPORATED BY REFERENCE
 
The information set forth under Items 10, 11, 12, 13 and 14 of Part III of this Report is incorporated by reference from the registrant’s definitive proxy statement for its 2010 annual meeting of stockholders that will be filed no later than April 30, 2010.
 


 

 
TABLE OF CONTENTS
 
                 
        Page
 
       
      Business     2  
      Risk Factors     15  
      Unresolved Staff Comments     20  
      Properties     20  
      Legal Proceedings     21  
      Submission of Matters to a Vote of Security Holders     21  
       
PART II        
      Market for The Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     21  
      Selected Financial Data     25  
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     27  
      Quantitative and Qualitative Disclosures about Market Risk     83  
      Financial Statements and Supplementary Data     83  
      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     157  
      Controls and Procedures     157  
      Other Information     159  
       
PART III        
      Directors and Executive Officers of the Registrant     159  
 
Item 11.
    Executive Compensation     159  
 
Item 12.
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     159  
 
Item 13.
    Certain Relationships and Related Transactions     159  
 
Item 14.
    Principal Accounting Fees and Services     159  
       
PART IV        
      Exhibits, Financial Statement Schedules     159  
    164  
 EX-(4)-23
 EX-(4)-24
 EX-(4)-25
 EX-(4)-26
 EX-(10)-29
 EX-(10)-30
 EX-(10)-31
 EX-21
 EX-23
 EX-31
 EX-32
 EX-99


Table of Contents

 
PART I
 
Item 1.   Business.
 
General
 
Superior Bancorp is a Delaware-chartered nondiversified unitary savings and loan holding company headquartered in Birmingham, Alabama. We offer a broad range of banking and related services in 73 locations in Alabama and Florida through Superior Bank, our principal subsidiary. Superior Bank’s consumer finance subsidiaries operate an additional 24 consumer finance offices in North Alabama. We had assets of approximately $3.222 billion, loans of approximately $2.473 billion, deposits of approximately $2.657 billion and stockholders’ equity of approximately $191.7 million at December 31, 2009. Our principal executive offices are located at 17 North 20th Street, Birmingham, Alabama 35203, and our telephone number is (205) 327-1400.
 
We were founded in 1997 and completed our initial public offering in December 1998. Beginning in the fall of 1998, we grew through the acquisition of various financial institutions in Alabama and Florida.
 
In January 2005, we began the transition from our founding management team to a new senior management team composed of veteran bankers with a strong track record and a history of enhancing stockholder value. During the remainder of 2005, we completed that management transition.
 
During 2006 and 2007, we expanded our franchise with three strategic acquisitions. On August 31, 2006, we entered the Tampa, Florida market when we acquired Kensington Bankshares, Inc. (“Kensington”) and its subsidiary, First Kensington Bank. On November 7, 2006, we increased our market presence in North Alabama by acquiring Community Bancshares, Inc. (“Community”) and its subsidiary, Community Bank. On July 27, 2007, we acquired People’s Community Bancshares, Inc. (“People’s”) and its subsidiary, People’s Community Bank of the West Coast, adding three branches in Sarasota and Manatee Counties in Florida to our franchise.
 
Strategy
 
Operations.  We focus our services on small to medium-sized businesses, as well as professionals and individuals, emphasizing our local decision-making, effective response time and personalized service. As a result, we conduct our business on a decentralized basis with respect to deposit gathering and most credit decisions, utilizing local knowledge and authority to make these decisions. We supplement this decentralized management approach with centralized loan administration, policy oversight, credit review, audit, legal, asset/liability management, data processing, human resources and risk management systems. We implement these standardized administrative and operational policies at each of our locations while retaining local management and advisory directors to capitalize on their knowledge of the local community.
 
Products and Services.  Superior Bank provides a wide range of retail and small business services, including noninterest-bearing and interest-bearing checking, savings and money market accounts, negotiable order of withdrawal (“NOW”) accounts, certificates of deposit and individual retirement accounts. In addition, Superior Bank offers an extensive array of consumer, small business, residential real estate and commercial real estate loan products. Other financial services include annuities, automated teller machines, debit cards, credit-related life and disability insurance, safety deposit boxes, Internet banking, bill payment and telephone banking. Superior Bank attracts primary banking relationships through the customer-oriented service environment created by Superior Bank’s personnel combined with competitive financial products.
 
Superior Bank also owns two consumer finance companies, Superior Financial Services, LLC and 1st Community Credit Corporation as well as Superior Financial Management, Inc. which provides investment and insurance products. The finance companies generally provide smaller loans to a market segment traditionally not pursued by Superior Bank. These loans typically involve greater risk and generate higher yields than standard bank loans. We believe that, by conducting this business, we reach a customer base not served by our banking operations.
 
Market Areas.  Superior Bancorp is headquartered in Birmingham, Alabama. Our primary markets are located in northern and central Alabama and in the panhandle and west coast of Florida.


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Superior Bank has branches in:
 
             
Alabama(45)
     
Florida(28)
   
 
Albertville
  Andalusia   Altha   Apalachicola
Arab
  Athens   Beverly Hills   Blountstown
Birmingham
  Blountsville   Bradenton   Bristol
Chelsea
  Childersburg   Brooksville   Clearwater
Cleveland
  Cullman   Dunnellon   Homosassa
Decatur
  Elkmont   Inverness   Marianna
Falkville
  Gadsden   New Port Richey   Palm Harbor
Gardendale
  Guntersville   Panama City   Port Richey
Gurley
  Haleyville   Port St. Joe   Sarasota
Hamilton
  Hartselle   Spring Hill   Sun City Center(4)
Hoover(2)
  Huntsville(3)   Tallahassee(2)   Tampa(2)
Madison(2)
  Meridianville   Wesley Chapel    
Monroeville
  Montgomery        
Mountain Brook
  New Hope        
Oneonta(2)
  Opp        
Pelham
  Rainbow City        
Rogersville
  Samson        
Snead
  Sylacauga        
Trussville
  Uniontown        
Warrior(2)
           
 
Superior Bank’s finance companies have 24 offices in Albertville, Anniston, Arab, Attalla, Athens, Boaz, Cullman (2), Decatur, Florence, Fort Payne, Gadsden, Gardendale, Hartselle, Huntsville (2), Jasper (2), Moody, Northport, Oneonta, Oxford, Pell City and Talladega, Alabama.
 
Growth.  Our future growth depends primarily on the expansion of the business of our primary wholly owned subsidiary, Superior Bank. That expansion will depend on internal growth and the opening of new branch offices in new and existing markets. Superior Bank may also continue to engage in the strategic acquisition of other financial institutions and branches that have relatively high earnings and low-cost deposits or that we believe to have exceptional growth potential, such as the acquisitions completed in 2006 and 2007. Our ability to increase profitability and to grow internally depends primarily on our ability to attract and retain low-cost core deposits while continuing to generate high-yielding, quality loans. Our ability to grow profitably through the opening or acquisition of new branches will depend primarily on, among other things, our ability to identify growing markets and branch locations within such markets that will enable us to attract the necessary deposits to operate such branches profitably, and identify lending and investment opportunities within such markets.
 
We periodically evaluate business combination opportunities and conduct discussions, due diligence activities and negotiations in connection with those opportunities. As a result, we may pursue business combination transactions involving cash, debt or equity securities from time to time. Any future business combination or series of business combinations that we might undertake may be material to our business, financial condition or results of operations in terms of assets acquired or liabilities assumed. Any future acquisition is subject to approval by the appropriate regulatory agencies. See “Supervision and Regulation.”
 
Operating Segments
 
Our operations are managed along two reportable operating segments consisting of the geographical regions of Alabama and Florida. See the sections captioned “Results of Segment Operations” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 26 — Segment Reporting in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, which are located elsewhere in this report.


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Lending Activities
 
General.  We offer various lending services, including real estate, consumer and commercial loans, primarily to businesses and other organizations and individuals that are located in or conduct a substantial portion of their business in our market areas. Our total loans at December 31, 2009 were $2.473 billion, or 85.4% of total earning assets. The interest rates we charge on loans vary with the risk, maturity and amount of the loan and are subject to competitive pressures, money market rates, availability of funds and government regulations. We do not have any foreign loans or loans for highly leveraged transactions.
 
The lending activities of Superior Bank are subject to our written underwriting policy and loan origination procedures established by Superior Bank’s Board of Directors and management. Loan originations are obtained from a variety of sources, including referrals, existing customers, walk-in customers and advertising. Loan applications are initially processed by loan officers who have approval authority up to designated limits.
 
We use generally recognized loan underwriting criteria, and attempt to minimize credit losses through various means. In particular, on larger credits, we generally rely on the cash flow of a debtor as the primary source of repayment and secondarily on the value of the underlying collateral. In addition, we attempt to utilize shorter loan terms in order to reduce the risk of a decline in the value of such collateral. As of December 31, 2009, approximately 72% of our loan portfolio consisted of loans that had variable interest rates or matured within one year.
 
We address repayment risks by adhering to internal credit policies and procedures that include officer and customer lending limits, a multi-layered loan approval process that includes senior management of Superior Bank and Superior Bancorp for larger loans, periodic documentation examination and follow-up procedures for any exceptions to credit policies. The level in our loan approval process at which a loan is approved depends on the size of the borrower’s overall credit relationship with Superior Bank.
 
Loan Portfolio
 
The following is a summary of our total loan portfolio as of December 31, 2009 (dollars in thousands):
 
                 
    Amount     Percent  
 
Commercial and industrial
  $ 213,329       8.62 %
Real estate:
               
Construction and land development
               
Residential development — Alabama
    163,978       6.62 %
                                             — Florida
    129,590       5.24 %
                                             — Other
    7,856       0.32 %
                 
Total residential development
    301,424       12.18 %
                 
Commercial development — Alabama
    102,339       4.13 %
                                            — Florida
    265,767       10.74 %
                                            — Other
    10,915       0.44 %
                 
Total commercial development
    379,021       15.31 %
                 
Total construction and land development
    680,445       27.49 %
                 
Single-family mortgages
    691,364       27.93 %
Nonresidential mortgages
    830,698       33.55 %
                 
Total real estate portfolio
    2,202,507       88.97 %
                 
Consumer
    58,785       2.37 %
Other
    969       0.04 %
                 
Total loans
  $ 2,475,590       100.00 %
                 


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Our loan portfolio is our largest earning asset category. Loans secured by both residential and commercial real estate are a significant component of our loan portfolio, constituting $2.203 billion, or 89.0% of total loans, at December 31, 2009.
 
Nonresidential Mortgage Loans.  At December 31, 2009, $830.7 million, or 33.6% of our total loan portfolio, consisted of non-residential mortgage loans. Our commercial real estate loans primarily provide financing for income-producing properties such as shopping centers, multi-family complexes and office buildings and for owner-occupied properties (primarily light industrial facilities and office buildings). These loans are underwritten with loan-to-value (“LTV”) ratios ranging, on average, from 65% to 85% based upon the type of property being financed and the financial strength of the borrower. For owner-occupied commercial buildings, we underwrite the financial capability of the owner, with an 85% maximum LTV ratio. For income-producing improved real estate, we underwrite based on the strength of the leases, especially those of any anchor tenants, with minimum debt service coverage of 1.2:1 and an 85% maximum LTV ratio. While evaluation of collateral is an essential part of the underwriting process for these loans, repayment ability is determined from analysis of the borrower’s earnings and cash flow. Terms are typically 3 to 5 years and may have payments through the date of maturity based on a 15- to 30-year amortization schedule. As of December 31, 2009, owner-occupied properties comprised approximately 28.4%, or $236.2 million, of total nonresidential mortgage loans, of which $128.2 million were located in the Florida Region and the remaining amount located primarily in the Alabama Region. Non-owner occupied properties are primarily in the office, hospitality, and retail sectors and totaled approximately $118.0 million, or 14.2% of nonresidential mortgage loans, $98.7 million, or 11.9% of nonresidential mortgage loans, and $82.6 million, or 9.9% of nonresidential mortgages, respectively, at December 31, 2009. Geographically, 74.9% of the office sector, 88.5% of the hospitality sector, and 55.9% of the retail sector were located in the Florida Region, with the remaining portfolio in the Alabama Region.
 
Single-Family Mortgage Loans.  At December 31, 2009, $691.4 million, or 27.9% of our total loan portfolio, consisted of single-family mortgage loans. Single-family mortgage loans are loans that are traditionally secured by first or second liens on 1-4 family properties. At December 31, 2009, single-family mortgage loans secured by first liens accounted for $556.9 million, or 22.5% of total loans. Home equity products totaled $134.5 million, or 5.4% of total loans. Home equity products are also centrally underwritten with strict adherence to internal loan policy guidelines to ensure that borrowers have appropriate credit ratings and capacity to repay and that adequate collateral or LTV is obtained.
 
Construction and Land Development Loans.  We make loans to finance the construction of and improvements to single-family and multi-family housing and commercial structures as well as loans for land development. At December 31, 2009, $680.4 million, or 27.5% of our total loan portfolio, consisted of such loans. Within this portfolio, approximately $301.4 million, or 44.3%, was related to residential development and construction. Of the residential construction loans, 57.0% were located in the Alabama Region with the remainder located in the Florida Region. The largest category in the residential development and construction portfolio was related to the development of single-family lots and undeveloped land held for future residential development. These categories represent approximately $203.0 million, or 67.4%, of this portfolio with the remaining $98.4 million relative to the vertical construction of residential properties. An important component of the vertical construction segment is the single-family spec home construction loans. For these loans management closely monitors the aging of the builders’ spec home inventories to ensure turnover and to enable management to look for early signs of weakness within our markets. Spec homes that are 100% complete and remain in inventory for over nine months after completion are considered aged spec homes. As of December 31, 2009, approximately $21.1 million (76 homes with an approximate average loan balance of $275,000) were classified as aged.
 
For construction loans related to income-producing properties, the underwriting criteria are the same as outlined above under the heading, “Nonresidential Mortgage Loans.” Loans for this category accounted for $228.8 million, or 60.4% of the total commercial construction and land development loans. Geographically, approximately 70.1% of this total category was located in the Florida Region, with the remaining loans located primarily in the Alabama Region. The three largest sectors within this category were retail, hotel/motel and office buildings which collectively accounted for approximately $158.9 million, or 41.9% of the total commercial construction loans. Individually, the retail construction loans accounted for the largest sector, with approximately $64.1 million, or 16.9%, hotel/motel building loans accounted for approximately $61.9 million, or 16.3%, and


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office construction loans accounted for approximately $32.9 million, or 8.7% of the total commercial construction. Approximately 87.1% of these three sectors were located in the Florida Region, with the remainder primarily located in the Alabama Region.
 
Commercial and Industrial Loans.  We make loans for commercial purposes in various lines of business. These loans are typically made on terms up to five years at fixed or variable rates and are secured by eligible accounts receivable, inventory or equipment. We attempt to reduce our credit risk on commercial loans by limiting the loan-to-value ratio to 80% on loans secured by eligible accounts receivable, 50% on loans secured by inventory and 75% on loans secured by equipment. Commercial and industrial loans comprised approximately $213.3 million, or 8.6% of our loan portfolio, at December 31, 2009. We also, from time to time, make unsecured commercial loans based on the cash flow of the business.
 
Consumer Loans.  Our consumer portfolio includes installment loans to individuals in our market areas and consists primarily of loans to purchase automobiles, recreational vehicles, mobile homes and consumer goods. Consumer loans comprised approximately $58.8 million, or 2.4% of our loan portfolio, at December 31, 2009. Consumer loans are underwritten based on the borrower’s income, current debt, credit history and collateral. Terms generally range from one to six years on automobile loans and one to three years on other consumer loans.
 
Credit Review and Procedures
 
There are credit risks associated with making any loan. These include repayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that economic conditions will change and adversely affect collectability.
 
We have a loan review process designed to promote early identification of credit quality problems. We employ a risk rating system that assigns to each loan a rating that corresponds to its perceived credit risk. Risk ratings are the primary responsibility of the loan officer, and are subject to independent review by a centralized loan review department, which also performs ongoing, independent review and evaluation of the risk management process, including underwriting, documentation and collateral control. Regular reports are made to senior management and the Board of Directors regarding credit quality as measured by assigned risk ratings and other measures, including, but not limited to, the level of past due percentages and nonperforming assets. The loan review function is centralized and independent of the lending function.
 
Deposits and Other Funding
 
At December 31, 2009, our deposits totaled $2.657 billion which consisted of approximately 88.0% in direct customer deposits, 2.8% of wholesale money market deposits and 9.2% of brokered certificates of deposits. Core deposits are our principal source of funds, constituting approximately 71.1% of our total deposits as of December 31, 2009. Core deposits consist of demand deposits, interest-bearing transaction accounts, savings deposits and certificates of deposit (excluding certificates of deposits over $100,000). Transaction accounts include checking, money market and NOW accounts that provide Superior Bank with a source of fee income and cross-marketing opportunities, as well as a low-cost source of funds. Time and savings accounts also provide a relatively stable and low-cost source of funding. The largest source of funds for Superior Bank is certificates of deposit. Certificates of deposit in excess of $100,000 are approximately $758.6 million, or 28.6% of our deposits, of which, approximately $244.9 million consist of wholesale, or “brokered,” certificates of deposits, at December 31, 2009.
 
Our other primary source of funds is advances from the Federal Home Loan Bank (“FHLB”). These advances are secured by FHLB stock, agency securities and a blanket lien on certain residential and commercial real estate loans. We also have available unused federal funds lines of credit with regional banks, subject to certain restrictions and collateral requirements and may borrow from the discount window at the Federal Reserve Bank.
 
Deposit rates are set periodically by our internal Asset/Liability Management Committee, which includes certain members of senior management. We believe our rates are competitive with those offered by competing institutions in our market areas.


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Competition
 
The banking industry is highly competitive, and our profitability depends principally upon our ability to compete in our market areas. In our market areas, we face competition from both super-regional banks and smaller community banks, as well as non-bank financial services companies. We encounter strong competition both in making loans and attracting deposits. Superior Bank is now the second largest bank headquartered in Alabama and the largest community bank in Alabama. We fully anticipate being the beneficiary of the unsettled market conditions these changes have brought and will bring to the affected organizations in our markets. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges. Customers also consider the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. Customers may also take into account the fact that other banks offer different services. Many of the large super-regional banks against which we compete have significantly greater lending limits and may offer additional products; however, we believe we have been able to compete effectively with other financial institutions, regardless of their size, by emphasizing customer service and by providing a wide array of services. In addition, most of our non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. See “Supervision and Regulation.” Competition may further intensify if additional financial services companies enter markets in which we conduct business.
 
Employees
 
As of December 31, 2009, we employed approximately 828 full-time equivalent employees, primarily at Superior Bank. We believe that our employee relations have been and continue to be good.
 
Supervision and Regulation
 
General.  Superior Bancorp, as a nondiversified unitary savings and loan holding company, and Superior Bank, as a federal savings bank, are required by federal law to report to, and otherwise comply with the rules and regulations of, the Office of Thrift Supervision (“OTS”). We are subject to extensive regulation, examination and supervision by the OTS, as our primary federal regulator, and the Federal Deposit Insurance Corporation (the “FDIC”), as the deposit insurer. We are a member of the FHLB System and, with respect to deposit insurance, of the Deposit Insurance Fund managed by the FDIC. We must file periodic reports with the OTS and the FDIC concerning our 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. The OTS conducts periodic examinations to test our safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a thrift can engage and is intended primarily for the protection of the insurance fund and depositors. 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. A number of proposals have been introduced in Congress to change the regulation of financial institutions like Superior Bancorp and Superior Bank. Any change in regulatory requirements and policies, whether by the OTS, the FDIC or Congress, could have a material adverse impact on us and our operations. Certain regulatory requirements applicable to us are referred to below or elsewhere herein. The description of statutory provisions and regulations applicable to thrifts and their holding companies set forth below does not purport to be a complete description of such statutes and regulations and their effects on us and is qualified in its entirety by reference to the actual laws and regulations.
 
Holding Company Regulation.  We are a nondiversified unitary savings and loan holding company within the meaning of such terms under federal law. The Gramm-Leach-Bliley Act of 1999 provides that no company may acquire control of a savings institution after May 4, 1999, unless it engages only in the financial activities permitted for financial holding companies under the law or for multiple savings and loan holding companies as described below. Further, the Gramm-Leach-Bliley Act specifies that certain savings and loan holding companies may only engage in such activities. Since we became a savings and loan holding company in 2005, we are limited to such activities. Upon any non-supervisory acquisition by us of another savings institution or savings bank that meets the qualified thrift lender test and is deemed to be a savings institution by the OTS, we would become a multiple savings and loan holding company (if the acquired institution is held as a separate subsidiary) and would generally be


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limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the OTS, and certain activities authorized by the OTS regulations. However, the OTS has issued an interpretation concluding that multiple savings and loan holding companies may also engage in activities permitted for financial holding companies.
 
A savings and loan holding company is prohibited from directly or indirectly acquiring more than 5% of the voting stock of another financial institution or savings and loan holding company without prior written approval of the OTS and from acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire other institutions, the OTS considers, among other things, the financial and managerial resources and future prospects of the institutions involved, the effect of the acquisition on the risk to the deposit insurance funds, the convenience and needs of the community and competitive factors.
 
Subject to certain exceptions, the OTS may not approve any acquisition that would result in a multiple savings and loan holding company’s controlling savings institutions in more than one state.
 
Although savings and loan holding companies are not currently subject to specific capital requirements or specific restrictions on the payment of dividends or other capital distributions, Superior Bancorp has agreed to seek approval of the OTS prior to paying a dividend or making a capital contribution to its stockholders. Federal regulations also prescribe such restrictions on subsidiary savings institutions, as described below. Superior Bank must notify the OTS before declaring any dividend to Superior Bancorp. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the OTS, and the OTS has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution.
 
Change in Bank Control Act.  Under the Federal Change in Bank Control Act, a notice must be submitted to the OTS if any person, or group acting in concert, seeks to acquire “control” of a savings and loan holding company or a savings association. A change of control may occur, and prior notice may be required, upon the acquisition of more than 10% of our outstanding voting stock, unless the OTS has found that the acquisition will not result in a change of control of Superior Bancorp. Under the Change in Bank Control Act, the OTS generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition.
 
Regulation of Business Activities.  The activities of thrifts are governed by federal laws and regulations. These laws and regulations delineate the nature and extent of the activities in which thrifts may engage. In particular, certain lending authority for thrifts, that is, commercial loans, non-residential real property loans and consumer loans, is limited to a specified percentage of the institution’s capital or assets.
 
Capital Requirements.  The OTS capital regulations require savings institutions to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the regulatory examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest examination rating), and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard.
 
The risk-based capital standard for savings institutions requires the maintenance of ratios of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, and assigned by the OTS capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital includes, among other things, common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus, and minority interests in equity accounts of consolidated subsidiaries. The components of supplementary capital currently include, among other things, mandatory convertible securities, and the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.


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The OTS also has authority to establish minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular circumstances. At December 31, 2009, Superior Bank met each of its capital requirements.
 
Prompt Corrective Regulatory Action.  The OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (less than 3% for institutions with the highest examination rating) is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio of less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized”, and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the OTS is required to appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.” The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date a savings institution receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.
 
Insurance of Deposit Accounts.  Superior Bank is a member of the Deposit Insurance Fund of the FDIC. The FDIC maintains a risk-based assessment system by which institutions are assigned to one of four categories based upon a combination of their capitalization and examination ratings. An institution’s assessment depends upon the category to which it is assigned. An institution assigned to the category with the lowest risk also has certain financial ratios taken into account in determining assessment rates, unless it is a large institution with at least one long-term debt issuer rating, in which case the rating will be taken into account in determining its assessment rate. Assessment rates for Deposit Insurance Fund members were amended effective April 1, 2009, to provide for an initial base assessment rate ranging from 12 basis points for the healthiest institutions to 45 basis points for the riskiest. The initial base assessment rate will be subject to potential decrease for long-term unsecured debt and, for smaller institutions, a portion of Tier 1 capital, and potential increases for secured liabilities above a certain amount and, for institutions not in the lowest risk category, brokered deposits above a certain amount. The adjusted assessment rates can range from seven basis points for institutions in the lowest risk category to 77.5 basis points for institutions in the highest risk category. The FDIC also imposed an emergency special assessment of up to five basis points on all insured depository institutions as of June 30, 2009. The FDIC required all insured institutions to prepay insurance premiums through 2012. In the case of Superior, this prepayment aggregated $15.9 million in the fourth quarter of 2009. Future increases in Deposit Insurance Fund insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Superior Bank. Management cannot predict what insurance assessment rates will be in the future.
 
In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize the predecessor to the Savings Association Insurance Fund. During fiscal year 2008, Financing Corporation payments for Savings Association Insurance Fund members approximated 1.12 basis points of assessable deposits.
 
Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.
 
Loans to One Borrower.  Federal law provides that savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. Generally, subject to certain exceptions, a savings institution may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired


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capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral.
 
QTL Test.  Federal law requires savings institutions to meet a qualified thrift lender test. Under the test, a savings association is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities) in at least nine months out of each 12-month period.
 
A savings institution that fails the qualified thrift lender test is subject to certain operating restrictions and may be required to convert to a bank charter. As of December 31, 2009, Superior Bank met the qualified thrift lender test. Recent legislation has expanded the extent to which education loans, credit card loans and small business loans may be considered “qualified thrift investments.”
 
Limitations on Capital Distributions.  The OTS regulations impose limitations upon all capital distributions by a savings institution, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to and prior approval of the OTS is required prior to any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under the OTS regulations, the total capital distributions (including the proposed capital distribution) for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the OTS. If an application is not required, the institution must still provide prior notice to the OTS of the capital distribution if, like Superior Bank, it is a subsidiary of a holding company. In the event Superior Bank’s capital fell below its regulatory requirements or the OTS notified it that it was in need of increased supervision, Superior Bank’s ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice.
 
Transactions with Related Parties.  Superior Bank’s authority to engage in transactions with “affiliates” (i.e., any company that controls or is under common control with Superior Bank, including Superior Bancorp and its non-savings institution subsidiaries) is limited by federal law. The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of a savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low quality assets from affiliates is generally prohibited. The transactions with affiliates must be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies, and no savings institution may purchase the securities of any affiliate other than a subsidiary.
 
The Sarbanes-Oxley Act of 2002 generally prohibits loans by public companies to their executive officers and directors. However, that act contains a specific exception for loans by a financial institution, such as Superior Bank, to its executive officers and directors that are made in compliance with federal banking laws. Under such laws, Superior Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The law limits both the individual and aggregate amount of loans Superior Bank may make to insiders based, in part, on Superior Bank’s capital position and requires certain board approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees.
 
Standards for Safety and Soundness.  The federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness. These guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital


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becomes impaired. If the OTS determines that a savings institution fails to meet any standard prescribed by the guidelines, the OTS may require the institution to submit an acceptable plan to achieve compliance with the standard.
 
Enforcement.  The OTS has primary enforcement responsibility over savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil money penalties cover a wide range of violations and can amount to up to $1.25 million per day in especially egregious cases. In addition, the FDIC has the authority to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.
 
FHLB System.  Superior Bank is a member of the FHLB System, which consists of 12 regional Federal Home Loan Banks. The FHLB System provides a central credit facility primarily for member institutions. Superior Bank, as a member of the FHLB System, is required to acquire and hold shares of capital stock in the applicable FHLB (Atlanta) in an amount at least equal to 0.18% of our total assets not to exceed $25 million plus 4.5% of our outstanding advances. Superior Bank was in compliance with this requirement at December 31, 2009, with an investment in FHLB stock of $18.2 million.
 
Federal Reserve System.  The Federal Reserve Board regulations require savings institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $44.4 million; a 10% reserve ratio is applied above $44.4 million. The first $10.3 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. These amounts are adjusted annually. Superior Bank complies with the foregoing requirements.
 
Community Reinvestment Act.  Superior Bank is subject to the CRA. The CRA and the regulations issued thereunder are intended to encourage financial institutions to help meet the credit needs of their service areas, including low and moderate income neighborhoods, consistent with the safe and sound operations of the financial institutions. These regulations also provide for regulatory assessment of an institution’s record in meeting the needs of its service area when considering applications to establish branches, merger applications, applications to engage in new activities and applications to acquire the assets and assume the liabilities of another institution. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) requires federal banking agencies to make public a rating of an institution’s performance under the CRA. In the case of a holding company involved in a proposed transaction, the CRA performance records of the banks involved are reviewed by federal banking agencies in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or thrift or to merge with any other bank holding company. An unsatisfactory record can substantially delay or block the transaction. Superior Bank maintains a satisfactory CRA rating.
 
Confidentiality of Customer Information.  Federal laws and regulations, including the Gramm-Leach-Bliley Act, require that financial institutions take certain steps to protect the security and confidentiality of customers’ non-public personal information. Among other things, these regulations restrict the ability of financial institutions to share non-public customer information with non-affiliated third parties and require financial institutions to provide customers with information about their privacy policies. Superior Bank has procedures in place that are intended to comply with these requirements.
 
Bank Secrecy Act.  Superior Bancorp and Superior Bank are subject to the federal Bank Secrecy Act of 1970, as amended, which establishes requirements for recordkeeping and reporting by banks and other financial institutions designed to help identify the source, volume and movement of currency and monetary instruments into and out of the United States in order to help detect and prevent money laundering and other illegal activities. The Bank Secrecy Act requires financial institutions to develop and maintain a program reasonably designed to ensure and monitor compliance with its requirements, to train employees in such program, and to test the


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effectiveness of such program. Any failure to meet the requirements of the Bank Secrecy Act can involve substantial penalties and adverse regulatory action. We have adopted policies and procedures intended to comply with the requirements of the Bank Secrecy Act.
 
USA Patriot Act.  The USA Patriot Act, passed in 2001, strengthened the ability of the United States government to detect and prosecute international money laundering and the financing of terrorism. Among its provisions, the USA Patriot Act requires that regulated financial institutions: (i) establish an anti-money laundering program that includes training and audit components; (ii) comply with regulations regarding the verification of the identity of any person seeking to open an account; (iii) take additional required precautions with non-U.S. owned accounts; and (iv) perform certain verification and certification of money laundering risk for any foreign correspondent banking relationships. We have adopted policies, procedures and controls to address compliance with the requirements of the USA Patriot Act under the existing regulations and will continue to revise and update our policies, procedures and controls to reflect changes required by the USA Patriot Act and implementing regulations.
 
Consumer Laws and Regulations.  In addition to the laws and regulations discussed herein, Superior Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act and the Real Estate Settlement Procedures Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits from, making loans to, or engaging in other types of transactions with, such customers.
 
Emergency Economic Stabilization Act.  In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, the United States Department of the Treasury (” the Treasury Department”) was given the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.
 
On October 14, 2008, the Secretary of the Treasury Department announced that the Treasury Department would purchase equity stakes in a wide variety of banks and thrifts. Under the program, known as the Troubled Asset Relief Program Capital Purchase Program (the “CPP”), from the $700 billion authorized by the EESA, the Treasury Department made $250 billion of capital available to U.S. financial institutions, usually through the purchase of preferred stock. The Treasury Department was to receive from participating financial institutions, warrants to purchase common stock with an aggregate market price equal to 15% of the preferred stock investment. Participating financial institutions were required to adopt the Treasury Department’s standards for executive compensation and corporate governance for the period during which the Treasury Department holds equity issued under the CPP.
 
On December 5, 2008, Superior Bancorp issued and sold, and the Treasury Department purchased, (i) 69,000 shares (the “Preferred Stock”) of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and (ii) a ten-year warrant to purchase up to 1,923,792 shares of its voting common stock, par value $0.001 per share, at an exercise price of $5.38 per share, for an aggregate purchase price of $69 million in cash. The issuance and sale of these securities was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. On December 11, 2009, Superior Bancorp and the Treasury Department entered into an exchange agreement pursuant to which the Preferred Stock held by the Treasury Department was exchanged for new trust preferred securities issued by Superior Capital Trust II, a wholly-owned subsidiary of Superior Bancorp. Participants in the CPP were required to accept several compensation-related limitations. Each of Superior Bancorp’s senior executive officers on December 5, 2008 agreed in writing to accept the compensation standards in existence at that time under the CPP and thereby cap or eliminate some of


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their contractual or legal rights. The provisions agreed to were as follows (but see below under the heading “American Recovery and Reinvestment Act of 2009” for more recently enacted compensation standards):
 
  •  No golden parachute payments.  “Golden parachute payment” under the CPP means a severance payment resulting from involuntary termination of employment, or from bankruptcy of the employer, that exceeds three times the terminated employee’s average annual base salary over the five years prior to termination. Superior Bancorp’s senior executive officers have agreed to forego all golden parachute payments for as long as: (i) they remain “senior executive officers” (CEO, CFO and the next three highest-paid executive officers); (ii) and the Treasury Department continues to hold equity or debt securities Superior Bancorp issued to it under the CPP (the “Covered Period”).
 
  •  Recovery of Bonuses and Incentive Compensation if Based on Certain Material Inaccuracies.  Superior Bancorp’s officers have also agreed to a “clawback provision,” which means that we can recover incentive compensation paid during our participation in the CPP that is later found to have been based on materially inaccurate financial statements or other materially inaccurate measurements of performance.
 
  •  No Compensation Arrangements That Encourage Excessive Risks.  During the Covered Period, we are not allowed to enter into compensation arrangements that encourage senior executive officers to take “unnecessary and excessive risks that threaten the value” of our company. To make sure this does not happen, Superior Bancorp’s Compensation Committee is required to meet at least once a year with our senior risk officers to review our executive compensation arrangements in the light of our risk management policies and practices. Our senior executive officers’ written agreements include their obligation to execute whatever documents may be required in order to make any changes in compensation arrangements resulting from the Compensation Committee’s review.
 
  •  Limit on Federal Income Tax Deductions.  During the Covered Period, we are not allowed to take federal income tax deductions for compensation paid to senior executive officers in excess of $500,000 per year, with certain exceptions that do not apply to our senior executive officers.
 
American Recovery and Reinvestment Act of 2009.  On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (the “ARRA”) into law. The ARRA modified the compensation-related limitations contained in the CPP, created additional compensation-related limitations and directed the Secretary of the Treasury Department to establish standards for executive compensation applicable to participants in the CPP, regardless of when participation commenced. Thus, the newly enacted compensation-related limitations are applicable to Superior Bancorp, and, to the extent the Treasury Department may implement these restrictions unilaterally, Superior Bancorp will apply these provisions.
 
  •  No severance payments.  Under the ARRA “golden parachutes” were redefined as any payment for departure from the Company for any reason, except for payments for services performed or benefits accrued. Consequently under the ARRA Superior Bancorp is prohibited from making any severance payment to our “senior executive officers” (defined in the ARRA as the five highest paid senior executive officers) and our next five most highly compensated employees during the Covered Period).
 
  •  Recovery of Incentive Compensation if Based on Certain Material Inaccuracies.  The ARRA also contains the “clawback provision” discussed above but extends its application to any bonus awards and other incentive compensation paid to any senior executive officers or the next 20 most highly compensated employees during the Covered Period that is later found to have been based on materially inaccurate financial statements or other materially inaccurate measurements of performance.
 
  •  No Compensation Arrangements That Encourage Earnings Manipulation.  During the Covered Period, the ARRA prohibits compensation arrangements that encourage manipulation of reported earnings to enhance the compensation of any employees.
 
  •  Limit on Incentive Compensation.  The ARRA contains a provision that prohibits the payment or accrual of any bonus, retention award or incentive compensation to any senior executive officers during the Covered Period other than awards of long-term restricted stock that (i) do not fully vest during the Covered Period, (ii) have a value not greater than one-third of the total annual compensation of the officer and (iii) are subject


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  to such other restrictions as determined by the Secretary of the Treasury Department. The prohibition on bonus, incentive compensation and retention awards does not preclude payments required under written employment contracts entered into on or prior to February 11, 2009.
 
  •  Compensation and Human Resources Committee Functions.  The ARRA requires that the compensation committees of CPP recipients be composed solely of independent directors and that those compensation committees meet at least semiannually to discuss and evaluate employee compensation plans in light of an assessment of any risk posed from such compensation plans.
 
  •  Compliance Certifications.  The ARRA also requires a written certification by CEOs and CFOs of compliance with the provisions of the ARRA.
 
  •  Treasury Department Review of Excessive Bonuses Previously Paid.  The ARRA directs the Secretary of the Treasury Department to review all compensation paid to the senior executive officers and the next 20 most highly compensated employees of CPP participants to determine whether any such payments were inconsistent with the purposes of the ARRA or were otherwise contrary to the public interest. If the Secretary of the Treasury Department makes such a finding, the Secretary of the Treasury Department is directed to negotiate with the CPP participant and the subject employee for appropriate reimbursements to the federal government with respect to the compensation and bonuses.
 
  •  Say on Pay Vote.  Under the ARRA the Securities and Exchange Commission is required to promulgate rules requiring a non-binding “say on pay” vote by the shareholders on executive compensation at the annual meeting during the Covered Period. Superior Bancorp has included such a proposal in its Proxy Statement for its upcoming 2010 annual stockholders’ meeting.
 
Temporary Liquidity Guarantee Program.  On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (the “TLG Program”). The TLG Program was announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the Secretary of the Treasury Department, as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the TLG Program the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008, and before June 30, 2009 and (ii) provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts and NOW accounts paying less than 0.5% interest per annum through December 31, 2009. Coverage under the TLG Program was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. During the first week of December 2008, Superior Bancorp elected to participate in both guarantee programs.
 
Instability of Regulatory Structure
 
Various bills are routinely introduced in the United States Congress and state legislatures with respect to the regulation of financial institutions. In addition, there has been a significant increase over the past year in legislative proposals and proposals by the administration to re-regulate financial institutions on a fundamental basis. Some of these proposals, if adopted, could significantly change the regulation of banks, thrifts and the financial services industry. We cannot predict whether any of these proposals will be adopted or, if adopted, how these proposals would affect Superior Bancorp.
 
Effect on Economic Environment
 
The policies of regulatory authorities, especially the monetary policy of the Federal Reserve Board, have a significant effect on the operating results of savings and loan holding companies and their subsidiaries. Among the means available to the Federal Reserve Board to affect the money supply are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid for deposits.


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Federal Reserve Board monetary policies have materially affected the operating results of commercial banks and thrifts in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of such policies on our business and earnings cannot be predicted.
 
Available Information
 
We maintain an Internet website at www.superiorbank.com. We make available free of charge through our website various reports that we file with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports. These reports are made available as soon as reasonably practicable after these reports are filed with, or furnished to, the Securities and Exchange Commission. From our home page at www.superiorbank.com, go to and click on “About Superior” and click on “SEC Filings” to access these reports. You may read and copy any document Superior Bancorp files with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information about the public reference room. The Securities and Exchange Commission maintains a website at www.sec.gov that contains reports, proxy and other information statements regarding issuers, like us, that file electronically with the Securities and Exchange Commission.
 
Code of Ethics
 
We have adopted a code of ethics that applies to all of our employees, including our principal executive, financial and accounting officers. A copy of our code of ethics is available on our website. We intend to disclose information about any amendments to, or waivers from, our code of ethics that are required to be disclosed under applicable Securities and Exchange Commission regulations by providing appropriate information on our website. If at any time our code of ethics is not available on our website, we will provide a copy of it free of charge upon written request.
 
Item 1A.   Risk Factors.
 
Enterprise Risk Management (“ERM”)
 
Our business, and an investment in our securities, involves risks. Our internal ERM program is a process designed to identify and manage inherent risks within our allowable risk profile and to provide reasonable assurance regarding achievement of our objectives. ERM activities are coordinated by the Chief Risk Officer and include participation of the business line managers and oversight by executive management. During the past year, our Board of Directors approved an ERM policy and delegated responsibility for Board of Directors oversight to the Audit and ERM Committee. Also, the Board of Directors approved the first two phases of implementation.
 
In phase one, we identified and documented the major risks to be tracked. These are: (1) capital, (2) compliance, regulatory, legislative, legal and governance, (3) credit, (4) interest rate risk, liquidity and funding, (5) investments, (6) operational, information technology, and environmental, (7) reporting, (8) reputational, (9) strategic and (10) compensation and human resources.
 
Capital risk is the ability to hold adequate levels of capital so that we can absorb unexpected losses and withstand the stresses that arise from the ups and downs of the economy. Compliance, regulatory, legislative, legal and governance risk is the risk of loss resulting from failure to comply with laws as well as prudent ethical standards and contractual obligations. Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. Interest rate risk, liquidity, and funding risk focus on the impact to earnings and capital arising from movements in interest rates, the inability to accommodate liability maturities and deposit withdrawals, fund asset growth and meet contractual obligations through unconstrained access to funding at reasonable market rates. Investment risk is the variability of returns produced by an investment. Operational, information technology, and environmental risk is the risk of loss resulting from inadequate or failed internal processes, people and information systems or external events. Reporting risk includes events that may occur and adversely affect our ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. Reputational risk is the risk to earnings and capital arising from a negative public opinion and is assessed by recognizing the potential effect the public’s opinion could have on our franchise value. Strategic risk is the risk that adverse business decisions, ineffective or inappropriate business plans or failure to respond to changes in the


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competitive environment, business cycles, customer preferences, product obsolescence, execution and/or other intrinsic risks of business will impact our ability to meet our objectives. Compensation and human resource risk is the risk to current and future earnings arising from the inability to attract and retain talented employees, to comply with applicable laws, and to manage through human calamities such as management succession, management capabilities, local labor conditions, and employee tragedies (illness, injury or death).
 
After identifying these risks, we surveyed our business to determine the risk tracking and measuring activities already taking place. The measuring activities were documented by quarter throughout the year and compared to regulatory limits, if applicable, Board of Directors limits and/ or management established targets. Each risk was evaluated in the following four categories: (1) Inherent risk represents the risk to the company in the absence of any actions management might take to alter either the risk’s likelihood or impact, and is assessed as low, moderate, or high; (2) Quality of risk management is how well risks are identified, measured, controlled and monitored, and is assessed as weak, satisfactory, or strong; (3) Residual risk is a summary judgment of the risk that remains after management’s response to the risk, and is assessed as low, moderate, or high; and (4) Direction of risk indicates likely changes to the risk profile over the next twelve months and is assessed as increasing, stable, or decreasing. We provided a full report of the analytics, measuring activities, and assessments to the Audit and ERM Committee and a summary dashboard report was provided to the Board of Directors showing the outcome of the assessments of the risk categories. This reporting process will be continued in future quarters.
 
During the second phase risk owners identified the risks in their respective areas and evaluated the likelihood and impact of occurrence. The top ten risks where likelihood is almost certain and impact is major were identified and documented. These risks will be discussed with executive management and reported to the Audit and ERM Committee and Board of Directors at the next quarterly meetings. This reporting process will be continued in future quarters.
 
The ERM program is a continuous process to evaluate current risks and the appropriate analytics to measure it, and to evaluate action needed.
 
The following summary describes factors we believe are material risks relating to our business and to the ownership of our securities. Our discussion of these risks contains forward-looking statements, and our actual results may differ materially from those anticipated by such forward-looking statements. In addition, financial condition and results of operations, and the market price of our common stock, may be substantially affected by other risks, including risks we have not identified or that we may believe are immaterial or unlikely. This summary does not purport to describe all risks that might possibly affect our business, financial condition or results of operations or the market price of our common stock.
 
Risks Relating To Our Business
 
Recent Negative Developments in the Financial Services Industry and U.S. and Global Credit Markets May Adversely Impact Our Operations and Results.  Negative developments in the latter half of 2007, throughout 2008 and into 2009 in the capital markets have resulted in uncertainty in the financial markets in general with the expectation of the general economic downturn into 2010 and possibly beyond. Loan portfolio performances have deteriorated at many institutions resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. The competition for our deposits has increased significantly due to liquidity concerns at many of those same institutions. Stock prices of thrift holding companies, such as ours, have been negatively affected by the current condition of the financial markets, as has our ability, if needed, to raise capital or borrow in the debt markets compared to recent years. Further negative developments in the financial services industry could negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance.
 
If the interest payments we make on our deposits increase relative to our interest income, we may be less profitable.  Our profitability depends to a large extent on Superior Bank’s net interest income, which is the difference between income from interest-earning assets, such as loans we make and investment securities we hold, and interest we pay on deposits and our own borrowings. Our net interest income is affected not only by actions we take, but by changes in general interest rate levels and by other economic factors beyond our control. Our net interest income may be reduced if (i) more interest-earning assets than interest-bearing liabilities re-price or mature


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at a time when interest rates are declining, or (ii) more interest-bearing liabilities than interest-earning assets re-price or mature at a time when interest rates are rising.
 
In addition, we may be affected by changes in the difference between short- and long-term interest rates. For example, short-term deposits may be used to support longer-term loans. If the difference between short-and long-term interest rates becomes smaller, the spread between the rates we pay on deposits and borrowings and the rates we receive on loans we make could narrow significantly, decreasing our net interest income.
 
Further, if market interest rates rise rapidly, interest rate adjustment caps may limit our ability to increase interest rates on adjustable-rate mortgage loans, but we may have to pay higher interest rates on deposits and borrowings. This could cause our net interest income to decrease.
 
An increase in loan prepayments may adversely affect our profitability.  The rate at which borrowers prepay loans is dependent on a number of factors outside our control, including changes in market interest rates, conditions in the housing and financial markets and general economic conditions. We cannot always accurately predict prepayment rates. If the prepayment rates with respect to our loans are greater than we anticipate, there may be a negative impact on our profitability because we may not be able to reinvest prepayment proceeds at rates comparable to those we received on the prepaid loans, particularly in a time of falling interest rates.
 
If our allowance for loan losses is inadequate, our profitability will be reduced.  We are exposed to the risk that our customers will be unable to repay their loans in accordance with their terms and that any collateral securing such loans will be insufficient to ensure full repayment. Such credit risk is inherent in the lending business, and our failure to adequately assess such credit risk could have material adverse effect on our financial condition and results of operations. We evaluate the collectability of our loan portfolio and review our evaluation on a regular basis, and we provide an allowance for loan losses that we believe is adequate based on various factors that we believe may affect the credit quality of our loans. However, there can be no assurance that actual loan losses will not exceed the allowance that we have established, as such allowance is adjusted from time to time.
 
If our allowance for loan losses is inadequate for the actual losses we experience, there could be a material adverse effect on our results of operations. In addition, if as a result of our perception of adverse trends, we materially increase our allowance for loan losses in the future, such increase would also reduce our earnings.
 
Events in our geographic markets could adversely affect us.  Our business is concentrated in six geographic regions in Alabama and Florida. Any adverse changes in market or economic conditions in Florida and Alabama may increase the risk that our customers will be unable to make their loan payments. In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in local market conditions and general economic conditions. Any period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in general or in our markets in Florida and Alabama could adversely affect our results of operations and financial condition.
 
With most of our loans concentrated in a small number of markets, further declines in local economic conditions could adversely affect the values of our real estate collateral. Thus, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.
 
In addition, natural disasters, such as hurricanes and tornados, in our markets could adversely affect our business. The occurrence of such natural disasters in our markets could result in a decline in the value or destruction of mortgaged properties and in an increase in the risk of delinquencies, foreclosures or losses on these loans and may impact our customers’ ability to repay loans.
 
We face substantial competition.  There are numerous competitors in our geographic markets, including national, regional and local banks and thrifts and other financial services businesses, some of which have substantially greater resources, higher brand visibility and a wider geographic presence than we have. Some of these competitors may offer a greater range of services, more favorable pricing and greater customer convenience than we are able to. In addition, in some of our markets, there are a significant number of new banks and other financial institutions that have opened in the recent past or are expected to open in the near future, and such new


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competitors may also seek to exploit our markets and customer base. If we are unable to maintain and grow our market share in the face of such competition, our results of operations will be adversely affected.
 
We are subject to extensive regulation.  Our operations are subject to regulation by the OTS and the FDIC. We are also subject to applicable regulations of the FHLB. Regulation by these entities is intended primarily for the protection of our depositors and the deposit insurance fund and not for the benefit of our stockholders. We may incur substantial costs in complying with such regulations, and our failure to comply with them may expose us to substantial penalties.
 
In addition, we are subject to numerous consumer protection laws and other laws relating to the operation of financial institutions. Our failure to comply with such laws could expose us to liability, which could have a material adverse effect on our results of operations.
 
Federal regulation of the banking industry may change significantly due to the unprecedented economic decline and conditions in the banking industry.  Banking regulations are being reexamined, and the framework of bank regulatory organizations reconsidered, in the aftermath of the recent economic decline. In addition, for those financial institutions that were eligible for participation in the Treasury Department’s CPP (as Superior Bancorp was) new regulations have been promulgated addressing lending activity and compensation. The effect of these developments, including future regulatory changes, is impossible to predict.
 
Due to the current economic environment, the United States Congress and the federal banking regulators may consider any number of proposals for increased or different regulation of financial institutions. We cannot predict at this time what the effect of such changes in regulation would be.
 
We may require additional capital to fund our growth plans and to augment our capital.  Our business strategy includes the expansion of our business through the development of new locations and through the acquisition of other financial institutions and, to the extent permitted by applicable law, complementary businesses as appropriate opportunities arise. In order to finance such growth and to maintain required regulatory capital levels, we may require additional capital in the future. There can be no assurance that such capital will be available upon favorable terms, or at all.
 
We are dependent upon the services of our management team.  Our operations and strategy are directed by our senior management team, most of whom have joined Superior Bancorp since January 2005. Any loss of the services of members of our management team could have a material adverse effect on our results of operations and our ability to implement our business strategy.
 
Additional requirements under our regulatory framework, especially those imposed under ARRA, EESA or other legislation intended to strengthen the U.S. financial system, could adversely affect us.  Recent government efforts to strengthen the U.S. financial system, including the implementation of the ARRA, the EESA, the Temporary Liquidity Guarantee Program (“TLGP”) and special assessments imposed by the FDIC, subject participants to additional regulatory fees, corporate governance requirements, restrictions on executive compensation, restrictions on declaring or paying dividends, restrictions on stock repurchases, limits on executive compensation tax deductions and prohibitions against golden parachute payments. These fees, requirements and restrictions, as well as any others that may be imposed subsequently, may have a material and adverse effect on our business, financial condition, and results of operations.
 
The imposition of certain restrictions on our executive compensation as a result of our decision to participate in the CPP may have material adverse effects on our business and results of operations.  As a result of our election to participate in CPP, we have adopted the Treasury Department’s standards for executive compensation and corporate governance for the period during which the Treasury Department holds equity issued under the CPP. These standards generally apply to our Chief Executive Officer, our Chief Financial Officer and the three next most highly compensated executive officers, referred to collectively as the senior executive officers, and, in the case of some standards, to other of our employees as well. The standards include: (i) ensuring that incentive compensation plans and arrangements do not encourage unnecessary and excessive risks that threaten the value of us and Superior Bank, (ii) prohibiting a bonus payment to any of the five most highly compensated employees unless paid in the form of long-term restricted stock, (iii) requiring a “clawback” of any bonus or incentive compensation paid to a senior executive officer or any of the 20 next most highly compensation employees based on statements of earnings,


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gains or other criteria that are later proven to be materially inaccurate, (iv) prohibiting golden parachute payments to a senior executive officer or any of the five next most highly compensated employees, (v) prohibiting reimbursement or “gross-up” of taxes paid with respect to compensation for any of our senior executive officers or the 20 next most highly compensated employees, and (vi) agreeing not to deduct for tax purposes compensation paid to an employee in excess of $500,000. These restrictions may place us at a competitive disadvantage in attracting and retaining management.
 
The holders of our subordinated debentures have rights that are senior to those of our stockholders.  As of December 31, 2009, we had $121.7 million of subordinated debentures issued in connection with trust preferred securities including $69,100,000 issued in connection with the trust preferred securities held by the Treasury Department. Payments of the principal and interest on the trust preferred securities are unconditionally guaranteed by us. The subordinated debentures are senior to our common stock. As a result, we must make payments on the subordinated debentures (and the related trust preferred securities) before any dividends, even if otherwise payable, can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to the holders of our common stock. We have the right to defer distributions on the subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid to holders of our common stock.
 
Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.  FDIC insurance premiums increased substantially in 2009, and we expect to pay significantly higher FDIC premiums in the future. Market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. The FDIC adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009, which raised deposit insurance premiums. On May 22, 2009, the FDIC also implemented a five-basis-point special assessment of each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009, but no more than 10 basis points times the institution’s assessment base for the second quarter of 2009, to be collected on September 30, 2009. Additional special assessments may be imposed by the FDIC for future periods. We participate in the FDIC’s Temporary Liquidity Guarantee Program, or TLGP, for noninterest-bearing transaction deposit accounts. Banks that participate in the TLGP’s noninterest-bearing transaction account guarantee will pay the FDIC an annual assessment of 10 basis points on the amounts in such accounts above the amounts covered by FDIC deposit insurance. To the extent that these TLGP assessments are insufficient to cover any loss or expenses arising from the TLGP, the FDIC is authorized to impose an emergency special assessment on all FDIC-insured depository institutions. The FDIC has authority to impose charges for the TLGP upon depository institution holding companies, as well. These changes, along with the full utilization of our FDIC insurance assessment credit in early 2009, will cause the premiums and TLGP assessments charged by the FDIC to increase. These actions could significantly increase our noninterest expense currently and for the foreseeable future. The FDIC required all insured institutions to prepay insurance premiums through 2012 in order to recapitalize the Deposit Insurance Fund. In the case of Superior, this prepayment aggregated $15.9 million in the fourth quarter of 2009. Future increases in Deposit Insurance Fund insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Superior Bank. Management cannot predict what insurance assessment rates will be in the future.
 
If we defer payments of interest on our outstanding junior subordinated debentures or if certain defaults relating to those debentures occur, we will be prohibited from declaring or paying dividends or distributions on, and from making liquidation payments with respect to, our common stock.  At December 2009, we had outstanding $121.7 million aggregate principal amount of junior subordinated debentures issued in connection with the sale of trust preferred securities through statutory business trusts. We have unconditionally guaranteed these trust preferred securities. There are currently five separate series of these junior subordinated debentures outstanding, each series having been issued under a separate indenture and with a separate guarantee. Each of these indentures, together with the related guarantee, prohibits us, subject to limited exceptions, from declaring or paying any dividends or distributions on, or redeeming, repurchasing, acquiring or making any liquidation payments with respect to, any of our capital stock at any time when (i) there shall have occurred and be continuing an event of default under such indenture or any event, act or condition that with notice or lapse of time or both would constitute an event of default under such indenture; (ii) we are in default with respect to payment of any obligations under such guarantee; or (iii) we have deferred payment of interest on the junior subordinated debentures outstanding under that indenture. In


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that regard, we are entitled, at our option but subject to certain conditions, to defer payments of interest on the junior subordinated debentures of each series from time to time for up to five years.
 
Events of default under the indentures generally consist of our failure to pay interest on the junior subordinated debt securities under certain circumstances, our failure to pay any principal of or premium on such junior subordinated debt securities when due, our failure to comply with certain covenants under the indenture, and certain events of bankruptcy, insolvency or liquidation relating to us or Superior Bank.
 
As a result of these provisions, if we were to elect to defer payments of interest on any series of junior subordinated debentures, or if any of the other events described in clause (i) or (ii) of the first paragraph of this risk factor were to occur, we would be prohibited from declaring or paying any dividends on our common stock, from repurchasing or otherwise acquiring any such common stock, and from making any payments to holders of common stock in the event of our liquidation, which would likely have a material adverse effect on the market value of our common stock.
 
Risks Related To an Investment in Our Common Stock
 
Superior Bancorp’s stock price may be volatile due to limited trading volume and general market conditions.  Our common stock is traded on the NASDAQ Global Market. However, the average daily trading volume in our common stock is relatively small, typically less than 75,000 shares per day and sometimes less. Trades involving a relatively small number of shares may have a significant effect on the market price of our common stock, and it may be difficult for investors to acquire or dispose of large blocks of stock without significantly affecting the market price.
 
In addition, market fluctuations, industry factors, general economic conditions and political events, including economic slowdowns or recessions, interest rate changes or market trends, also could cause our stock price to decrease regardless of our operating results of operations. Stock prices of thrift holding companies, such as ours, have been negatively affected by the current condition of the financial markets.
 
Our ability to pay dividends is limited.  Our ability to pay dividends is limited by regulatory requirements and the need to maintain sufficient consolidated capital to meet the capital needs of our business, including capital needs related to future growth. Our primary source of income is the payment of dividends from Superior Bank to us. Superior Bank, in turn, is likewise subject to regulatory requirements potentially limiting its ability to pay such dividends to us and by the need to maintain sufficient capital for its operations and obligations. Further, we are obligated, subject to regulatory limitations, to make periodic distributions on our trust preferred securities, subordinated debentures and preferred stock, which reduces the income that might otherwise be available to pay dividends on our common stock. Thus, there can be no assurance that we will pay dividends to our common stockholders, no assurance as to the amount or timing of any such dividends, and no assurance that such dividends, if and when paid, will be maintained, at the same level or at all, in future periods.
 
Use of our common stock for future acquisitions or to raise capital to augment our existing capital base may be dilutive to existing stockholders.  When we determine that appropriate strategic opportunities exist, we may acquire other financial institutions and related businesses, subject to applicable regulatory requirements. We may use our common stock for such acquisitions. From time to time, we may also seek to raise capital through selling additional common stock. It is possible that the issuance of additional common stock in such acquisition or capital transactions may be dilutive to the ownership interests of our existing stockholders.
 
Item 1B.   Unresolved Staff Comments.
 
Not applicable.
 
Item 2.   Properties.
 
Our headquarters are located at 17 North 20th Street, Birmingham, Alabama. As of December 21, 1999, Superior Bancorp and Superior Bank, who jointly owned the building, converted the building into condominiums known as The Bank Condominiums. Superior Bank owns 16 condominium units. This space includes a branch of Superior Bank, various administrative offices, operations facilities and our headquarters. Thirteen units are owned by third parties. We have leased or are pursuing the lease or sale of certain units (or parts thereof) not currently needed for our operations.


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We operate through facilities at 97 locations. We own 48 of these facilities and lease 49 of these facilities. Rental expense on the leased properties totaled approximately $3.8 million in 2009.
 
Item 3.   Legal Proceedings.
 
While we are a party to various legal proceedings arising in the ordinary course of our business, we believe that there are no proceedings threatened or pending against us at this time that will individually, or in the aggregate, materially and adversely affect our business, financial condition or results of operations. We believe that we have strong claims and defenses in each lawsuit in which we are involved. While we believe that we will prevail in each lawsuit, there can be no assurance that the outcome of the pending, or any future, litigation, either individually or in the aggregate, will not have a material adverse effect on our business, our financial condition or our results of operations.
 
Item 4.   Submission of Matters to a Vote of Security Holders.
 
Our stockholders, at a special meeting held on November 19, 2009, voted to approve an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 20 million to 200 million as follows:
 
                             
            Broker
For
 
Against
 
Abstain
 
Non-Votes
 
  7,446,967       1,765,439       138,851       0  
 
PART II
 
Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Market for Common Stock
 
Our common stock trades on the NASDAQ Global Market under the ticker symbol “SUPR.” As of March 3, 2010, there were approximately 3,108 record holders of our common stock. The following table sets forth, for the calendar periods indicated, the range of high and low reported sales prices:
 
                 
    High     Low  
 
2008
               
First Quarter
  $ 24.24     $ 17.00  
Second Quarter
    22.64       8.30  
Third Quarter
    12.50       5.41  
Fourth Quarter
    9.00       2.53  
2009
               
First Quarter
  $ 4.38     $ 1.69  
Second Quarter
    5.75       2.60  
Third Quarter
    3.99       1.96  
Fourth Quarter
    3.97       1.50  
2010
               
First Quarter (through March 3, 2010)
  $ 3.81     $ 2.71  
 
On March 3, 2010, the last reported sale price for the common stock was $3.00 per share.
 
Issuer Purchases of Equity Securities
 
As discussed in the “Supervision and Regulation” section of Item 1. “Business” of this Annual Report on Form 10-K, Superior Bancorp’s ability to repurchase its common stock is limited by the terms of the Purchase Agreement between Superior Bancorp and the Treasury Department. Under the CPP, the consent of the Treasury Department is required to repurchase any shares of common stock except in connection with benefit plans in the ordinary course of business and certain other limited exceptions prior to the earlier of (i) December 5, 2011, or


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(ii) the date on which the trust preferred securities held by the Treasury Department are redeemed in whole or the Treasury Department has transferred all of the trust preferred securities to unaffiliated third parties. On December 11, 2009 Superior Bancorp and the Treasury Department entered into an exchange agreement pursuant to which the Preferred Stock held by the Treasury Department was exchanged for new trust preferred securities issued by Superior Capital Trust II, a wholly-owned subsidiary of Superior Bancorp.
 
Dividends
 
On December 5, 2008, we issued 69,000 shares of preferred stock to the Treasury Department in connection with our receipt of $69 million pursuant to the Troubled Assets Relief Program Capital Purchase Program (“TARP”). Dividends on this preferred stock were payable quarterly at an annual rate of five percent for the first five years and thereafter at an annual rate of nine percent. On December 11, 2009, the preferred stock held by the Treasury Department was exchanged for 69,000 shares of trust preferred securities of Superior Capital Trust II, which have a liquidation amount of $1,000 and on which we pay interest at an equivalent rate.
 
Holders of our common stock are entitled to receive dividends when and if declared by our board of directors. We derive cash available to pay dividends primarily, if not entirely, from dividends paid to us by our subsidiaries. There are certain restrictions that limit Superior Bank’s ability to pay dividends to us and, in turn, our ability to pay dividends. The restrictions that may limit our ability to pay dividends are discussed in this Report in Item 1 under the heading “Supervision and Regulation — Limitations on Capital Distributions.” Our ability to pay dividends to our stockholders will depend on our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to our common stock and other factors deemed relevant by our board of directors. We do not currently pay dividends on our common stock, but expect to evaluate our common stock dividend policy from time to time as circumstances indicate, subject to applicable regulatory restrictions.
 
Equity Compensation Plan Information
 
The following table summarizes information as of December 31, 2009, relating to our equity compensation plans pursuant to which grants of options, restricted stock units or other rights to acquire shares may be granted in the future.
 
                         
    Number of
          Number of Shares
 
    Securities
          Remaining Available for
 
    to be Issued Upon
    Weighted-
    Future Issuance Under
 
    Exercise of
    Average Exercise
    Equity Compensation
 
    Outstanding
    Price of
    Plans (Excluding
 
    Options, Warrants
    Outstanding
    Securities Reflected
 
Plan Category
  and Rights     Options, Warrants     in Column (a))  
    (a)     (b)     (c)  
 
Equity Compensation Plans Approved by Security Holders(1)
    535,538     $ 22.07       132,459  
Equity Compensation Plans not Approved by Security Holders(2)
    391,025       33.39       53,011  
                         
Total
    926,563     $ 26.85       185,470  
                         
 
 
(1) Excludes 74,301 shares of restricted stock granted under the Third Amended and Restated 1998 Stock Incentive Plan of The Banc Corporation.
 
(2) Includes options covering (a) 390,735 shares issued to Messrs. Bailey, Scott and Gardner and three other management employees in connection with their employment agreements, (b) 53,011 shares reserved for issuance to other new management hires, and (c) 290 shares authorized and issued under the Commerce Bank of Alabama Stock Option Plan, which we assumed in the merger with Commerce Bank of Alabama in November 1998. We do not intend to grant any additional options under this plan.
 
2008 Incentive Compensation Plan.  The purpose of the Superior Bancorp 2008 Incentive Compensation Plan is to promote the success and enhance the value of Superior Bancorp by linking the personal interests of its directors, officers and employees to those of our stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to our stockholders. The plan is further intended to provide


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flexibility to us in its ability to motivate, attract, and retain the services of directors, officers and employees upon whose judgment, interest, and special effort the successful conduct of our operation is largely dependent. The plan authorizes the grant of incentive stock options, nonqualified stock options and other awards, including stock appreciation rights, restricted stock and performance shares. The plan covers 300,000 shares of our common stock. As of December 31, 2009, the Compensation Committee has granted options to purchase 205,850 shares of our common stock which remain outstanding and restricted stock awards covering 9,000 shares of our common stock which remain outstanding. Those shares may be, in whole or in part, authorized but unissued shares or issued shares that we have reacquired.
 
Our Compensation Committee, which administers the Superior Bancorp 2008 Incentive Compensation Plan, may grant options or other awards to employees, officers and directors of Superior Bancorp and its affiliates. The Compensation Committee, subject to the approval of the board of directors and the provisions of the plan, has full power to determine the types of awards to be granted, to select the individuals to whom awards will be granted, to fix the number of shares that each grantee may purchase, to set the terms and conditions of each award, and to determine all other matters relating to the plan.
 
Third Amended and Restated 1998 Stock Incentive Plan.  Superior Bancorp maintains the Third Amended and Restated 1998 Stock Incentive Plan of The Banc Corporation, but does not intend to make any additional awards under this plan. The plan authorizes the grant of incentive stock options, nonqualified stock options and other awards, including stock appreciation rights, restricted stock and performance shares. As of December 31, 2009, the Compensation Committee has granted options to purchase 327,528 shares of our common stock which remain outstanding and restricted stock awards covering 65,301 shares of our common stock which remain outstanding.
 
The Commerce Bank of Alabama Stock Incentive Compensation Plan.  We assumed the Commerce Bank of Alabama Incentive Compensation Plan in our acquisition of Commerce Bank of Alabama on November 6, 1998. This plan authorized the grant of incentive and nonqualified options to purchase common stock of Superior Bancorp. As of December 31, 2009, there were options outstanding under this plan to purchase 290 shares of common stock. We have not granted and do not intend to grant any additional options under this plan.


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Performance Graph
 
The performance graph below compares our cumulative shareholder return on our common stock over the last five fiscal years to the cumulative total return of the NASDAQ Composite Index and the NASDAQ Financial Index. Our cumulative shareholder return over a five-year period is based on an initial investment of $100 on December 31, 2004.
 
(PERFORMANCE GRAPH)
 
                                                 
    Period Ending
  Index   12/31/04   12/31/05   12/31/06   12/31/07   12/31/08   12/31/09
Superior Bancorp
    100.00       138.64       137.79       65.25       9.63       9.99  
                                                 
NASDAQ Composite
    100.00       101.37       111.03       121.92       72.49       104.31  
                                                 
SNL Southeast Thrift Index
    100.00       91.00       106.95       46.06       26.23       16.27  
                                                 
 
SNL Southeast Thrift :  Includes all Major Exchange (NYSE, AMEX, NASDAQ) Thrifts in SNL’s coverage universe headquartered in AL, AR, FL, GA, MS, NC, SC, TN, VA, WV.


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Item 6.   Selected Financial Data.
 
The following table sets forth selected financial data from our consolidated financial statements and should be read in conjunction with our consolidated financial statements, including the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected historical financial data as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 is derived from our audited consolidated financial statements and related notes included in this Form 10-K. See “Item 8. Superior Bancorp and Subsidiaries Consolidated Financial Statements.”
 
                                         
    As of and For The Year Ended December 31,  
    2009     2008     2007     2006     2005  
    (Dollars in thousands, except per share data)  
 
Selected Statement of Financial Condition Data:
                                       
Assets
  $ 3,221,869     $ 3,052,701     $ 2,885,425     $ 2,440,990     $ 1,415,469  
Loans, net of unearned income
    2,472,697       2,314,921       2,017,011       1,639,528       963,253  
Allowance for loan losses
    41,884       28,850       22,868       18,892       12,011  
Investment securities
    286,310       347,142       361,171       354,716       242,595  
Deposits
    2,656,573       2,342,988       2,200,611       1,870,841       1,043,695  
Advances from FHLB
    218,322       361,324       222,828       187,840       181,090  
Notes payable
    45,917       7,000       9,500       5,545       3,755  
Subordinated debentures
    84,170       60,884       53,744       44,006       31,959  
Stockholders’ equity
    191,704       251,239       350,042       276,087       105,065  
Selected Statement of Operations Data:
                                       
Interest income
  $ 162,082     $ 167,888     $ 171,929     $ 108,777     $ 77,280  
Interest expense
    69,520       84,603       96,767       61,383       38,255  
                                         
Net interest income     92,562       83,285       75,162       47,394       39,025  
Provision for loan losses
    28,550       13,112       4,541       2,500       3,500  
Noninterest income, excluding other-than-temporary impairment of securities (“OTTI”)
    29,325       26,709       19,357       11,811       9,583  
OTTI, net
    (15,746 )     (9,942 )                  
Insurance Proceeds
                            5,114  
Management separation costs
                      265       15,467  
Goodwill impairment charge
          160,306                    
Noninterest expense
    110,485       94,372       78,223       49,520       45,153  
                                         
(Loss) income before income (benefit) taxes     (32,894 )     (167,738 )     11,755       6,920       (10,398 )
Income tax (benefit) expense
    (13,005 )     (4,588 )     4,134       1,923       (4,612 )
                                         
Net (loss) income
    (19,889 )     (163,150 )     7,621       4,997       (5,786 )
Preferred stock dividends and amortization
    (4,193 )     (311 )                 (305 )
Gain on exchange of preferred stock to trust preferred securities
    23,097                          
Effect of early conversion of preferred stock
                            (2,006 )
                                         
Net (loss) income applicable to common stockholders   $ (985 )   $ (163,461 )   $ 7,621     $ 4,997     $ (8,097 )
                                         
Per Share Data:(5)
                                       
Net (loss) income — basic
  $ (0.09 )   $ (16.31 )   $ 0.82     $ 0.85     $ (1.69 )
— diluted(1)     (0.09 )     (16.31 )     0.82       0.83       (1.69 )
Weighted average shares outstanding — basic
    10,687       10,021       9,244       5,852       4,789  
Weighted average shares outstanding — diluted(1)
    10,687       10,021       9,333       6,008       4,789  
Common book value at period end
  $ 15.69     $ 17.83     $ 34.91     $ 31.87     $ 20.83  
Preferred shares outstanding at period end
          69                    
Common shares outstanding at period end
    11,668       10,075       10,027       8,663       5,043  
Performance Ratios and Other Data:
                                       
Return on average assets
    (0.63 )%     (5.42 )%     0.29 %     0.30 %     (0.41 )%
Return on average stockholders’ equity
    (8.16 )     (46.58 )     2.47       3.55       (5.68 )
Net interest margin(2)(3)
    3.28       3.27       3.37       3.17       3.14  
Net interest spread(3)(4)
    3.09       3.06       3.04       2.93       3.00  
Average loan to average deposit ratio
    97.11       97.50       92.80       93.12       88.82  
Average interest-earning assets to average interest-bearing liabilities
    107.57       106.38       107.54       106.01       104.58  
Assets Quality Ratios:
                                       
Allowance for loan losses to nonperforming loans
    26.25 %     45.98 %     92.77 %     227.97 %     261.17 %
Allowance for loan losses to loans, net of unearned income
    1.69       1.25       1.13       1.15       1.25  
Nonperforming assets (“NPAs”) to loans plus NPAs, net of unearned income
    8.01       3.56       1.44       0.62       0.67  
NPAs to total assets
    6.26       2.72       1.01       0.41       0.46  
Net loan charge-offs to average loans
    0.65       0.33       0.24       0.20       0.43  
Net loan charge-offs as a percentage of:
                                       
Provision for loan losses     54.35       54.38       94.30       92.64       115.20  
Allowance for loan losses     37.04       24.71       18.72       12.26       33.57  


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(1) Common stock equivalents of 159,561, 65,226 and 250,500 shares were not included in computing diluted earnings per share for the twelve-month periods ended December 31, 2009, 2008 and 2005, respectively, because their effects were antidilutive.
 
(2) Net interest income divided by average earning assets.
 
(3) Calculated on a taxable equivalent basis.
 
(4) Yield on average interest-earnings assets less rate on average interest-bearing liabilities.
 
(5) Per-share data for all previous periods presented have been retroactively restated to reflect a 1-for-4 reverse stock split effective April 28, 2008.


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operation.
 
General
 
The following is a narrative discussion and analysis of significant changes in our results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and selected financial data included elsewhere in this document.
 
Overview
 
Our principal subsidiary is Superior Bank, a federal savings bank. Superior Bank has principal offices in Birmingham, Alabama and Tampa, Florida, and operates 73 banking offices in Alabama (45) and Florida (28). Superior Bank’s consumer finance subsidiaries operate an additional 24 consumer finance offices in North Alabama, doing business as 1st Community Credit and Superior Financial Services. We had assets of approximately $3.222 billion, loans of approximately $2.473 billion, deposits of approximately $2.657 billion and stockholders’ equity of approximately $191.7 million at December 31, 2009. Total assets increased 5.5% compared to $3.053 billion at December 31, 2008. Loans increased 6.8% compared to $2.315 billion at December 31, 2008. Total deposits at December 31, 2009 increased 13.4% from $2.343 billion at December 31, 2008. Our primary source of revenue is net interest income, the difference between income earned on interest-earning assets, such as loans and investments, and interest paid on interest-bearing liabilities, such as deposits and borrowings. Our results of operations are also affected by credit cost, including the provision for loan losses and losses and other costs on foreclosed properties (“foreclosure losses”), and other noninterest expenses, such as salaries and benefits, occupancy expenses and provision for income taxes. The effects of these noninterest expenses are partially offset by noninterest sources of revenue, such as service charges and fees on deposit accounts and mortgage banking income. Our volume of business is influenced by competition in our markets and overall economic conditions including such factors as market interest rates, business spending and consumer confidence.
 
2009 proved to be a very challenging year, given the economic conditions faced by our country, our markets and our bank. In response to these challenges, we focused our efforts on two primary objectives: assuring our customers that we were still doing business with regard to making loans, accepting deposits and fulfilling their banking needs, and managing the current credit cycle at the least cost to our shareholders. Additionally, we have focused internally on preparing our company for 2010 by a number of logical, well-timed and sensible steps designed to position us to have a capital structure that is unassailable in these uncertain times. In November 2009, our shareholders approved an increase in our authorized shares from 20 million to 200 million. In December 2009, we successfully completed the conversion of the Preferred Stock held by the Treasury Department under the TARP Capital Purchase Program into trust preferred securities, realizing a $23.1 million gain in the process. This non-dilutive action was equivalent to approximately $1.98 per share in increased common equity. After year-end, we announced agreements to exchange $7.5 million of our then-currently outstanding non-pooled trust preferred securities for newly issued common stock, which should result in the creation of $6.5 million additional common equity, and a projected gain of $0.15 per common share. We plan additional capital actions in 2010 consistent with market conditions.
 
Net interest income increased from $83.3 million for the year ended December 31, 2008 to $92.6 million for the year ended December 31, 2009. The net interest margin was 3.28% in 2009 compared to 3.27% in 2008. The effect on net interest margin of loans being placed on non-accruing status approximated 0.35% in 2009 (which includes foregone interest and the reversal of interest accrued during the year on those loans). The increase during 2009 in net interest income resulted from an increase in interest earning assets. Loan yields declined 90 basis points from 2008, but funding costs also declined 86 basis points from 2008. The decline in loan yields was due principally to an overall lower level of interest rates in 2009 as compared to 2008, plus the effect of higher levels of non-performing loans in 2009 as compared to 2008.
 
Despite the increase in interest income and relatively encouraging progress on the fee income front, the year’s progress was negatively impacted by increases in overall credit-related costs in light of the current economy. We incurred a net loss in 2009 of $19.9 million (before a $23.1 million gain on the exchange of Preferred Stock for trust preferred securities) compared to a loss of $163.2 million in 2008. (The 2008 loss included a goodwill impairment charge of $160.3 million.) Included in this year’s results were write-downs associated with investments in trust


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preferred securities issued by others and certain private-label mortgage-backed securities in our investment portfolio totaling $15.7 million for other-than-temporary impairments (“OTTI”) versus $9.9 million 2008, and an increase in credit-related costs (i.e. provisions for loan loans, OREO expense, collection costs, etc.) of $36.7 million.
 
Our loan loss provision was well above those in previous years, with a provision of $28.6 million for the year ended December 31, 2009, compared to $13.1 million for the prior year, and an increase in the allowance for loan losses of $13.0 million to $41.9 million at December 31, 2009. A portion of this provision related to charged-off loans, but a majority was used to increase our allowance for loan losses based on management’s estimate of loss in the loan portfolio based on management’s ongoing assessment of certain areas of risk. In addition, our losses and expenses on other real estate owned (“OREO”), were $8.1 million during the year ended December 31, 2009, which was a significant increase from the $0.9 million recorded in the prior year, reflecting several dispositions of foreclosed properties.
 
Management’s Response to Current Economic Environment.
 
Changes in Lending Policy.  Since the beginning of 2008, and in direct response to the depth of the current economic downturn and its apparent length, we have made significant and fundamental changes in our credit management process.
 
  •  Credit Approval.
 
Today, we have in place a centralized underwriting process for each of our two states, under the supervision of a Senior Credit Officer assigned to that state. Each Senior Credit Officer is responsible for the maintenance of loan underwriting standards within his state, including loan approvals up to a certain limit through a State Loan Committee. Credits with a total exposure exceeding $10 million are reviewed and approved by the Executive Loan Committee and the Board Loan and Investment Committee as needed.
 
  •  Credit Administration and Loan Review.
 
These functions operate on a centralized basis, and are responsible for reviewing for policy compliance and reporting all loans that are underwritten at the state level to executive management. In recent months, in response to the current economic conditions, we have tightened our underwriting standards. We are requiring more relationship-driven deals, where we are the primary, and in many cases, the only banking relationship for these prospective customers. All of these changes are intended to further strengthen our position and mitigate the risks associated with the current economic environment. In addition, we have established concentration guidelines for each major lending category, as well as sub-limits within each of these broad categories to provide risk rated limitations on our lending activities, both by nature of collateral and by geography.
 
  •  Problem Asset Management.
 
Each significant problem asset is assigned to a senior officer for workout. At December 31, 2009, each of the 23 largest problem loans or foreclosed properties in a workout status is assigned to one of the four top executive credit officers of our company, reflecting our belief that in this manner we can bring the right combination of experience, short decision making lines of communication, and executive focus on reducing our totals of these assets in the least costly manner. This encompasses essentially all problem relationships of $1 million or more.
 
Loan Trends.  Our position on new credit formation is positive, but cautious. Our primary goal is to work with existing borrowers in making sure that loans we presently have are properly structured and are soundly underwritten. At December 31, 2009, this has resulted in an increase in balances outstanding in certain categories of loans, such as commercial construction lending, which increased $56.1 million, to a level of $379 million with the majority of increases related to construction of income producing properties such as apartments and student housing. Conversely, residential construction lending decreased approximately $13.3 million to a level of $301 million, as activity in this sector continued to slow over the course of 2009. This decrease included reductions in non-pre-sold (“spec”) residential, condominium, and undeveloped land loans. Other categories of commercial real estate lending were up approximately $75.1 million, related principally to increases in income producing


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properties such as apartments, office buildings and the hospitality industry. In addition, 1-4 family residential mortgages grew approximately $36.1 million from December 31, 2008. As we look forward into 2011, we expect our stance to continue to remain cautious, with loan totals remaining flat to growing slowly. This is also consistent with our stance on capital preservation in the near term, as we seek to maintain the highest capital ratios possible in this uncertain environment so that we are in the position to resume growth and profitable lending, as conditions improve.
 
During the fourth quarter of 2009, we took advantage of a unique opportunity in the local market by bringing on board 60 mortgage originators and associated staff from an existing Alabama bank which had been taken into the Federal Deposit Insurance Corporation (the “FDIC”) receivership and sold to another financial institution. We believe this “no-cost” acquisition affords us a tremendous opportunity in both Alabama and Florida, not only to increase shareholder value but also to help people achieve their dream of home ownership through the expansion of our mortgage operation. Initially, we expect the new staff to approximately double our origination capability in Alabama, as well as significantly improve the efficiency of the secondary placement of our existing originations. Longer term, we expect this to raise our origination capability to a higher level in support of our Florida branches. These additions resulted in increases in operating expenses in the fourth quarter, but we expect this expansion to be solidly profitable on an incremental basis starting in 2010.
 
Consistent with the continuing economic decline’s effect on real estate-related credits, our non-performing loans increased during 2009 to $159.6 million, or 6.45% of loans at December 31, 2009, from $62.7 million, or 2.71% of loans at December 31, 2008. The overall increase in nonperforming assets was primarily related to real estate construction, commercial real estate and residential mortgage loan portfolios. Loans in the 30-89 days past due category increased to 1.84% of total loans at December 31, 2009 from 1.05% of total loans at December 31, 2008. Non-performing assets are 6.26% of total assets at December 31, 2009 compared to 2.72% at December 31, 2008.
 
The annualized ratio of net charged-off loans to average loans increased to 0.65% for the year ended December 31, 2009, compared to 0.33% for the year ended December 31, 2008. Of the $15.5 million net charge-offs in 2009, Superior Bank’s net charge-offs were $13.0 million, or 0.54% of consolidated average loans, and our two consumer finance companies’ net charge-offs were $2.5 million, or 0.10% of consolidated average loans.
 
The provision for loan losses was approximately $28.6 million for the year ended December 31 2009, increasing the allowance for loan losses to 1.69% of net loans, or $41.9 million, at December 31, 2009, compared to 1.25% of net loans, or $28.9 million, at December 31, 2008.
 
Liquidity and Capital.  Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and federal funds sold) increased $10.3 million, or 11.5%, to $99.8 million at December 31, 2009 from $89.4 million at December 31, 2008. At December 31, 2009, short-term liquid assets were 3.1% of total assets, compared to 2.9% at December 31, 2008. On March 31, 2009, Superior Bank completed a placement of a $40 million aggregate principal amount 2.625% Senior Note due 2012 (the “Note”). The Note is guaranteed by the FDIC under its Temporary Liquidity Guarantee Program (“TLGP”) and is backed by the full faith and credit of the United States. Management continually monitors our liquidity position and will increase or decrease short-term liquid assets as necessary. Our principal sources of funds are deposits, principal and interest payments on loans, federal funds sold and maturities and sales of investment securities. In addition to these sources of liquidity, we have access to a minimum of $250 million in additional funding from traditional sources. Management believes it has established sufficient sources of funds to meet its anticipated liquidity needs.
 
Superior Bank continues to be well-capitalized under regulatory guidelines, with a total risk-based capital ratio of 10.69%, a Tier I core capital ratio of 7.79% and a Tier I risk-based capital ratio of 9.30% at December 31, 2009. Superior Bank’s tangible common equity ratio was 7.79% at December 31, 2009.
 
Our consolidated total risk based capital ratio was 11.01% and our tangible common equity ratio was 6.74% at December 31, 2009. While we have always been “well-capitalized,” we believe that the uncertain economic environment in which we find ourselves warrants taking advantage of every opportunity to strengthen our common equity. Our goal is to build a capital base that is unassailable, and places us in the position of being able to be a leader


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in the recovery of the economy in both of our key markets — Florida and Alabama. The following are all steps in a logical series to further improve our equity capital base:
 
  •  During the third quarter of 2009, we sold 1.5 million shares of our common stock at prices ranging from $2.21 to $2.71 per share to approximately 20 accredited investors for total cash consideration of approximately $3.3 million.
 
  •  At a special shareholders’ meeting held on November 19, 2009, we received shareholder approval for an increase in authorized shares from 20 million to 200 million.
 
  •  During the fourth quarter, we successfully completed a conversion of $69 million of our Preferred Stock held by the Treasury Department for an identical amount of trust preferred securities issued by our wholly-owned subsidiary, Superior Capital Trust II, which is reflected as subordinated debt in our statement of financial condition. As a result of this exchange transaction, we recorded an accounting gain of approximately $23.1 million after-tax, reflecting the net benefit of the favorable interest rate terms of the trust preferred securities compared to current market rates. This gain reduced the net loss to common shareholders by $1.98 per common share.
 
  •  Additionally, in January 2010, we secured agreements from the holders of $7.5 million of our then-currently outstanding non-pooled trust preferred securities to exchange those securities for newly issued common stock. When completed, we expect to record a net after-tax gain of $1.8 million ($0.15 per common share) upon exchange of the trust preferred securities. The ultimate effect of the transactions will be to increase our common equity by approximately $6.5 million, consisting of both the increase in equity upon recording the gain, and the fair value of the shares of common stock issued in conjunction with the exchange.
 
Regulatory Reform and Costs.  Besides the economy, the greatest risk of uncertainty for the banking industry continues to be the regulatory reform initiatives under consideration by the U.S. Congress and federal bank regulatory agencies. The activities of the “investment banking” and “non-bank financial institutions” became major catalysts for our current economic challenges. We believe that many of the proposed reforms are over-reactive and represent a sweeping “broad brush” approach that will be applied to all banks, regardless of size or culpability in the economic situation we face. The result may be an increase in government regulations, oversight and involvement in the daily business activities that should be best left to experienced bank management teams and their boards of directors. If enacted, these proposals will result in additional burdensome disclosures and red tape for our customers and additional cost to our stockholders. For the vast majority of well-run community banks, we believe this is totally unnecessary.
 
Healthy banks are clearly carrying the costly burden for the closing of many failed banks. For example, on a cash basis, our payments to the FDIC in 2009 exceeded $21 million, including both our annual assessments, a special assessment and a prepayment of three years’ estimated assessments as deposit insurance for current and future years to fund the current losses being incurred by the government for bank closings. We fully expect the prepayment to be absorbed by future bank failures prior to the end of three years, and therefore anticipate additional FDIC costs above those reflected above.
 
Critical Accounting Estimates
 
In preparing financial information, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the periods shown. The accounting principles we follow and the methods of applying these principles conform to accounting principles generally accepted in the United States and to general banking practices. Our most significant estimates and assumptions are related primarily to our allowance for loan losses, income taxes and fair value measurements and are summarized in the following discussion and in the notes to the consolidated financial statements.
 
Allowance for Loan Losses
 
Management’s determination of the adequacy of the allowance for loan losses, which is based on the factors and risk identification procedures discussed in the section “Financial Condition — Allowance for Loan Losses”, requires the use of judgments and estimates that may change in the future. Changes in the factors used by management to determine the adequacy of the allowance or the availability of new information could cause the


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allowance for loan losses to be increased or decreased in future periods. In addition, our regulators, as part of their examination process, may require that additions or reductions be made to the allowance for loan losses based on their judgments and estimates.
 
Income Taxes
 
Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. These calculations are based on many complex factors, including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.
 
The recognition of deferred tax assets (“DTA”) is based upon management’s judgment that realization of the asset is more likely than not. Management’s judgment is based on estimates concerning various future events and uncertainties, including future reversals of existing taxable temporary differences, the timing and amount of future income earned by our subsidiaries and the implementation of various tax planning strategies to maximize realization of the DTA. Although realization is not assured, we believe that the realization of the $29.5 million net DTA is more likely than not. This net DTA is comprised of $56.5 million of deferred tax assets, net of $25.8 million in deferred tax liabilities and a $1.2 million valuation allowance. The major components of the $56.5 million deferred tax asset are $7.4 million in general and AMT tax credit carryforwards, $11.6 million in net operating loss carryforwards and $37.5 million in deductions that have not yet been taken on a tax return. Our deferred tax liabilities of $25.8 million are comprised primarily of differences between the book and tax bases of certain assets and liabilities, of which $12.6 million are expected to reverse during the carryforward period to offset a corresponding amount of deferred tax asset. In general, net of the existing deferred tax liabilities, we will need to generate approximately $106 million of taxable income during the respective carryforward periods in order to fully realize our DTAs.
 
As a result of book losses incurred in 2009 and 2008, we are in three-year-cumulative loss position at December 31, 2009, and there are no taxes paid in prior years that are available for the carryback period. A cumulative loss position is considered significant negative evidence in assessing the realizability of a DTA. Our management has concluded that sufficient positive evidence exists to overcome this negative evidence. The positive evidence on which management based its conclusions includes the following:
 
  •  Management forecasts sufficient taxable income in the next five years, even under stressed economic scenarios, to realize our DTA in the carryforward periods allowed under the respective federal and state revenue codes (see discussion below).
 
  •  Management has a history of extremely accurate forecasting of asset/liability growth and corresponding interest margin, as well as reasonably accurate forecasting of controllable income and expense.
 
  •  Our net interest margin remains strong and has steadily improved even in this weak economy.
 
  •  Our liquidity is strong due to a mature branch network which provides a reliable and low cost funding source to support our interest margin.
 
  •  We have stable levels of core operating noninterest income and noninterest expenses.
 
  •  Our executive team is experienced in managing through difficult credit cycles.
 
  •  A recent economic forecast indicates a strengthening real estate economy in Florida, which is the geographic focus of our credit concerns, and where we have approximately 49% of our loans and 71% of our classified loans.
 
  •  Our general tax credit and federal net operating loss carryforwards do not begin expiring until the years 2018 and 2023, respectively. Our AMT credit carryforwards have no expiration. In addition, we do not have a history of our operating or tax credit carryforwards expiring unused.


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The only tax planning strategy management considered involves the decision to hold any available-for-sale debt security in an unrealized loss position until they mature at which time our full investment will be recovered. The amount of our DTA considered realizable, however, could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are significantly lower than forecasted due to further decreases in market conditions, or the economy, which could produce additional credit losses within our loan and investment portfolios. In that regard, our forecasted taxable income has been based on several economic scenarios which have been stressed in varying degrees to reflect slower economic recovery than currently anticipated by management, which under our model results in additional credit losses and the corresponding impact on the net interest margin. Each scenario was assigned individually for each year a probability of occurring, with the final five-year forecast comprising the scenarios that exceeded a cumulative probability of 50% (the more likely than not threshold) in any year. Even though our forecasts project taxable income for an eight-year period, management did not rely on any forecast after the fifth year because years six through eight did not exceed the more likely than not threshold. We evaluate quarterly the realizability of our net deferred tax assets and, if necessary adjust our valuation allowance accordingly (See Note 14 to the consolidated financial statements for additional disclosures regarding income taxes).
 
Fair Value Measurements
 
We measure fair value at the price we would receive by selling an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing the asset or liability (the “inputs”) into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect management’s estimates about the assumptions market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.
 
At December 31, 2009 and 2008, we had $213.8 million, or 38.2%, and $66.3 million, or 15.8%, respectively, of total assets valued at fair value that are considered Level 3 valuations using unobservable inputs. As shown in Note 19 to the consolidated financial statements, available-for-sale securities with a carrying value of $13.3 million and $18.5 million, at December 31, 2009 and 2008, respectively, were included in the Level 3 assets category measured at fair value on a recurring basis. These securities consist primarily of certain private-label mortgage-backed securities and trust preferred securities. As the market for these securities became less active and pricing less reliable, management determined that the trust preferred securities should be transferred to a Level 3 category during the third quarter of 2008 and that six private-label mortgage-backed securities be transferred during the second and third quarters of 2009.
 
Management measures fair value on the trust preferred securities based on various spreads to LIBOR determined after its review of applicable financial data and credit ratings (See “Financial Condition — Investment Securities — Trust Preferred Securities” below for additional discussion). At December 31, 2009, the fair values of six private-label mortgage-backed securities totaling $7.4 million were measured using Level 3 inputs because the market for them has become illiquid, as indicated by few, if any, trades during the period. Prior to June 30, 2009, these securities were measured using Level 2 inputs. The assumptions used in the valuation model include expected future default rates, loss severity and prepayments. The model also takes into account the structure of the security including credit support. Based on these assumptions the model calculates and projects the timing and amount of interest and principal payments expected for the security. The discount rates used in the valuation model were based on a yield that the market would require for such securities with maturities and risk characteristics similar to the securities being measured (See “Financial Condition — Investment Securities — Mortgage-backed securities”). The remaining Level 3 assets totaling $200.5 million include loans which have been impaired, foreclosed other real estate and other real estate held for sale, which are valued on a nonrecurring basis based on appraisals of the


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collateral. The value of this collateral is based primarily on appraisals by qualified licensed appraisers approved and hired by management. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. The collateral is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. See Note 19 to the consolidated financial statements for additional disclosures regarding fair value measurements.
 
Recently Issued Accounting Standards
 
See Note 1 — Summary of Significant Accounting Policies to the consolidated financial statements for information regarding recently issued accounting standards.
 
Results of Operations
 
Year ended December 31, 2009 compared with Year ended December 31, 2008
 
Earnings.  We reported a net loss of $19.9 million for 2009, primarily the result of increases in the provision for loan losses of $15.4 million, foreclosure losses of $7.2 million, OTTI of $5.8 million, and FDIC assessments of $5.2 million. These expense increases were partially offset by an increase in net interest income of $9.3 million and mortgage banking income of $3.1 million. Changes in other components of our operations are discussed in the various sections that follow. The following table presents key earnings data for the periods indicated:
 
                                 
    Three Months
    Year
 
    Ended December 31,     Ended December 31,  
    2009     2008     2009     2008  
    (Dollars in thousands, except per share data)  
 
Net loss
  $ (11,501 )   $ (158,178 )   $ (19,889 )   $ (163,150 )
Net income (loss) applicable to common shareholders
    10,880       (158,489 )     (985 )     (163,461 )
Net income (loss) per common share (diluted)
    0.92       (15.80 )     (0.09 )     (16.31 )
Net interest margin
    3.42 %     3.29 %     3.28 %     3.27 %
Net interest spread
    3.25       3.12       3.09       3.06  
Return on average assets
    (1.43 )     NCM       (0.63 )     (5.42 )
Return on average stockholders’ equity
    (19.52 )     NCM       (8.16 )     (46.58 )
Common book value per share
  $ 15.69     $ 17.83     $ 15.69     $ 17.83  
 
 
 
NCM — Not considered meaningful.


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Net Interest Income.  The largest component of our net income is net interest income, which is the difference between the income earned on interest-earning assets and interest paid on deposits and borrowings (See “Market Risk” section for a discussion regarding our interest rate risk). Net interest income is determined by the rates earned on our interest-earning assets, rates paid on our interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, the degree of mismatch and the maturity and re-pricing characteristics of our interest-earning assets and interest-bearing liabilities. Net interest income divided by average interest-earning assets represents our net interest margin. The following table summarizes the changes in the components of net interest income for the periods indicated:
 
                                                 
    Increase (Decrease) in  
    Fourth Quarter
    Year Ended December 31,
 
    2009 vs. 2008     2009 vs. 2008  
    Average
    Income/
    Yield/
    Average
    Income/
    Yield/
 
    Balance     Expense     Rate     Balance     Expense     Rate  
    (Dollars in thousands)  
 
ASSETS
Interest-earning assets:
                                               
Loans, net of unearned income
  $ 248,765     $ 521       (0.56 )%   $ 290,339     $ (2,502 )     (0.90 )%
Investment securities
                                               
Taxable
    (31,324 )     (1,070 )     (0.98 )     (30,718 )     (2,225 )     (0.21 )
Tax-exempt
    (8,529 )     (168 )     (0.37 )     (1,814 )     (162 )     (0.12 )
                                                 
Total investment securities
    (39,853 )     (1,238 )     (0.93 )     (32,532 )     (2,387 )     (0.19 )
Federal funds sold
    (2,748 )     (7 )     (0.48 )     (1,534 )     (113 )     (2.16 )
Other investments
    9,309       (110 )     (1.14 )     13,567       (860 )     (2.30 )
                                                 
Total interest-earning assets
  $ 215,473       (834 )     (0.60 )   $ 269,840       (5,862 )     (0.83 )
                                                 
Interest-bearing liabilities:
                                               
Demand deposits
  $ 48,197     $ (511 )     (0.44 )%   $ 15,571     $ (6,162 )     (1.00 )%
Savings deposits
    101,452       (160 )     (1.12 )     121,921       920       (0.75 )
Time deposits
    134,895       (2,718 )     (1.12 )     142,491       (8,803 )     (1.05 )
Other borrowings
    (126,109 )     (467 )     0.70       (62,217 )     (2,007 )     0.03  
Subordinated debentures
    5,119       255       0.90       6,381       969       0.80  
                                                 
Total interest-bearing liabilities
  $ 163,554       (3,601 )     (0.73 )   $ 224,147       (15,083 )     (0.86 )
                                                 
Net interest income/net interest spread
            2,767       0.13 %             9,221       0.03 %
                                                 
Net yield on earning assets
                    0.13 %                     0.01 %
                                                 
Taxable equivalent adjustment:
                                               
Investment securities
            (58 )                     (56 )        
                                                 
Net interest income
          $ 2,825                     $ 9,277          
                                                 


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The following table depicts, on a taxable equivalent basis, certain information for the fourth quarters of 2009 and 2008 related to our average balance sheet and our average yields on assets and average costs of liabilities. Average yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
 
                                                 
    Three Months Ended December 31,  
    2009     2008  
    Average
    Income/
    Yield/
    Average
    Income/
    Yield/
 
    Balance     Expense     Rate     Balance     Expense     Rate  
    (Dollars in thousands)  
 
ASSETS
Interest-earning assets:
                                               
Loans, net of unearned income(1)
  $ 2,512,441     $ 36,966       5.84 %   $ 2,263,676     $ 36,445       6.40 %
Investment securities
                                               
Taxable
    262,085       2,937       4.45       293,409       4,007       5.43  
Tax-exempt(2)
    30,694       477       6.17       39,223       645       6.54  
                                                 
Total investment securities
    292,779       3,414       4.63       332,632       4,652       5.56  
Federal funds sold
    1,544       1       0.26       4,292       8       0.74  
Other investments
    68,523       429       2.48       59,214       539       3.62  
                                                 
Total interest-earning assets
    2,875,287       40,810       5.63       2,659,814       41,644       6.23  
Noninterest-earning assets:
                                               
Cash and due from banks
    65,575                       61,967                  
Premises and equipment
    104,842                       104,341                  
Accrued interest and other assets
    171,006                       298,477                  
Allowance for loan losses
    (34,420 )                     (27,845 )                
                                                 
Total assets
  $ 3,182,290                     $ 3,096,754                  
                                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
                                               
Demand deposits
  $ 649,419     $ 2,048       1.25 %   $ 601,222     $ 2,559       1.69 %
Savings deposits
    280,946       953       1.35       179,494       1,113       2.47  
Time deposits
    1,408,543       9,042       2.55       1,273,648       11,760       3.67  
Other borrowings
    271,548       2,539       3.71       397,657       3,006       3.01  
Subordinated debentures
    66,038       1,462       8.78       60,919       1,207       7.88  
                                                 
Total interest-bearing liabilities
  $ 2,676,494       16,044       2.38     $ 2,512,940       19,645       3.11  
Noninterest-bearing liabilities:
                                               
Demand deposits
    256,320                       218,685                  
Accrued interest and other liabilities
    15,739                       15,222                  
                                                 
Total liabilities
    2,948,553                       2,746,847                  
Stockholders’ equity
    233,737                       349,907                  
                                                 
Total liabilities and stockholders’ equity
  $ 3,182,290                     $ 3,096,754                  
                                                 
Net interest income/net interest spread
            24,766       3.25 %             21,999       3.12 %
                                                 
Net yield on earning assets
                    3.42 %                     3.29 %
                                                 
Taxable equivalent adjustment:
                                               
Investment securities
            162                       220          
                                                 
Net interest income
          $ 24,604                     $ 21,779          
                                                 
 
 
(1) Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.
 
(2) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 34%.


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The following table sets forth, on a taxable equivalent basis, the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the fourth quarters of 2009 and 2008:
 
                         
    Three Months Ended December 31,
 
    2009 vs. 2008(1)  
    Increase
    Changes Due To  
    (Decrease)     Rate     Volume  
    (Dollars in thousands)  
 
Increase (decrease) in:
                       
Income from interest-earning assets:
                       
Interest and fees on loans
  $ 521     $ (3,327 )   $ 3,848  
Interest on securities:
                       
Taxable
    (1,070 )     (672 )     (398 )
Tax-exempt
    (168 )     (35 )     (133 )
Interest on federal funds
    (7 )     (4 )     (3 )
Interest on other investments
    (110 )     (187 )     77  
                         
Total interest income
    (834 )     (4,225 )     3,391  
Expense from interest-bearing liabilities:
                       
Interest on demand deposits
    (511 )     (394 )     (117 )
Interest on savings deposits
    (160 )     (634 )     474  
Interest on time deposits
    (2,718 )     (3,870 )     1,152  
Interest on other borrowings
    (467 )     612       (1,079 )
Interest on subordinated debentures
    255       147       108  
                         
Total interest expense
    (3,601 )     (4,139 )     538  
                         
Net interest income
  $ 2,767     $ (86 )   $ 2,853  
                         
 
 
(1) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.


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The following tables depict, on a taxable equivalent basis, certain information for each of the three years in the period ended December 31, 2009 related to our average balance sheet and our average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
 
                                                                         
    Year Ended December 31,  
    2009     2008     2007  
    Average
    Income/
    Yield/
    Average
    Income/
    Yield/
    Average
    Income/
    Yield/
 
    Balance     Expense     Rate     Balance     Expense     Rate     Balance     Expense     Rate  
    (Dollars in thousands)  
 
    ASSETS
Interest-earning assets:
                                                                       
Loans, net of unearned income
  $ 2,463,114     $ 144,660       5.87 %   $ 2,172,775     $ 147,162       6.77 %   $ 1,839,029     $ 150,443       8.18 %
Investment securities
                                                                       
Taxable
    275,065       14,085       5.12       305,783       16,310       5.33       328,893       17,174       5.22  
Tax-exempt(2)
    38,449       2,439       6.34       40,263       2,601       6.46       21,668       1,359       6.27  
                                                                         
Total investment securities
    313,514       16,524       5.27       346,046       18,911       5.46       350,561       18,533       5.29  
Federal funds sold
    3,513       9       0.26       5,047       122       2.42       8,975       471       5.25  
Other investments
    66,204       1,718       2.60       52,637       2,578       4.90       47,612       2,944       6.18  
                                                                         
Total interest-earning assets
    2,846,345       162,911       5.72       2,576,505       168,773       6.55       2,246,177       172,391       7.67  
Noninterest-earning assets:
                                                                       
Cash and due from banks
    69,696                       61,208                       45,142                  
Premises and equipment
    105,191                       103,614                       95,289                  
Accrued interest and other assets
    163,986                       294,245                       254,785                  
Allowance for loan losses
    (31,823 )                     (25,527 )                     (20,431 )                
                                                                         
Total assets
  $ 3,153,395                     $ 3,010,045                     $ 2,620,962                  
                                                                         
     
    LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
                                                                       
Demand deposits
  $ 653,371       8,543       1.31 %   $ 637,800     $ 14,705       2.31 %   $ 568,125     $ 20,791       3.66 %
Savings deposits
    243,566       3,651       1.50       121,645       2,731       2.25       50,652       819       1.61  
Time deposits
    1,392,963       42,166       3.03       1,250,472       50,969       4.08       1,171,942       58,057       4.95  
Other borrowings
    294,022       10,097       3.43       356,239       12,104       3.40       249,443       12,971       5.20  
Subordinated debentures
    62,117       5,063       8.15       55,736       4,094       7.35       48,557       4,129       8.50  
                                                                         
Total interest-bearing liabilities
  $ 2,646,039       69,520       2.63     $ 2,421,892       84,603       3.49     $ 2,088,719       96,767       4.63  
Noninterest-bearing liabilities:
                                                                       
Demand deposits
    246,428                       218,486                       191,066                  
Accrued interest and other liabilities
    17,311                       19,438                       32,905                  
                                                                         
Total liabilities
    2,909,778                       2,659,816                       2,312,690                  
Stockholders’ equity
    243,617                       350,229                       308,272                  
                                                                         
Total liabilities and stockholders’ equity
  $ 3,153,395                     $ 3,010,045                     $ 2,620,962                  
                                                                         
Net interest income/net interest spread
            93,391       3.09 %             84,170       3.06 %             75,624       3.04 %
                                                                         
Net yield on earning assets
                    3.28 %                     3.27 %                     3.37 %
                                                                         
Taxable equivalent adjustment:
                                                                       
Investment securities
            829                       885                       462          
                                                                         
Net interest income
          $ 92,562                     $ 83,285                     $ 75,162          
                                                                         
 
 
(1) Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.
 
(2) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 34%.


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The following table sets forth, on a taxable equivalent basis, the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the years ended December 31, 2009 and 2008.
 
                                                 
    Year Ended December 31,  
    2009 vs. 2008(1)     2008 vs. 2007(1)  
    Increase
    Changes Due To     Increase
    Changes Due To  
    (Decrease)     Rate     Volume     (Decrease)     Rate     Volume  
    (Dollars in thousands)  
 
Increase (decrease) in:
                                               
Income from interest-earning assets:
                                               
Interest and fees on loans
  $ (2,502 )   $ (20,853 )   $ 18,351     $ (3,281 )   $ (28,269 )   $ 24,988  
Interest on securities:
                                               
Taxable
    (2,225 )     (627 )     (1,598 )     (864 )     359       (1,223 )
Tax-exempt
    (162 )     (47 )     (115 )     1,242       42       1,200  
Interest on federal funds
    (113 )     (84 )     (29 )     (349 )     (193 )     (156 )
Interest on other investments
    (860 )     (1,413 )     553       (366 )     (655 )     289  
                                                 
Total interest income
    (5,862 )     (23,024 )     17,162       (3,618 )     (28,716 )     25,098  
Expense from interest-bearing liabilities:
                                               
Interest on demand deposits
    (6,162 )     (6,514 )     352       (6,086 )     (8,405 )     2,319  
Interest on savings deposits
    920       (1,140 )     2,060       1,913       423       1,490  
Interest on time deposits
    (8,803 )     (14,160 )     5,357       (7,089 )     (10,777 )     3,688  
Interest on other borrowings
    (2,007 )     107       (2,114 )     (867 )     (5,367 )     4,500  
Interest on subordinated debentures
    969       472       497       (35 )     (601 )     566  
                                                 
Total interest expense
    (15,083 )     (21,235 )     6,152       (12,164 )     (24,727 )     12,563  
                                                 
Net interest income
  $ 9,221     $ (1,789 )   $ 11,010     $ 8,546     $ (3,989 )   $ 12,535  
                                                 
 
 
(1) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.
 
Noninterest income.  Noninterest income increased $0.1 million and decreased $3.2 million, or 3.1% and (19.0)%, to $4.5 million and $13.6 million for the fourth quarter and year ended December 31, 2009, respectively, from $4.4 million and $16.8 million for the fourth quarter and year ended December 31, 2008, respectively. The components of noninterest income for the fourth quarters and years ended December 31, 2009 and 2008 consisted of the following:
 
                         
    Three Months Ended December 31,  
    2009     2008     % Change  
    (Dollars in thousands)  
 
Service charges and fees on deposits
  $ 2,606     $ 2,574       1.24 %
Mortgage banking income
    1,617       855       89.12  
Investment securities losses(1)
    (596 )     (1,381 )     (56.84 )
Change in fair value of derivatives
    (996 )     467       NCM  
Increase in cash surrender value of life insurance
    575       585       (1.71 )
Other noninterest income
    1,303       1,274       2.28  
                         
Total
  $ 4,509     $ 4,374       3.09 %
                         
 


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    Year Ended December 31,  
    2009     2008     % Change  
    (Dollars in thousands)  
 
Service charges and fees on deposits
  $ 10,112     $ 9,295       8.79 %
Mortgage banking income
    7,084       3,972       78.35  
Investment securities losses(1)
    (10,102 )     (8,453 )     19.51  
Change in fair value of derivatives
    (826 )     1,240       NCM  
Increase in cash surrender value of life insurance
    2,198       2,274       (3.34 )
Gain on extinguishment of liabilities
          2,918       NA  
Other noninterest income
    5,113       5,521       (7.39 )
                         
Total
  $ 13,579     $ 16,767       (19.01 )%
                         
 
 
(1) Includes a non-cash other-than-temporary impairment charge. See “Financial Condition — Investment Securities”
 
NA — Not applicable
 
NCM — Not considered meaningful
 
The increase in service charges and fees on deposits was primarily attributable to pricing changes and account growth. The increase in mortgage banking income during 2009 was the result of an increase in the volume of refinancing, which is expected to decline in future periods. However, during the fourth quarter of 2009, we took advantage of a unique opportunity in the local market by bringing on board 60 mortgage originators and associated staff from an existing Alabama bank which had been taken into FDIC receivership and sold to another financial institution. Initially, we expect the new staff to approximately double our origination capability in Alabama, as well as significantly improve the efficiency of the secondary placement of our existing originations. Longer term, we expect this to raise our origination capability to a higher level in support of our Florida branches. The investment securities loss was the result of impairment charges related to several securities. See “Financial Condition — Investment Securities” for additional discussion. A gain of $2.9 million from the extinguishment of certain liabilities is also included in the total noninterest income for 2008.
 
Noninterest expenses.  Noninterest expenses increased $8.1 million, exclusive of the $160.3 million goodwill impairment charge in the fourth quarter of 2008, or 32.3%, to $33.0 million for the fourth quarter of 2009 from $24.9 million for the fourth quarter of 2008. This increase was primarily due to increased FDIC assessments and foreclosure losses. The increase in FDIC assessments was attributable to a prepaid assessment, which occurred in the fourth quarter of 2009 and applied to all insured depository institutions. The FDIC also imposed a special assessment in the second quarter of 2009. Any additional increases in Deposit Insurance Fund insurance premiums would likely have an adverse effect on our operating expenses and results of operations. Management cannot predict what insurance assessment rates will be in the future. Our foreclosure losses relate to various costs incurred to acquire, maintain and dispose of other real estate acquired through foreclosure. These costs are directly related to the volume of foreclosures, which have increased due to the negative credit cycle. These costs could increase in

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future periods, depending on the duration of the credit cycle, and have a material impact on our operating expenses. Noninterest expenses included the following for the fourth quarters of 2009 and 2008:
 
                         
    Three Months Ended December 31,  
    2009     2008     % Change  
    (Dollars in thousands)  
 
Noninterest Expenses
                       
Salaries and employee benefits
  $ 12,988     $ 13,094       (0.81 )%
Occupancy, furniture and equipment expense
    5,246       4,583       14.47  
Amortization of core deposit intangibles
    985       896       9.93  
Goodwill impairment charge
          160,306       NA  
FDIC assessment
    3,038       447       NCM  
Foreclosure losses
    4,462       354       NCM  
Professional fees
    1,595       745       NCM  
Insurance expense
    652       601       8.49  
Postage, stationery and supplies
    738       773       (4.53 )
Communications expense
    731       741       (1.35 )
Advertising expense
    578       774       (25.32 )
Other operating expense
    1,971       1,919       2.71  
                         
Total
  $ 32,984     $ 185,233       (82.19 )%
                         
 
 
 
NA — Not applicable
 
NCM — Not considered meaningful
 
Noninterest expenses increased $16.1 million, exclusive of the $160.3 million goodwill impairment charge in 2008, or 17.1%, to $110.5 million for the year ended December 31, 2009 from $94.4 million for the year ended December 31, 2008. This increase was primarily due to increased FDIC assessments and foreclosure losses as discussed in the previous paragraph. Noninterest expenses included the following for the years ended December 31, 2009 and 2008:
 
                         
    Year Ended December 31,  
    2009     2008     % Change  
    (Dollars in thousands)  
 
Noninterest Expenses
                       
Salaries and employee benefits
  $ 49,962     $ 49,672       0.58 %
Occupancy, furniture and equipment expense
    18,643       17,197       8.41  
Amortization of core deposit intangibles
    3,941       3,585       9.93  
Goodwill impairment charge
          160,306       NA  
FDIC assessment
    6,348       1,105       NCM  
Foreclosure losses
    8,116       908       NCM  
Professional fees
    4,202       2,637       59.35  
Insurance expense
    2,555       2,381       7.31  
Postage, stationery and supplies
    3,002       2,964       1.28  
Communications expense
    3,054       2,941       3.84  
Advertising expense
    2,530       3,522       (28.17 )
Merger-related costs
          118       NA  
Other operating expense
    8,132       7,342       10.76  
                         
Total
  $ 110,485     $ 254,678       (56.62 )%
                         


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Income tax expense.  We recognized an income tax benefit of $(6.3) million and $(13.0) million for the fourth quarter of 2009 and year ended December 31, 2009, respectively, compared to $(3.9) million and $(4.6) million for the fourth quarter of 2008 and year ended December 31, 2008, respectively. The difference between the effective tax rates in 2009 and 2008 and the blended federal statutory rate of 34% and state tax rates between 5% and 6% is primarily due to the goodwill impairment charge (2008) and certain tax-exempt income from investments and insurance policies. See “Critical Accounting Estimates” for a discussion regarding our deferred tax assets and liabilities.
 
Provision for Loan Losses and 2009 Loan Charge-offs.  The provision for loan losses was $28.6 million for the year ended December 31, 2009, an increase of $15.5 million from $13.1 million for the year ended December 31, 2008. In 2009, we had net charged-off loans totaling $15.5 million, compared to net charged-off loans of $7.1 million in the year ended December 31, 2008. The annualized ratio of net charged-off loans to average loans was 0.65% for the year ended December 31, 2009, compared to 0.33% for year ended December 31, 2008. The allowance for loan losses totaled $41.9 million, or 1.69% of loans, net of unearned income, at December 31, 2009, compared to $28.9 million, or 1.25% of loans, net of unearned income, at December 31, 2008.
 
During 2009, the effects of the global recession continued to apply additional stress to the overall performance of our loan portfolio. As a result, we increased our provision for loan losses and our allowance for loan losses. The following table shows the quarterly provision for loan losses, gross and net charge-offs, and the level of allowance for loan losses that resulted from our ongoing assessment of the loan portfolio during the year:
 
                                 
    2009 Quarters Ended  
    March 31     June 30     September 30     December 31  
    (Dollars in thousands)  
 
Beginning allowance for loan losses
  $ 28,850     $ 29,871     $ 33,504     $ 34,336  
Provision for loan losses
    3,452       5,982       5,169       13,947 (1)
Total charge-offs
    2,809       2,513       4,546       6,793  
Total recoveries
    (378 )     (164 )     (209 )     (394 )
                                 
Net charge-offs
    2,431       2,349       4,337       6,399  
                                 
Ending allowance for loan losses
  $ 29,871       33,504       34,336     $ 41,884  
                                 
Total loans, net of unearned income
  $ 2,359,299     $ 2,398,471     $ 2,434,534     $ 2,472,697  
                                 
Allowance for loan losses to total loans, net of unearned income
    1.27 %     1.40 %     1.41 %     1.69 %
                                 
 
 
(1) A portion of this provision related to charged-off loans, but a majority was used to increase our allowance for loan losses based on management’s estimate of loss in the loan portfolio based on management’s ongoing assessment of certain areas of risk. See “Financial Condition — Allowance for Loan Losses” for additional discussion


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Year Ended December 31, 2008, Compared with Year Ended December 31, 2007
 
Earnings.  We reported a net loss for 2008 primarily as a result of the $160 million goodwill impairment charge and $6.3 million non-cash after- tax other-than-temporary impairment charge on Fannie Mae and Freddie Mac preferred stock and certain mortgage-backed securities. Our earnings were also negatively impacted by a significantly higher provision for loan losses and lower net interest margin, offset somewhat by an increase in other noninterest income such as service charges on customer deposits and mortgage banking income. The following table presents key earnings data for the periods indicated:
 
                                 
    Three Months
    Year
 
    Ended December 31,     Ended December 31,  
    2008     2007     2008     2007  
    (Dollars in thousands, except per share data)  
 
Net (loss) income
  $ (158,178 )   $ 1,904     $ (163,150 )   $ 7,621  
Net (loss) income applicable to common shareholders
    (158,490 )     1,904       (163,461 )     7,621  
Net (loss) income per common share (diluted)
    (15.80 )     0.19       (16.31 )     0.82  
Net interest margin
    3.29 %     3.20 %     3.27 %     3.37 %
Net interest spread
    3.12       2.88       3.06       3.04  
Return on average assets
    NCM       0.26       (5.42 )     0.29  
Return on average stockholders’ equity
    NCM       2.16       (46.58 )     2.47  
Common book value per share
  $ 17.83     $ 34.91     $ 17.83     $ 34.91  
 
 
 
NCM — Not considered meaningful.


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Net Interest Income.  The following table summarizes the changes in the components of net interest income for the periods indicated:
 
                                                 
    Increase (Decrease) in  
    Fourth Quarter
    Year Ended December 31,
 
    2008 vs. 2007     2008 vs. 2007  
    Average
    Income/
    Yield/
    Average
    Income/
    Yield/
 
    Balance     Expense     Rate     Balance     Expense     Rate  
    (Dollars in thousands)  
 
ASSETS
Interest-earning assets:
                                               
Loans, net of unearned income
  $ 217,863     $ (4,215 )     (1.49 )%   $ 333,746     $ (3,281 )     (1.41 )%
Investment securities
                                               
Taxable
    (38,187 )     (361 )     0.20       (23,110 )     (864 )     0.11  
Tax-exempt
    5,776       108       0.17       18,595       1,242       0.19  
                                                 
Total investment securities
    (32,411 )     (253 )     0.23       (4,515 )     378       0.17  
Federal funds sold
    (4,208 )     (89 )     (3.79 )     (3,929 )     (349 )     (2.83 )
Other investments
    10,414       (101 )     (1.58 )     5,025       (366 )     (1.28 )
                                                 
Total interest-earning assets
  $ 191,658       (4,658 )     (1.21 )   $ 330,327       (3,618 )     (1.12 )
                                                 
Interest-bearing liabilities:
                                               
Demand deposits
  $ (34,149 )   $ (3,098 )     (1.84 )%   $ 69,675     $ (6,086 )     (1.35 )%
Savings deposits
    119,548       799       0.39       70,993       1,913       0.64  
Time deposits
    (5,328 )     (4,276 )     (1.30 )     78,530       (7,089 )     (0.87 )
Other borrowings
    126,849       (330 )     (1.88 )     106,796       (867 )     (1.80 )
Subordinated debentures
    7,120       141       0.02       7,179       (35 )     (1.15 )
                                                 
Total interest-bearing liabilities
  $ 214,040       (6,764 )     (1.45 )   $ 333,173       (12,164 )     (1.14 )
                                                 
Net interest income/net interest spread
            2,106       0.24 %             8,546       (0.02 )%
                                                 
Net yield on earning assets
                    0.09 %                     (0.10 )%
                                                 
Taxable equivalent adjustment:
                                               
Investment securities
            36                       423          
                                                 
Net interest income
          $ 2,070                     $ 8,123          
                                                 


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The following table depicts, on a taxable equivalent basis, certain information for the fourth quarters of 2008 and 2007 related to our average balance sheet and our average yields on assets and average costs of liabilities. Average yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
 
                                                 
    Three Months Ended December 31,  
    2008     2007  
    Average
    Income/
    Yield/
    Average
    Income/
    Yield/
 
    Balance     Expense     Rate     Balance     Expense     Rate  
                (Dollars in thousands)              
 
ASSETS
Interest-earning assets:
                                               
Loans, net of unearned income(1)
  $ 2,263,676     $ 36,445       6.40 %   $ 2,045,813     $ 40,660       7.89 %
Investment securities
                                               
Taxable
    293,409       4,007       5.43       331,596       4,369       5.23  
Tax-exempt(2)
    39,223       645       6.54       33,447       537       6.37  
                                                 
Total investment securities
    332,632       4,652       5.56       365,043       4,906       5.33  
Federal funds sold
    4,292       8       0.74       8,500       97       4.53  
Other investments
    59,214       539       3.62       48,800       640       5.20  
                                                 
Total interest-earning assets
    2,659,814       41,644       6.23       2,468,156       46,303       7.44  
Noninterest-earning assets:
                                               
Cash and due from banks
    61,967                       48,618                  
Premises and equipment
    104,341                       99,190                  
Accrued interest and other assets
    298,477                       290,894                  
Allowance for loan losses
    (27,845 )                     (22,095 )                
                                                 
Total assets
  $ 3,096,754                     $ 2,884,763                  
                                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
                                               
Demand deposits
  $ 601,222     $ 2,559       1.69 %   $ 635,371     $ 5,657       3.53 %
Savings deposits
    179,494       1,113       2.47       59,946       314       2.08  
Time deposits
    1,273,648       11,760       3.67       1,278,976       16,037       4.97  
Other borrowings
    397,657       3,006       3.01       270,808       3,336       4.89  
Subordinated debentures
    60,919       1,207       7.88       53,799       1,066       7.86  
                                                 
Total interest-bearing liabilities
  $ 2,512,940       19,645       3.11     $ 2,298,900       26,410       4.56  
Noninterest-bearing liabilities:
                                               
Demand deposits
    218,685                       206,977                  
Accrued interest and other liabilities
    15,222                       29,834                  
                                                 
Total liabilities
    2,746,847                       2,535,711                  
Stockholders’ equity
    349,907                       349,052                  
                                                 
Total liabilities and stockholders’ equity
  $ 3,096,754                     $ 2,884,763                  
                                                 
Net interest income/net interest spread
            21,999       3.12 %             19,893       2.88 %
                                                 
Net yield on earning assets
                    3.29 %                     3.20 %
                                                 
Taxable equivalent adjustment:
                                               
Investment securities
            219                       183          
                                                 
Net interest income
          $ 21,780                     $ 19,710          
                                                 
 
 
(1) Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.
 
(2) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 34%.


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The following table sets forth, on a taxable equivalent basis, the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the fourth quarter:
 
                         
    Three Months Ended December 31,
 
    2008 vs. 2007(1)  
    Increase
    Changes Due To  
    (Decrease)     Rate     Volume  
    (Dollars in thousands)  
 
Increase (decrease) in:
                       
Income from interest-earning assets:
                       
Interest and fees on loans
  $ (4,215 )   $ (8,221 )   $ 4,006  
Interest on securities:
                       
Taxable
    (361 )     160       (521 )
Tax-exempt
    108       14       94  
Interest on federal funds
    (89 )     (56 )     (33 )
Interest on other investments
    (101 )     (219 )     118  
                         
Total interest income
    (4,658 )     (8,322 )     3,664  
Expense from interest-bearing liabilities:
                       
Interest on demand deposits
    (3,098 )     (2,808 )     (290 )
Interest on savings deposits
    799       69       730  
Interest on time deposits
    (4,276 )     (4,209 )     (67 )
Interest on other borrowings
    (330 )     (1,554 )     1,224  
Interest on subordinated debentures
    141       3       138  
                         
Total interest expense
    (6,764 )     (8,499 )     1,735  
                         
Net interest income
  $ 2,106     $ 177     $ 1,929  
                         
 
 
(1) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.
 
Provision for Loan Losses and 2008 Loan Charge-offs.  The provision for loan losses was $13.1 million for the year ended December 31, 2008, an increase of $8.6 million, or 188.7%, from $4.5 million the year ended December 31, 2007. In 2008, we had net charged-off loans totaling $7.1 million, compared to net charged-off loans of $4.3 million in the year ended December 31, 2007. The annualized ratio of net charged-off loans to average loans was 0.33% for the year ended December 31, 2008, compared to 0.24% for year ended December 31, 2007. The allowance for loan losses totaled $28.9 million, or 1.25% of loans, net of unearned income, at December 31, 2008, compared to $22.9 million, or 1.13% of loans, net of unearned income, at December 31, 2007. As 2008 progressed, we increased our provision for loan losses and our allowance for loan losses as it became clear that the economy was showing signs of deterioration. The following table shows the quarterly provision for loan losses, gross and net


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charge-offs, and the level of allowance for loan losses that resulted from our ongoing assessment of the loan portfolio during the year:
 
                                 
    2008 Quarters Ended  
    March 31     June 30     September 30     December 31  
    (Dollars in thousands)  
 
Beginning allowance for loan losses
  $ 22,868     $ 23,273     $ 27,243     $ 27,671  
Provision for loan losses
    1,872       5,967       2,305       2,968  
Total charge-offs
    1,745       2,482       2,247       1,970  
Total recoveries
    (278 )     (485 )     (370 )     (181 )
                                 
Net charge-offs
    1,467       1,997       1,877       1,789  
                                 
Ending allowance for loan losses
  $ 23,273     $ 27,243     $ 27,671       28,850  
                                 
Total loans, net of unearned income
  $ 2,066,192     $ 2,148,750     $ 2,219,041     $ 2,314,921  
                                 
Ratio: Allowance for loan losses to total loans, net of unearned income
    1.13 %     1.27 %     1.25 %     1.25 %
                                 
 
Noninterest income.  Noninterest income decreased $1.4 million and $2.6 million, or 24.7% and 13.4%, to $4.4 million and $16.8 million for the fourth quarter and year ended December 31, 2008, respectively, from $5.8 million and $19.4 million for the fourth quarter and year ended December 31, 2007, respectively. The components of noninterest income for the fourth quarters and years ended December 31, 2008 and 2007 consisted of the following:
 
                         
    Three Months Ended December 31,  
    2008     2007     % Change  
    (Dollars in thousands)  
 
Service charges and fees on deposits
  $ 2,574     $ 2,183       17.91 %
Mortgage banking income
    855       808       5.82  
Investment securities (losses) gains(1)
    (1,381 )     66       NA  
Change in fair value of derivatives
    467       1,141       (59.07 )
Increase in cash surrender value of life insurance
    585       514       13.81  
Other noninterest income
    1,274       1,096       16.24  
                         
Total
  $ 4,374     $ 5,808       (24.69 )%
                         
 
                         
    Year Ended December 31,  
    2008     2007     % Change  
    (Dollars in thousands)  
 
Service charges and fees on deposits
  $ 9,295     $ 7,957       16.82 %
Mortgage banking income
    3,972       3,860       2.90  
Investment securities (losses) gains(1)
    (8,453 )     308       NA  
Change in fair value of derivatives
    1,240       1,310       (5.34 )
Increase in cash surrender value of life insurance
    2,274       1,895       20.00  
Gain on extinguishment of liabilities
    2,918             NA  
Other noninterest income
    5,521       4,027       37.10  
                         
Total
  $ 16,767     $ 19,357       (13.38 )%
                         
 
 
(1) Includes a non-cash OTTI charge.
 
The increase in service charges and fees on deposits was primarily attributable to an increased customer base resulting from our acquisitions and new branch locations The increase in mortgage banking income during 2008 was the result of an increase in the volume of originations. The increase in other noninterest income was primarily


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due to increases in brokerage commissions and ATM network fees. The increase in brokerage commissions was the result of increased volume in our investment subsidiary, and the increase in ATM network fees was the result of increased volume related to new customers and additional ATM locations acquired through acquisitions or new branch locations.
 
During the second quarter of 2008, we recognized two separate gains from the extinguishment of approximately $5.8 million in liabilities. The first gain related to a settlement of a retirement agreement with a previous executive officer under which we had a remaining unfunded obligation to pay approximately $6.2 million in benefits over a 17-year period. This obligation was settled through a cash payment of $3.0 million with a recognized pre-tax gain of $574,000. The second gain related to a forfeiture of benefits owed to a former executive officer under the Community Bancshares, Inc. Benefit Restoration Plan and resulted in a pre-tax gain of $2.3 million.
 
Noninterest expenses.  Noninterest expenses increased $4.1 million, exclusive of the $160 million goodwill impairment charge, or 19.6%, to $24.9 million for the fourth quarter of 2008 from $20.8 million for the fourth quarter of 2007. This increase was primarily due to our opening of new branch locations, which contributed to increases in personnel, occupancy cost, and equipment expense. An additional large increase was recorded in insurance expense ($0.4 million, or 64%) as the full impact of FDIC premium expense was realized due to the exhaustion of previous premium rebates. Noninterest expenses included the following for the fourth quarters of 2008 and 2007:
 
                         
    Three Months Ended December 31,  
    2008     2007     % Change  
    (Dollars in thousands)  
 
Noninterest Expenses
                       
Salaries and employee benefits
  $ 13,094     $ 11,357       15.29 %
Occupancy, furniture and equipment expense
    4,583       3,742       22.47  
Amortization of core deposit intangibles
    896       588       52.38  
Merger-related costs
          108       NA  
Professional fees
    745       720       3.47  
Goodwill impairment charge
    160,306             NA  
Insurance expense
    1,048       638       64.26  
Postage, stationery and supplies
    559       570       (1.93 )
Communications expense
    549       538       2.04  
Advertising expense
    666       638       4.39  
Other operating expense
    2,787       1,951       42.85  
                         
Total
  $ 185,233     $ 20,850       NCM  
                         
 
 
 
NA — Not applicable.
 
NCM — Not considered meaningful.
 
Noninterest expenses increased $16.1 million, exclusive of the $160 million goodwill impairment charge, or 20.6%, to $94.3 million for the year ended December 31, 2008 from $78.2 million for the year ended December 31, 2007. This increase was primarily due to the opening of new branch locations, which contributed to increases in


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personnel, occupancy cost, and equipment. Noninterest expenses included the following for the years ended December 31, 2008 and 2007:
 
                         
    Year Ended December 31,  
    2008     2007     % Change  
    (Dollars in thousands)  
 
Noninterest Expenses
                       
Salaries and employee benefits
  $ 49,672     $ 42,316       17.38 %
Occupancy, furniture and equipment expense
    17,197       13,391       28.42  
Amortization of core deposit intangibles
    3,585       1,691       112.00  
Loss on extinguishment of debt
          1,469       NA  
Merger-related costs
    118       639       (81.53 )
Loss on termination of ESOP
          158       NA  
Professional fees
    2,637       2,269       16.22  
Goodwill impairment charge
    160,306             NA  
Insurance expense
    3,486       2,189       59.25  
Postage, stationery and supplies
    2,114       2,252       (6.13 )
Communications expense
    2,203       2,007       9.77  
Advertising expense
    2,977       2,397       24.20  
Other operating expense
    10,383       7,445       39.46  
                         
Total
  $ 254,678     $ 78,223       NCM %
                         
 
Income Tax Expense.  We recognized income tax (benefit) expense of $(3.9) million and $(4.6) million for the fourth quarter of 2008 and year ended December 31, 2008, respectively, compared to $1.1 million and $4.1 million for the fourth quarter of 2007 and year ended December 31, 2007, respectively. The difference between the effective tax rates in 2009 and 2008 and the blended federal statutory rate of 34% and state tax rates between 5% and 6% is primarily due to the goodwill impairment charge (2008), certain tax-exempt income from investments and insurance policies. We adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 48 as of January 1, 2007, the effect of which is described in Note 14 to the consolidated financial statements.
 
Results of Segment Operations
 
We have two reportable segments, the Alabama Region and the Florida Region. The Alabama Region consists of operations located throughout Alabama. The Florida Region consists of operations located primarily in the Tampa Bay area and panhandle region of Florida. Please see Note 26 — Segment Reporting in the accompanying notes to consolidated financial statements included elsewhere in this report for additional disclosure regarding our segment reporting. Operating profit (loss) by segment is presented below for the periods ended December 31:
 
                         
    2009     2008     2007  
    (Dollars in thousands)  
 
Alabama region
  $ 4,240     $ (58,159 )   $ 15,096  
Florida region
    5,099       (81,600 )     23,448  
Administrative and other
    (42,233 )     (27,979 )     (26,789 )
Income tax (benefit) expense
    (13,005 )     (4,588 )     4,134  
                         
Consolidated net (loss) income
  $ (19,889 )   $ (163,150 )   $ 7,621  
                         
 
Alabama Region.  Operating income for 2009 totaled $4.2 million compared to an operating loss of $(58.2) million for 2008. The increase in profits was due primarily to a non-recurring goodwill impairment charge of $63.8 million that occurred in 2008. Operating loss for 2008 totaled $(58.2) million, which included the aforementioned goodwill impairment charge, compared to $15.1 million operating profit for 2007. See “Note 1 —


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Summary of Significant Accounting Policies — Intangible Assets” to our consolidated financial statements for additional information on the goodwill impairment charge.
 
Net interest income for 2009 increased $4.4 million, or 13.4%, compared to 2008. The increase was primarily the result of an increase in the average volume of earning assets and a decrease in the average cost of interest-bearing liabilities. Net interest income for 2008 decreased $3.7 million, or 10.1%, compared to 2007. The decrease was primarily the result of a decrease in the average yield on interest-earning assets partly offset by an increase in the average volume of earning assets. See the analysis of net interest income included in the section captioned “Net Interest Income” elsewhere in this discussion.
 
The provision for loan losses for 2009 totaled $6.5 million compared to $4.4 million in 2008 and $3.8 million in 2007. See the analysis of the provision for loan losses included in the section captioned “Allowance for Loan Losses” elsewhere in this discussion.
 
Noninterest income for 2009 increased $1.1 million, or 14.1%, compared to 2008. The increase was due to increases in service charges and other fees on deposit accounts due to increased account volume and pricing changes. Noninterest income for 2008 increased $0.6 million, or 8.1%, compared to 2007. The increase was due to increases in service charges on deposit accounts. See the analysis of noninterest income in the section captioned “Noninterest Income” included elsewhere in this discussion.
 
Noninterest expense for 2009 increased to $35.5 million from $30.7 million, excluding the $63.8 million non-cash goodwill impairment charge, in 2008. This increase was primarily related to increased levels of foreclosure activity. Noninterest expense for 2008 increased to $94.5 million, which included the $63.8 million non-cash goodwill impairment charge, compared to $24.9 million in 2007. Other increases were primarily related to increases in salaries and benefits and occupancy expenses that resulted from our new branch openings. See additional analysis of noninterest expense included in the section captioned “Noninterest Expense” elsewhere in this discussion.
 
Florida Region.  Operating income for 2009 totaled $5.1 million compared to an operating loss of $(81.6) million for 2008. The increase in profits was due primarily to a non-cash goodwill impairment charge of $96.5 million that occurred in 2008. Operating loss for 2008 totaled $(81.6) million, which included the $96.5 million non-cash goodwill impairment charge, compared to $23.5 million operating profit for 2007. See “Note 1 — Summary of Significant Accounting Policies — Intangible Assets” to our consolidated financial statements for additional information on the goodwill impairment charge.
 
Net interest income for 2009 increased $0.6 million, or 1.7%, compared to 2008. The increase in net interest margin was primarily the result of a decrease in the average cost of interest-bearing liabilities. Net interest income for 2008 remained level at $38.1 million compared to 2007. The increase in the average volume of earning assets was offset by a decrease in the average yield on interest-earning assets. See the analysis of net interest income included in the section captioned “Net Interest Income” included elsewhere in this discussion.
 
The provision for loan losses for 2009 totaled $10.2 million compared to $3.5 million in 2008 and $1.6 million in 2007. See the analysis of the provision for loan losses included in the section captioned “Allowance for Loan Losses” elsewhere in this discussion.
 
Noninterest income for 2009 increased to $2.1 million, or 8.6%, compared to 2008. The increase was due to service charges on deposit accounts as a result of increases in account volumes and pricing changes. Noninterest income for 2008 increased to $1.9 million, or 12.2%, compared to 2007. The increase was due to increases in service charges on deposit accounts. See the analysis of noninterest income in the section captioned “Noninterest Income” elsewhere in this discussion.
 
Noninterest expense for 2009 decreased to $25.6 million from $118.2 million in 2008. The decrease was primarily related to a $96.5 million non-cash goodwill impairment charge in 2008. This decrease was offset by an increase in the costs of foreclosed assets. Noninterest expense for 2008 increased to $118.2 million, which included the non-cash goodwill impairment charge, compared to $14.7 million in 2007. Other increases were primarily related to increases in salaries and benefits and occupancy expenses. These increases were primarily related to our new branch openings. See additional analysis of noninterest expense included in the section captioned “Noninterest Expense” elsewhere in this discussion.


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Market Risk
 
Market risk is the exposure to unanticipated changes in net interest earnings or changes in the fair value of financial instruments due to fluctuations in interest rates, exchange rates and equity prices. Our primary market risk is interest rate risk.
 
We evaluate interest rate risk and then develop guidelines regarding asset generation and re-pricing, funding sources and pricing, and off-balance sheet commitments in order to moderate interest rate risk. We use computer simulations that reflect various interest rate scenarios and the related impact on net interest income over specified periods of time. We refer to this process as asset/liability management, or (“ALM”).
 
The primary objective of ALM is to manage interest rate risk and achieve reasonable stability in net interest income throughout interest rate cycles. This is achieved by maintaining the proper balance of interest rate sensitive earning assets and liabilities. In general, management’s strategy is to match asset and liability balances within maturity categories to limit our exposure to earnings volatility and changes in the value of assets and liabilities as interest rates fluctuate over time. Adjustments to maturity categories can be accomplished either by lengthening or shortening the duration of either an individual asset or liability category, or externally through the use of interest rate contracts, such as interest rate swaps, caps and floors. See the discussion below for a more detailed discussion of our various derivative positions.
 
Our asset and liability management strategy is formulated and monitored by our Asset/Liability Management Committee (“ALCO”), which is composed of our head of asset/liability management and other senior officers, in accordance with policies approved by the Board of Directors. The ALCO meets monthly to review, among other things, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, recent purchase and sale activity, maturities of investments and borrowings, and projected future transactions. The ALCO also establishes and approves pricing and funding decisions with respect to overall asset and liability composition. The ALCO reports regularly to our Board Loan and Investment Committee and the full Board of Directors.
 
We measure our interest rate risk by analyzing the correlation of interest-bearing assets to interest-bearing liabilities (“gap analysis”), net interest income simulation and economic value of equity (“EVE”) modeling.
 
As of December 31, 2009, Superior Bank had approximately $374 million more in interest-bearing liabilities than interest-earning assets that could re-price to current market rates during the next 12 months. Shortcomings are inherent in any gap analysis, because the rates on certain assets and liabilities may not move proportionately as market interest rates change. For example, when national money market rates change, interest rates on our NOW, savings and money market deposit accounts may not change as much as rates on commercial loans. Superior Bank had approximately $975 million of such administratively priced deposits on December 31, 2009.
 
Superior Bank’s net interest income simulation model projects that net interest income will increase on an annual basis by 2.3%, or approximately $2.2 million, assuming an instantaneous and parallel increase in interest rates of 200 basis points. The following is a comparison of these measurements as of December 31, 2009 and 2008:
 
                 
    December 31,
12-Month Gap
  2009   2008
    (Dollars in thousands)
 
Interest-bearing liabilities in excess of interest-earning assets based on repricing date
  $ (374,000 )   $ (297,000 )
Cumulative Ratio
    0.83       0.86  
 
                                 
    Increase in Net Interest Income
    December 31, 2009   December 31, 2008
Change (in Basis Points) in Interest Rates (12-Month Projection)
  Amount   Percent   Amount   Percent
    (Dollars in thousands)
 
+ 200 BP(1)
  $ 2,200       2.3 %   $ 1,200       1.7 %
− 200 BP(2)
    NCM       NCM       NCM       NCM  
 
 
(1) Results are within our asset and liability management policy
 
(2) Not considered meaningful in the current rate environment (NCM).


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EVE is a concept related to longer-term interest rate risk. EVE is defined as the net present value of the balance sheet’s cash flows or the residual value of future cash flows. While EVE does not represent actual market liquidation or replacement value, it is a useful tool for estimating our balance sheet earnings sensitivity to changes in interest rates. The greater the EVE, the greater our earnings capacity. Superior Bank’s EVE model projects that EVE will increase 4.4% and 3.1% assuming an instantaneous and parallel increase in interest rates of 100 and 200 basis points, respectively. Assuming an instantaneous and parallel decrease of 100 basis points, EVE is projected to decrease 1.6% (although such a decline is unlikely given the present low level of interest rates). The EVE shifts produced by these scenarios are within the limits of our asset and liability management policy. The following table sets forth Superior Bank’s EVE limits as of December 31, 2009:
 
                         
          Change  
Change (in Basis Points) in Interest Rates
  EVE     Amount     Percent  
    (Dollars in thousands)        
 
+ 200 BP
  $ 343,900     $ 14,600       4.4 %
+ 100 BP
    339,400       10,100       3.1  
  0 BP
    329,300              
− 100 BP
    334,600       5,000       1.6  
 
Both the net interest income and EVE simulations include assumptions regarding balances, asset prepayment speeds and interest rate relationships among balances that management believes 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 our market risk exposure.
 
Derivative Positions.
 
Overview.  Our Board of Directors has authorized the ALCO to utilize financial futures, forward sales, options, interest rate swaps, caps and floors, and other instruments to the extent necessary, in accordance with the OTS regulations and our internal policy. We expect to use interest rate swaps, caps and floors as macro hedges against inherent rate sensitivity in our securities portfolio, our loan portfolio and our liabilities.
 
Positions for hedging purposes are primarily a function of three main areas of risk exposure: (1) mismatches between assets and liabilities; (2) prepayment and other option-type risks embedded in our assets, liabilities and off-balance sheet instruments; and (3) the mismatched commitments for mortgages and funding sources. We will engage in only the following types of hedges: (1) those which synthetically alter the maturities or re-pricing characteristics of assets or liabilities to reduce imbalances; (2) those which enable us to transfer the interest rate risk exposure involved in our daily business activities; and (3) those which serve to alter the market risk inherent in our investment portfolio or liabilities and thus help us to match the effective maturities of the assets and liabilities.
 
The following is a discussion of our primary derivative positions.
 
Interest Rate Swaps
 
We have entered interest rate swaps (“CD swaps”) to convert the fixed rate paid on brokered certificates of deposit (“CDs”) to a variable rate based upon three-month LIBOR. At December 31, 2009 and December 31, 2008, we had $0.7 million and $1.2 million, respectively, in notional amount of CD swaps which had not been designated as hedges. These CD swaps had not been designated as hedges because they represent the portion of the interest rate swaps that are over-hedged due to principal reductions on the brokered CDs.
 
We have entered into certain interest rate swaps on commercial loans that are not designated as hedging instruments. These derivative contracts relate to transactions in which we enter into an interest rate swap with a loan customer while at the same time enter into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate. Because we act as an intermediary for our customer, changes


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in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations.
 
Fair Value Hedges
 
As of December 31, 2009 and December 31, 2008, we had $2.8 million and $5.3 million, respectively, in notional amount of CD swaps designated and qualified as fair value hedges. These CD swaps were designated as hedging instruments to hedge the risk of changes in the fair value of the underlying brokered CD due to changes in interest rates. At December 31, 2009 and December 31, 2008, the amount of CD swaps designated as hedging instruments had a recorded fair value of $0.2 million and $0.8 million, respectively, and a weighted average life of 2.5 and 6.8 years, respectively. The weighted average fixed rate (receiving rate) was 4.70% and the weighted average variable rate (paying rate) was 0.52% (LIBOR based).
 
Cash Flow Hedges
 
We have entered into interest rate swap agreements designated and qualified as a hedge with notional amounts of $22.0 million to hedge the variability in cash flows on $22.0 million of junior subordinated debentures. Under the terms of the interest rate swaps which mature September 15, 2012, we receive a floating rate based on 3-month LIBOR plus 1.33% (1. 58% as of December 31, 2009) and pay a weighted average fixed rate of 4.42%. As of December 31, 2009 and December 31, 2008, these interest rate swap agreements are recorded as liabilities in the amount of $0.8 million and $1.0 million, respectively.
 
Interest Rate Lock Commitments
 
In the ordinary course of business, we enter into certain commitments with customers in connection with residential mortgage loan applications. Such commitments are considered derivatives under FASB guidance and are required to be recorded at fair value. The aggregate amount of these mortgage loan origination commitments was $41.0 million and $92.7 million at December 31, 2009 and December 31, 2008, respectively. The fair value of the origination commitments was $(0.4) million and $(0.1) million at December 31, 2009 and December 31, 2008, respectively.
 
Liquidity, Contractual Obligations and Off Balance Sheet Arrangements
 
Overview.  The goal of liquidity management is to provide adequate funds to meet changes in loan demand or any potential unexpected deposit withdrawals. Additionally, management strives to maximize our earnings by investing our excess funds in securities and other assets with maturities matching our liabilities. Historically, we have maintained a high loan-to-deposit ratio. To meet our short-term liquidity needs, we maintain core deposits and have borrowing capacity through the Federal Home Loan Bank (“FHLB”), Federal Reserve Bank, repurchase agreements and federal funds lines. Long-term liquidity needs are also met through these sources along with the repayment of loans, sales of loans and the maturity or sale of investment securities. See “Maturity Distribution of Investment Securities” and “Selected Loan Maturity and Interest Rate Sensitivity” below.
 
Short-term liquid assets.  Our short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and federal funds sold) increased $10.3 million, or 11.5%, to $99.8 million at December 31, 2009 from $89.4 million at December 31, 2008. At December 31, 2009 and 2008, our short-term liquid assets comprised 3.1% and 2.9% of total assets, respectively. We continually monitor our liquidity position and will increase or decrease our short-term liquid assets as necessary.
 
Maturity Distribution of Investment Securities.  The following table shows the scheduled contractual maturities and average yields of investment securities held at December 31, 2009. Within our investment securities portfolio expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations without call or prepayment penalties in certain instances. During 2009, we received proceeds


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from calls totaling approximately $0.4 million and principal pay downs on mortgage-backed securities of approximately $59 million.
 
                                                                                 
    Maturing  
                After Five But
             
    Within One
    After One But
    Within Ten
    After
       
    Year     Within Five Years     Years     Ten Years     Total  
    Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  
    (Dollars in thousands)  
 
Securities available-for-sale:
                                                                               
U.S. Agency securities
  $       %   $ 242       4.76 %   $ 53,914       3.99 %   $       %   $ 54,156       3.99 %
Mortgage-backed securities
    3,699       4.68       1,500       4.85       766       5.16       186,938       4.47       192,903       4.48  
State, county and municipal securities
    280       4.00       2,952       4.01       5,087       5.16       22,916       4.30       31,235       4.22  
Corporate obligations
                4,138       6.03                   13,255       2.40       17,393       4.97  
Other
                                        563       3.01       563       3.01  
                                                                                 
Total amortized cost
  $ 3,979       4.60 %   $ 8,832       4.94 %   $ 59,767       4.01 %   $ 223,672       4.39 %   $ 296,250       4.36 %
                                                                                 
 
Selected Loan Maturity and Interest Rate Sensitivity.  The repayment of loans as they mature is a source of liquidity for us. The following table sets forth our loans by category maturing within specified intervals at December 31, 2009. The information presented is based on the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Consequently, management believes this treatment presents fairly the maturity and re-pricing of the loan portfolio.
 
                                                 
                            Rate Structure for Loans
 
          Over One Year
                Maturing Over One Year  
    One Year
    through Five
    Over Five
          Fixed
    Floating or
 
    or Less     Years     Years     Total     Interest Rate     Adjustable Rate  
    (Dollars in thousands)  
 
Commercial and industrial
  $ 143,334     $ 65,574     $ 4,421     $ 213,329     $ 56,384     $ 13,611  
Real estate — construction and land development
    508,564       158,311       13,570       680,445       84,969       86,912  
Real estate — mortgages
                                               
Single-family
    127,133       114,947       449,284       691,364       218,559       345,672  
Commercial
    227,749       366,222       207,842       801,813       292,575       281,489  
Other
    16,975       6,965       4,945       28,885       8,505       3,405  
Consumer
    16,137       37,060       5,588       58,785       41,705       943  
Other
    969                   969              
                                                 
Total loans
  $ 1,040,861     $ 749,079     $ 685,650     $ 2,475,590     $ 702,697     $ 732,032  
                                                 
Percent to total loans
    42.0 %     30.3 %     27.7 %     100.0 %     28.4 %     29.6 %
                                                 
 
Maturities of Time Deposits of $100,000 or More.  The maturity distribution of our time deposits over $100,000 at December 31, 2009 is shown in the following table:
 
                                     
Under
  Three to
  Six to
  Over
   
Three
  Six
  Twelve
  Twelve
   
Months
  Months   Months   Months   Total
(Dollars in thousands)
 
$ 146,399     $ 157,901     $ 288,202     $ 169,083     $ 761,585  
                                     
 
Approximately 19.2% of our time deposits over $100,000 had scheduled maturities within three months of December 31, 2009. We believe customers who hold a large denomination certificate of deposit tend to be


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extremely sensitive to interest rate levels, making these deposits a less reliable source of funding for liquidity planning purposes than core deposits.
 
Cash Flow Analysis.  As shown in the Consolidated Statements of Cash Flows, operating activities used $45.6 million, and provided $26.0 million and $3.7 million in funds during the years 2009, 2008 and 2007, respectively. The significant decrease in operating funds during 2009 was primarily due to a net operating loss, a net use of funds from the origination of mortgage loans held for sale and premiums paid to the FDIC. The significant increase in operating funds during 2008 was primarily due to a net increase in the proceeds from the sale of mortgage loans held for sale over a net use of funds from the origination of mortgage loans held for sale in 2007. The net effect on operating funds will vary depending on the volume of originations and the timing of receipt of the sale proceeds, which is usually 30 to 45 days.
 
Investing activities in 2009, 2008 and 2007 were a net user of funds, primarily due to an increase in loan fundings and capital expenditures. During 2009 and 2007, we received a higher level of funds from principal payments and calls in our investment portfolio.
 
Financing activities were a net provider of funds in 2009, 2008 and 2007, as we increased our level of deposits and received $40 million during 2009 from the proceeds of a note payable. During 2009, we had a significant reduction in borrowings from the FHLB. During 2008, we had significant increases in our borrowings from the FHLB and received $69 million from the issuance of preferred stock under the CPP. During 2007, the increase in deposit funding was offset by a decrease in borrowings and the purchase of treasury stock.
 
Contractual Cash Obligations.  We have entered into certain contractual obligations and commercial commitments in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk.
 
The following tables summarize these relationships by contractual cash obligations and commercial commitments:
 
                                         
    Payments Due by Period  
          Less than
    One to
    Four to
    After Five
 
    Total     One Year     Three Years     Five Years     Years  
    (Dollars in thousands)  
 
Contractual Cash Obligations
                                       
Advances from FHLB(1)
  $ 218,322     $ 29,982     $ 90,000     $ 66,340     $ 32,000  
Operating leases(2)
    28,902       3,771       8,358       1,952       14,821  
Capitalized leases(2)
    4,525       275       790       252       3,208  
Note payable(3)
    47,000       7,000       40,000              
Repurchase agreements(4)
    841       841                    
Subordinated debentures(5)
    131,679                         131,679  
Limited partnership investments(6)
    213       213                    
Deferred compensation agreements(7)
    5,267       49       363       41       4,814  
Other employment related contract obligations incurred in business combinations(8)
    830       420       410              
Benefit Restoration Plan(9)
    509       57       111       106       235  
                                         
Total contractual cash obligations
  $ 438,088     $ 42,608     $ 140,032     $ 68,691     $ 186,757  
                                         
 
 
(1) See Note 8 to the consolidated financial statements.
 
(2) See Note 6 to the consolidated financial statements.
 
(3) See Note 10 to the consolidated financial statements.
 
(4) See Note 9 to the consolidated financial statements.


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(5) See Note 11 to the consolidated financial statements.
 
(6) See Note 1 to the consolidated financial statements.
 
(7) See Note 13 to the consolidated financial statements.
 
(8) See Note 2 to the consolidated financial statements.
 
(9) See Note 20 to the consolidated financial statements.
 
                                         
    Payments Due by Period  
          Less Than
    One to
    Four to
    After Five
 
    Total     One Year     Three Years     Five Years     Years  
    (Dollars in thousands)  
 
Commercial Commitments
                                       
Commitments to extend credit(1)
  $ 266,550     $ 152,083     $ 67,251     $ 9,612     $ 37,604  
Standby letters of credit(1)
    21,845       11,430       10,325       90        
                                         
Total commercial commitments
  $ 288,395     $ 163,513     $ 77,576     $ 9,702     $ 37,604  
                                         
 
 
(1) See Note 17 to the consolidated financial statements.
 
In addition, the FHLB has issued for Superior Bank’s benefit two irrevocable letters of credit. Superior Bank has a $20 million irrevocable letter of credit in favor of the Chief Financial Officer of the State of Florida to secure certain deposits of the State of Florida. The letter of credit expires January 4, 2011 upon 60 days’ prior notice of non-renewal; otherwise, it automatically extends for a successive one-year term. In addition, Superior Bank has a $50 million irrevocable letter of credit in favor of the State of Alabama SAFE Program to secure certain deposits of the State of Alabama. This letter of credit expires on September 15, 2010 and will automatically be extended, without amendments, for successive one-year periods from the expiration date, without ninety days’ prior notice of non-renewal.
 
Financial Condition
 
Our total assets were $3.222 billion at December 31, 2009, an increase of $169.2 million, or 5.5%, from $3.053 billion as of December 31, 2008. This growth is primarily attributable to an increase in our loan portfolio, as discussed below. Our average total assets for 2009 were $3.153 billion, which was supported by average total liabilities of $2.910 billion and average total stockholders’ equity of $243.6 million.
 
Investment Portfolio.
 
Total investment securities decreased $60.8 million, or (17.5)%, to $286.3 million at December 31, 2009, from $347.1 million at December 31, 2008. Average investment securities totaled $313.5 million at December 31, 2009, compared to $346.0 million at December 31, 2008. Investment securities were 9.9% of our total interest-earning assets at December 31, 2009, compared to 12.8% at December 31, 2008. The investment securities portfolio produced average taxable equivalent yields of 5.27%, 5.46% and 5.29% for the years ended December 31, 2009, 2008 and 2007, respectively.
 
During 2009, we sold approximately 63 securities with combined amortized cost and fair values of $152 million and $158 million, respectively. Nearly all of the sale proceeds were reinvested in 30 federal agency securities (direct and MBS) and classified in the portfolio as available-for-sale. Given the reinvestment of nearly 100% of the sale proceeds and the minor differences in the risk characteristics of the securities sold versus those that were purchased, the net impact on the interest rate risk profile of the entire investment portfolio is relatively minor. The effective duration of the portfolio increases by 0.49 years in the current interest rate environment and increases by 0.92 and 0.77 years in the instantaneous up and down 200 basis point rate shock scenarios, respectively.
 
The credit quality of the portfolio was also enhanced as a result of the repositioning by reinvesting the sale proceeds associated with $16.2 million in amortized costs of corporate and municipal securities into a U.S. Agency debenture and U.S. Agency MBS.
 
The weighted average book yield of securities sold was 4.70% and the weighted average book yield of securities purchased was 3.75% resulting in a 0.95% decline in the book yield involving approximately $152 million


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in book value of securities. This will result in an approximate 5.0 basis point decline in the overall net interest margin going forward or an annual pre-tax effect of approximately $1.44 million. In other words, we accelerated a book gain of $5.65 million into the current period at the cost of lower earnings of $1.44 million for the duration of the decision (3.9 years). This sale also resulted in an increase in our total capital to risk weighted assets of approximately 5 basis points.
 
The following table sets forth the fair value of the available-for-sale securities we held at the dates indicated:
 
Investment Portfolio
 
                         
    December 31,     Percent
 
    2009     2008     Change  
    (Dollars in thousands)  
 
Investment securities available for sale:
                       
U.S. agency securities
  $ 53,681     $ 3,843       NCM  
Mortgage-backed securities (MBS):
                       
U.S. Agency MBS — residential
    163,724       237,508       (31.1 )%
U.S. Agency MBS — collateralized mortgage obligation (“CMO”)
    12,759       16,186       (21.2 )
Private-label — CMO
    16,191       26,430       (38.7 )
                         
Total MBS
    192,674       280,124       (31.2 )
                         
State, county and municipal securities
    31,462       40,622       (22.5 )
                         
Corporate obligations:
                       
Corporate debt
    4,000       5,746       (30.4 )
Pooled trust preferred securities
    3,203       9,939       (67.8 )
Single issue trust preferred securities
    977       6,704       (85.4 )
                         
Total corporate obligations
    8,180       22,389       (63.5 )
                         
Equity securities
    313       164       90.9  
                         
Total investment securities available for sale
  $ 286,310     $ 347,142       (17.5 )%
                         
 
 
 
NCM — Not considered meaningful.


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The following table summarizes the investment securities with unrealized losses at December 31, 2009 by aggregated major security type and length of time in a continuous unrealized loss position:
 
                                                 
    December 31, 2009  
    Less Than 12 Months     More Than 12 Months     Total  
          Unrealized
          Unrealized
          Unrealized
 
    Fair Value     Losses(1)     Fair Value     Losses(1)     Fair Value     Losses(1)  
    (Dollars in thousands)  
 
Temporarily Impaired
                                               
U.S. agency securities
  $ 48,409     $ 505     $     $     $ 48,409     $ 505  
Mortgage-backed securities:
                                               
U.S. Agency MBS — residential
    75,493       272       239       10       75,732       282  
U.S. Agency MBS — CMO
    6,036       97                   6,036       97  
Private-label — CMO
                12,059       1,753       12,059       1,753  
                                                 
Total MBS
    81,529       369       12,298       1,763       93,827       2,132  
                                                 
State, county and municipal securities
    7,360       121       1,019       102       8,379       223  
                                                 
Corporate obligations:
                                               
Corporate debt
                4,000       138       4,000       138  
Single issue trust preferred securities
                977       4,023       977       4,023  
                                                 
Total corporate obligations
                4,977       4,161       4,977       4,161  
Equity securities
                314       250       314       250  
                                                 
Total temporarily impaired securities
    137,298       995       18,608       6,276       155,906       7,271  
Other-than-temporarily Impaired
                                               
Mortgage-backed securities:
                                               
Private-label — CMO
                3,037       1,618       3,037       1,618  
Corporate obligations:
                                               
Pooled trust preferred securities
                3,203       5,052       3,203       5,052  
                                                 
Total OTTI securities
                6,240       6,670       6,240       6,670  
                                                 
Total temporarily and other-than-temporarily impaired
  $ 137,298     $ 995     $ 24,848     $ 12,946     $ 162,146     $ 13,941  
                                                 
 
 
 
(1) Unrealized losses are included in other comprehensive income (loss), net of unrealized gains and applicable income taxes.


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The following table summarizes the investment securities with unrealized losses at December 31, 2008 by aggregated major security type and length of time in a continuous unrealized loss position:
 
                                                 
    December 31, 2008  
    Less Than 12 Months     More Than 12 Months     Total  
          Unrealized
          Unrealized
          Unrealized
 
    Fair Value     Losses(1)     Fair Value     Losses(1)     Fair Value     Losses(1)  
                (Dollars in thousands)              
 
Temporarily Impaired
                                               
U.S. agency securities
  $     $     $ 249     $ 2     $ 249     $ 2  
Mortgage-backed securities:
                                               
U.S. Agency MBS — residential
    21,602       178       3,655       32       25,257       210  
U.S. Agency MBS — CMO
                700       3       700       3  
Private-label — CMO
    17,126       3,912       3,017       124       20,143       4,036  
                                                 
Total MBS
    38,728       4,090       7,372       159       46,100       4,249  
                                                 
State, county and municipal securities
    17,275       831       3,662       371       20,937       1,202  
                                                 
Corporate obligations:
                                               
Corporate debt
                5,745       198       5,745       198  
Pooled trust preferred securities
    896       481       9,043       3,970       9,939       4,451  
Single issue trust preferred securities
                6,705       3,296       6,705       3,296  
                                                 
Total corporate obligations
    896       481       21,493       7,464       22,389       7,945  
Equity securities
    164       399                   164       399  
                                                 
Total temporarily impaired securities
  $ 57,063     $ 5,801     $ 32,776     $ 7,996     $ 89,839     $ 13,797  
                                                 
 
 
(1) Unrealized losses are included in other comprehensive income (loss), net of unrealized gains and applicable income taxes.
 
Other-Than-Temporary Impairment.
 
Management evaluates securities for OTTI at least on a quarterly basis. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into the various segments outlined in the tables above and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI according to ASC 320-10 guidance. In addition, certain purchased beneficial interests, which may include private-label mortgage-backed securities, asset-backed securities and collateralized debt obligations that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in ASC 325-40 guidance.
 
In determining OTTI according to FASB guidance, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether we have the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
 
The pooled trust preferred segment of the portfolio uses the OTTI guidance that is specific to purchased beneficial interests that, on the purchase date, were rated below AA. Under the model, we compare the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.


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When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI is recognized in earnings at an amount equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
 
At December 31, 2009, our securities portfolio consisted of 228 securities, 79 of which were in an unrealized loss position. The majority of unrealized losses are related to our private-label CMOs and trust preferred securities, as discussed below.
 
Mortgage-backed Securities.
 
At December 31, 2009, approximately 92% of the dollar volume of mortgage-backed securities we held was issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, GNMA and Freddie Mac, institutions which the government has affirmed its commitment to support, and these securities have nominal unrealized losses. Our mortgage-backed securities portfolio also includes 12 private-label CMOs with a market value of $16.2 million, which had net unrealized losses of approximately $3.2 million at December 31, 2009. These private-label CMOs were rated AAA at purchase. The following is a summary of the investment grades for these securities (Dollars in thousands):
 
                         
          Credit Support
       
          Coverage
    Unrealized
 
Rating Moody/Fitch
  Count     Ratios(1)     Loss  
 
A1/AAA
    1       3.07     $ (137 )
Aaa/AAA
    1       4.18       (5 )
Aaa/NR
    1       N/A       (1 )
NR/AAA
    1       6.29       (374 )
NR/AA
    1       2.84       (339 )
NR/A+
    1       3.08       (111 )
Baa2/NR
    1       N/A       (622 )
B2/AAA
    1       3.59       (162 )
Caa1/NR(2)
    1       1.43       (1,619 )
Ca/NR(2)
    1       0.00        
NR/CCC(2)
    2       0.26-0.53       151  
                         
Total
    12             $ (3,219 )
                         
 
 
(1) The Credit Support Coverage Ratio, which is the ratio that determines the multiple of credit support, based on assumptions for the performance of the loans within the delinquency pipeline. The assumptions used are: Current Collateral Support/ ((60 day delinquencies x.60) + (90 day delinquencies x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for loss severity.
 
(2) Includes all private-label CMOs that have OTTI. See discussion that follows.
 
During the third and fourth quarters of 2008, we recognized a $1.9 million, pre-tax non-cash OTTI charge on three private-label CMOs which experienced significant rating downgrades in those respective quarters. These downgrades continued in the second, third and fourth quarters of 2009 and resulted in a total OTTI of $6.9 million, including a credit portion of $4.6 million. The assumptions used in the valuation model include expected future


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default rates, loss severity and prepayments. The model also takes into account the structure of the security, including credit support. Based on these assumptions, the model calculates and projects the timing and amount of interest and principal payments expected for the security. At December 31, 2009, the fair values of these four securities totaling $4.1 million were measured using Level 3 inputs because the market for them has become illiquid, as indicated by few, if any, trades during the period. These securities were previously measured using Level 2 inputs prior to the second quarter of 2009. The discount rates used in the valuation model were based on a yield that the market would require for such securities with maturities and risk characteristics similar to the securities being measured (See Notes 3 and 19 to the consolidated financial statements). The following table provides additional information regarding these CMO valuations as of December 31, 2009 (Dollars in thousands):
 
                                                                                 
          Discount
                            Life-to-Date
 
          Margin
                      Actual
    Other-Than-Temporary-Impairment  
    Price
    Basis
          Cumulative
    Average
    60+ Days
    Credit Portion              
Security
  (%)     Points     Yield     Default     Security     Delinquent     2008     2009     Other     Total  
 
CMO 1
    19.90       1698       18.00 %     58.60 %     50.00 %     15.31 %   $ (599 )   $ (1,231 )   $ (195 )   $ (2,025 )
CMO 2
    2.08       1777       18.00 %     59.70 %     60.00 %     31.52 %     (492 )     (1,443 )     (127 )     (2,062 )
CMO 3
    22.15       1598       17.00 %     47.65 %     45.00 %     26.13 %     (803 )     (1,558 )     (332 )     (2,693 )
CMO 4
    60.73       1362       17.00 %     27.60 %     45.00 %     14.82 %           (345 )     (1,619 )     (1,964 )
                                                                                 
                                                    $ (1,894 )   $ (4,577 )   $ (2,273 )   $ (8,744 )
                                                                                 
 
As of December 31, 2009, our management does not intend to sell these securities, nor is it more likely than not that we will be required to sell the securities before the entire amortized cost basis is recovered since our current financial condition, including liquidity and interest rate risk, will not require such action.
 
State, county and municipal securities.
 
The unrealized losses in the municipal securities portfolio are primarily impacted by changes in interest rates. This portfolio segment is not experiencing any credit problems at December 31, 2009. We believe that all contractual cash flows will be received on this portfolio.
 
Trust Preferred Securities.
 
Our investment portfolio includes five pooled trust preferred securities (“CDO”) and two single issuances. The determination of fair value of the CDO’s was determined with the assistance of an external valuation firm. The valuation was accomplished by evaluating all relevant credit and structural aspects of the CDOs, determining appropriate performance assumptions and performing a discounted cash flow analysis. The valuation was structured as follows:
 
  •  Detailed credit and structural evaluation for each piece of collateral in the CDO;
 
  •  Collateral performance projections for each piece of collateral in the CDO (default, recovery and prepayment/amortization probabilities);
 
  •  Terms of the CDO structure, as laid out in the indenture;
 
  •  The cash flow waterfall (for both interest and principal);
 
  •  Overcollateralization and interest coverage tests;
 
  •  Events of default/liquidation;
 
  •  Mandatory auction call;
 
  •  Optional redemption;
 
  •  Hedge agreements; and
 
  •  Discounted cash flow modeling.
 
On the basis of the evaluation of collateral credit, and in combination with a review of historical industry default data and current/near-term operating conditions, appropriate default and recovery probabilities are


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determined for each piece of collateral in the CDO. Specifically, an estimate of the probability that a given piece of collateral will default in any given year. Next, on the basis of credit factors like asset quality and leverage, a recovery assumption is formulated for each piece of collateral in the event of a default. For collateral that has already defaulted, we assume no recovery. For collateral that is deferring we assume a recovery rate of 10%. It is also noted that there is a possibility, in some cases, that deferring collateral will become current at some point in the future. As a result, deferring issuers are evaluated on a case-by-case basis and in some instances, based on an analysis of the credit; a probability is assigned that the deferral will ultimately cure.
 
The base-case collateral-specific assumptions are aggregated into cumulative weighted-average default, recovery and prepayment probabilities. In light of generally weakening collateral credit performance and a challenging U.S. credit and real estate environment, our assumptions generally imply a larger amount of collateral defaults during the next three years than that which has been experienced historically and a gradual leveling off of defaults thereafter.
 
The discount rates used to determine fair value are intended to reflect the uncertainty inherent in the projection of the issuance’s cash flows. Therefore, spreads were chosen that are comparable to spreads observed currently in the market for similarly rated instruments and is intended to reflect general market discounts currently applied to structured credit products. The discount rates used to determine the credit portion of the OTTI are equal to the current yield on the issuances as prescribed under ASC 325-40.
 
The following tables provide various information and fair value model assumptions regarding our CDOs at December 31, 2009 (Dollars in thousands):
 
                                                                 
                                  Year-to-Date
 
                                  Other-Than-Temporary-Impairment  
    Single/
    Class/
    Amortized
    Fair
    Unrealized
    Credit
             
Name
  Pooled     Tranche     Cost     Value     Loss     Portion     Other     Total  
 
MM Caps Funding I Ltd
    Pooled       MEZ     $ 1,895     $ 745     $ (1,150 )   $ (245 )   $ (1,150 )   $ (1,395 )
MM Community Funding Ltd
    Pooled       B       2,110       881       (1,229 )     (2,921 )     (1,229 )     (4,150 )
Preferred Term Securities V
    Pooled       MEZ       1,218       436       (782 )     (165 )     (782 )     (947 )
Tpref Funding III Ltd
    Pooled       B-2       3,032       1,141       (1,891 )     (962 )     (1,891 )     (2,853 )
Trapeza 2007-13A LLC
    Pooled       D                         (1,876 )           (1,876 )
New South Capital Corp(1)
    Single       Sole                         (5,000 )           (5,000 )
Emigrant Capital Trust(2)
    Single       Sole       5,000       977       (4,023 )                  
                                                                 
                    $ 13,255     $ 4,180     $ (9,075 )   $ (11,169 )   $ (5,052 )   $ (16,221 )
                                                                 
 
                                         
                Original Collateral —
    Performing Collateral —
       
                Percent of Actual
    Percent of Expected
       
    Lowest
    Performing
    Deferrals and
    Deferrals and
    Excess
 
Name
  Rating     Banks     Defaults     Defaults     Subordination(3)  
 
MM Caps Funding I Ltd
    Ca       23       15%       23%       0%  
MM Community Funding Ltd
    Ca       8       21%       83%       0%  
Preferred Term Securities V
    CC       1       5%       54%       0%  
Tpref Funding III Ltd
    Ca       25       23%       24%       0%  
Trapeza 2007-13A LLC
    C       38       27%       27%       0%  
New South Capital Corp(1)
    NR       NA       NA       NA       NA  
Emigrant Capital Trust(2)
    CC       NA       NA       NA       NA  
 


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    Fair Value
    Discount Margin
    Yield
 
Name
  (Price to Par)     (Basis Points)     (Basis Points)  
 
MM Caps Funding I Ltd
  $ 37.26       Swap + 1800       9.48% Fixed  
MM Community Funding Ltd
    17.61       LIBOR + 1300       LIBOR + 310  
Preferred Term Securities V
    31.67       LIBOR + 1300       LIBOR + 210  
Tpref Funding III Ltd
    28.53       LIBOR + 1200       LIBOR + 190  
Trapeza 2007-13A LLC
          NA       LIBOR + 120  
Emigrant Capital Trust(2)
    19.53       LIBOR + 2342       LIBOR + 200  
 
 
(1) Management received notification in April 2009 that interest payments on this issue will be deferred for up to 20 quarters. In addition, New South’s external auditor issued a going concern opinion on May 2, 2009. Management determined that there was not sufficient positive evidence that this issue will ever pay principal or interest. Therefore, OTTI was recognized on the full amount of the security during the first quarter of 2009. In December 2009, the banking subsidiary of New South Capital was closed by its regulator and placed in receivership.
 
(2) There has been no notification of deferral or default on this issue. An analysis of the company, including discussion with its management, indicates there is adequate capital and liquidity to service the debt. The discount margin of 2342 basis points was derived from implied credit spreads from certain publicly traded trust preferred securities within the issuers peer group.
 
(3) Excess subordination represents the additional defaults in excess of both the current and projected defaults the issue can absorb before the security experiences any credit impairment. Excess subordination is calculated by determining what level of defaults an issue can experience before the security has any credit impairment and then subtracting both the current and projected future defaults.
 
In addition to the impact of interest rates, the estimated fair value of these CDOs have been and continue to be depressed due to the unusual credit conditions that the financial industry has faced since the middle of 2008 and a weakening economy, which has severely reduced the demand for these securities and rendered their trading market inactive.
 
As of December 31, 2009, our management does not intend to sell these securities, nor is it more likely than not that we will be required to sell the securities before the entire amortized cost basis is recovered since our current financial condition, including liquidity and interest rate risk, will not require such action.
 
The following table provides a rollforward of the amount of credit-related losses recognized in earnings for which a portion of OTTI has been recognized in other comprehensive income through December 31, 2009:
 
         
    For the
 
    Year Ended
 
    December 31, 2009  
    (Dollars in thousands)  
 
Balance at beginning of period
  $  
Amounts related to credit losses for which an OTTI was not previously recognized
    4,637  
Reductions for securities sold during the period
     
Increases in credit loss for which an OTTI was previously recognized when the investor does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost
    4,232  
Reductions for securities where there is an intent to sale or requirement to sale
     
Reductions for increases in cash flows expected to be collected
     
         
Balance at end of period
  $ 8,869  
         

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We will continue to evaluate the investment ratings in the securities portfolio, severity in pricing declines, market price quotes along with timing and receipt of amounts contractually due. Based upon these and other factors, the securities portfolio may experience further impairment.
 
Stock in the FHLB of Atlanta (“FHLB Atlanta”).
 
As of December 31, 2009, we have stock in FHLB Atlanta totaling $18.2 million (its par value), which is presented separately on the face of our statement of financial condition. There is no ready market for the stock and no quoted market values, as only member institutions are eligible to be shareholders and all transactions are, by charter, to take place at par with FHLB Atlanta as the only purchaser. Therefore, we account for this investment as a long-term asset and carry it at cost. Management reviews this stock quarterly for impairment and conducts its analysis in accordance with ASC 942-325-35-3.
 
Management’s determination as to whether this investment is impaired is based on its assessment of the ultimate recoverability of its par value (cost) rather than recognizing temporary declines in its value. The determination of whether the decline affects the ultimate recoverability of our investment is influenced by available information regarding criteria such as:
 
  •  The significance of the decline in net assets of FHLB Atlanta as compared to the capital stock amount for FHLB Atlanta and the length of time this decline has persisted;
 
  •  Commitments by FHLB Atlanta to make payments required by law or regulation and the level of such payments in relation to the operating performance of FHLB Atlanta;
 
  •  The impact of legislative and regulatory changes on financial institutions and, accordingly, on the customer base of FHLB Atlanta; and
 
  •  The liquidity position of FHLB Atlanta.
 
Management has reviewed publicly available information regarding the financial condition of FHLB Atlanta and concluded that no impairment existed based on its assessment of the ultimate recoverability of the par value of the investment. Management noted that FHLB Atlanta reported operating income of $191.7 million and $11.1 million during the second and third quarters of 2009, respectively. In addition, during the second quarter of 2009, FHLB Atlanta reinstated its dividend, at a rate of 0.84% and 0.41%, for the second and third quarters of 2009, respectively, compared to a prior rate of 2.89% for the last dividend paid in the third quarter of 2008, prior to its dividend suspension. On the basis of a review of the financial condition, cash flow, liquidity and asset quality indicators of the FHLB Atlanta as of the end of its third quarter of 2009, as well as the decision of FHLB Atlanta to reinstate the dividend announced in the third quarter, management has concluded that no impairment exists on our investment in the stock of FHLB Atlanta. This is a long-term investment that serves a business purpose of enabling us to enhance the liquidity of Superior Bank through access to the lending facilities of FHLB Atlanta. For the foregoing reasons, management believes that FHLB Atlanta’s current position does not indicate that our investment will not be recoverable at par, our cost, and thus the investment is not impaired as of December 31, 2009.
 
Tax lien certificates.  During 2009, we purchased $38.4 million in tax lien certificates from various municipalities primarily in Alabama, Missouri, Indiana, Mississippi, Illinois, New Jersey and South Carolina. During 2009, we also had tax lien certificates in Florida, Colorado and Nebraska. At December 31, 2009, there were no outstanding tax lien certificates in Colorado. Tax lien certificates are carried at cost plus accrued interest, which approximates fair value. Tax lien certificates and resulting deeds are classified as nonaccrual when a tax lien certificate is 24 to 48 months delinquent from the acquisition date, depending on the municipality. At that time, interest ceases to be accrued. At December 31, 2009, approximately $2.1 million in liens had a maturity date of less than one year. As of December 31, 2009, there were no delinquent or nonperforming liens. During 2009, approximately $1.8 million in liens that had matured or had near term maturities were sold to a third party. The outstanding tax lien balances for the years ended December 31, 2009 and 2008 were $19.3 million and $23.8 million, respectively.
 
Property and Equipment.  Property and equipment totaled $104.0 million at December 31, 2009, a decrease of (0.1)%, or $(0.1) million, from $104.1 million at December 31, 2008. During 2009, we had purchases of property and equipment of approximately $8.5 million and dispositions of approximately $1.3 million. Our purchases were


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primarily related to new branch expansion and dispositions were related to real property sales. Depreciation expense for the years ended December 31, 2009, 2008 and 2007 was $7.2 million, $6.6 million and $4.6 million, respectively.
 
Rental expense related to operating lease commitments during 2009 was $3.8 million, a $0.1 million increase from $3.7 million in 2008, which increased $1.2 million as a result of our acquisitions, branch expansion and related sale-lease back transactions from $2.5 million in 2007. Please refer to our “Liquidity” discussion for the amount of future operating lease commitments.
 
Loans, net of unearned income.
 
Composition of Loan Portfolios, Yield Changes and Diversification.  Our loans, net of unearned income, totaled $2.473 billion at December 31, 2009, an increase of 6.8%, or $157.8 million, from $2.315 billion at December 31, 2008. Mortgage loans held for sale totaled $71.9 million at December 31, 2009, an increase of $49.8 million from $22.0 million at December 31, 2008. Average loans, including mortgage loans held for sale, totaled $2.463 billion for 2009, compared to $2.173 billion for 2008. Loans, net of unearned income, comprised 85.4% of interest-earning assets at December 31, 2009, compared to 84.4% at December 31, 2008. Mortgage loans held for sale comprised 2.5% of interest-earning assets at December 31, 2009, compared to 0.8% at December 31, 2008. The average yield of the loan portfolio was 5.87%, 6.77% and 8.18% for the years ended December 31, 2009, 2008 and 2007, respectively. The decrease in average yield is primarily the result of a generally lower level of market rates that prevailed throughout 2009.
 
Our focus in business development has been toward increasing commercial and industrial lending and have continued to seek attractive commercial development loans, which we believe continue to be profitable if properly underwritten.
 
The following table details the distribution of our loan portfolio by category for the periods presented:
 
Distribution of Loans by Category
 
                                         
    December 31,  
    2009     2008     2007     2006     2005  
    (Dollars in thousands)  
 
Commercial and industrial
  $ 213,329     $ 207,372     $ 183,013     $ 172,872     $ 135,454  
Real estate — construction and land development
    680,445       637,587       665,303       547,772       326,418  
Real estate — mortgages
                                       
Single-family
    691,364       655,216       540,277       456,341       243,183  
Commercial
    801,813       726,704       533,611       362,542       210,611  
Other
    28,885       31,187       41,535       46,895       27,503  
Consumer
    58,785       57,877       53,377       54,462       21,122  
Other
    969       972       1,235       438       498  
                                         
Total loans
    2,475,590       2,316,915       2,018,351       1,641,322       964,789  
Unearned income
    (2,893 )     (1,994 )     (1,340 )     (1,794 )     (1,536 )
Allowance for loan losses
    (41,884 )     (28,850 )     (22,868 )     (18,892 )     (12,011 )
                                         
Net loans
  $ 2,430,813     $ 2,286,071     $ 1,994,143     $ 1,620,636     $ 951,242  
                                         


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The following table shows the amount of total loans, net of unearned income, by segment and the percent change for the dates indicated:
 
                         
    December 31,     Percent
 
    2009     2008     Change  
    (Dollars in thousands)  
 
Total loans, net of unearned income
  $ 2,472,697     $ 2,314,921       6.8 %
Alabama segment
    996,545       935,232       6.6  
Florida segment
    1,213,202       1,060,994       14.3  
Other
    262,950       318,695       (17.5 )
 
A further analysis of the components of our real estate construction and land development and real estate mortgage loans as of December 31, 2009 and 2008 is as follows:
 
                         
    Residential
    Commercial
       
Real Estate — Construction and Land Development
  Development     Development     Total  
    (Dollars in thousands)  
 
As of December 31, 2009
                       
Alabama segment
  $ 163,978     $ 102,339     $ 266,317  
Florida segment
    129,590       265,767       395,357  
Other
    7,856       10,915       18,771  
                         
Total
  $ 301,424     $ 379,021     $ 680,445  
                         
As of December 31, 2008
                       
Alabama segment
  $ 173,579     $ 94,145     $ 267,724  
Florida segment
    141,003       215,261       356,264  
Other
    122       13,477       13,599  
                         
Total
  $ 314,704     $ 322,883     $ 637,587  
                         
 
                 
    Single-
       
Real Estate — Mortgages
  Family     Commercial  
    (Dollars in thousands)  
 
As of December 31, 2009
               
Alabama segment
  $ 461,365     $ 296,520  
Florida segment
    189,245       475,218  
Other
    40,754       30,075  
                 
Total
  $ 691,364     $ 801,813  
                 
As of December 31, 2008
               
Alabama segment
  $ 416,129     $ 305,714  
Florida segment
    176,315       391,609  
Other
    62,772       29,381  
                 
Total
  $ 655,216     $ 726,704  
                 
 
Additional information and analysis regarding our loan portfolio is included in Item 1, Part 1, Business, under the heading “Loan Portfolio.”
 
Allowance for Loan Losses.
 
Overview.  It is the responsibility of management to assess and maintain the allowance for loan losses at a level it believes is appropriate to absorb the estimated credit losses within our loan portfolio through the provision for loan losses. The determination of our allowance for loan losses is based on management’s analysis of the credit quality of the loan portfolio including its judgment regarding certain internal and external factors that affect loan


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collectability. This process is performed on a quarterly basis under the oversight of the Board of Directors. The estimation of the allowance for loan losses is based on two basic components — those estimations calculated in accordance with the requirements of ASC 450-20, and those specific impairments under ASC 310-35 (see discussions below). The calculation of the allowance for loan losses is inherently subjective, and actual losses could be greater or less than the estimates.
 
ASC 450-20.  Under ASC 450-20, estimated losses on all loans that have not been identified with specific impairment under ASC 310-35 are calculated based on the historical loss ratios applied to our standard loan categories using a rolling average adjusted for certain qualitative factors, as shown below. In addition to these standard loan categories, management may identify other areas of risk based on its analysis of such qualitative factors and estimate additional losses as it deems necessary. The qualitative factors that management uses in its estimate include but are not limited to the following:
 
  •  trends in volume;
  •  effects of changes in credit concentrations;
  •  levels of and trends in delinquencies, classified loans and non-performing assets;
  •  levels of and trends in charge-offs and recoveries;
  •  changes in lending policies and underwriting guidelines;
  •  national and local economic trends and condition; and
  •  mergers and acquisitions.
 
ASC 310-35.  Pursuant to ASC 310-35, impaired loans are loans (See “Impaired Loans” section below) which are specifically reviewed and for which it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement. Impairment is measured by comparing the recorded investment in the loan with the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A valuation allowance is provided to the extent that the measure of the impaired loans is less than the recorded investment. A loan is not considered impaired during a period of delay in payment if we continue to expect that all amounts due will ultimately be collected according to the terms of the loan agreement. Our Credit Administration department maintains supporting documentation regarding collateral valuations and/or discounted cash flow analyses.
 
Allocation of the Allowance for Loan Losses.  The allowance for loan losses calculation is segregated into various segments that include specific allocations for loans, portfolio segments and general allocations for portfolio risk.
 
Risk ratings are subject to independent review by internal loan review, which also performs ongoing, independent review of the risk management process. The risk management process includes underwriting, documentation and collateral control. Loan review is centralized and independent of the lending function. The loan review results are reported to senior management and the Audit and Enterprise Risk Management Committee of the Board of Directors. Credit Administration relies upon the independent work of loan review in risk rating in developing its recommendations to the Audit and Enterprise Risk Management Committee of the Board of Directors for the allocation of the allowance for loan losses, and performs this function independent of the lending area of Superior Bank.
 
We historically have allocated our allowance for loan losses to specific loan categories. Although the allowance for loan losses is allocated, it is available to absorb losses in the entire loan portfolio. This allocation is made for estimation purposes only and is not necessarily indicative of the allocation between categories in which future losses may occur, nor is it limited to the categories to which it is allocated.


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Allocation of the Allowance for Loan Losses
 
                                                                                 
    December 31,  
    2009     2008     2007     2006     2005  
          Percent
          Percent
          Percent
          Percent
          Percent
 
          of Loans
          of Loans
          of Loans
          of Loans
          of Loans
 
          in Each
          in Each
          in Each
          in Each
          in Each
 
          Category
          Category
          Category
          Category
          Category
 
          to Total
          to Total
          to Total
          to Total
          to Total
 
    Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans  
    (Dollars in thousands)  
 
Commercial and industrial
  $ 2,356       8.6 %   $ 2,136       8.9 %   $ 2,697       9.1 %   $ 3,719       10.5 %   $ 3,805       14.0 %
Real estate — construction and land development
    17,971       27.5       12,168       27.5       9,396       33.0       3,425       33.4       1,275       33.8  
Real estate — mortgages
                                                                               
Single-family
    12,342       27.9       7,159       28.3       2,360       26.8       2,910       27.8       1,395       25.2  
Commercial
    7,019       32.4       5,440       31.3       6,781       26.4       6,206       22.0       4,194       21.8  
Other
    371       1.2       247       1.3       155       2.1       530       2.9       215       2.9  
Consumer
    1,825       2.4       1,700       2.7       1,479       2.6       2,102       3.4       1,127       2.3  
                                                                                 
Total
  $ 41,884       100.0 %   $ 28,850       100.0 %   $ 22,868       100.0 %   $ 18,892       100.0 %   $ 12,011       100.0 %
                                                                                 
 
The allowance as a percentage of loans, net of unearned income, at December 31, 2009 was 1.69%, compared to 1.25% as of December 31, 2008. Net charge-offs increased $8.4 million, from $7.1 million in 2008 to $15.5 million in 2009. Net charge-offs of commercial loans increased $1.3 million, from (a net recovery) of $(0.1) million in 2008 to $1.2 million in 2009. Net charge-offs of real estate loans increased $6.0 million, from $4.9 million in 2008 to $10.9 million in 2009. Net charge-offs of consumer loans increased $0.9 million, to $3.2 million in 2009 from $2.3 million in 2008. Net charge-offs as a percentage of the allowance for loan losses were 37.04% in 2009, up from 24.71% in 2008.
 
Real estate construction and development loans are loans where real estate developers acquired raw land with the intent of developing the land into either residential or commercial property. These loans are highly dependent upon development of the property as the primary source of repayment with the collateral disposal and/or guarantor strength as the secondary source; thus, the borrowers are dependent upon the completion of the project, the sale of the property or their own personal cash flow to service the debt. The largest category in the residential development and construction portfolio is related to development of single-family lots and single-family lots held by experienced, licensed builders for the future construction of single-family homes. This category represents approximately $123.4 million, or 40.9%, of this portfolio. Geographically, approximately 49.8% of this portfolio was located in the Florida Region with the remainder located in the Alabama Region.
 
During 2009, we increased the allowance for loan losses related to construction and land development real estate loans by $5.8 million, from $12.2 million as of December 31, 2008 to $18.0 million as of December 31, 2009, because of increasing levels of risk due to general economic conditions in the construction and land development real estate markets throughout our franchise. Net charge-offs for this category increased $2.7 million, from $2.1 million in 2008 to $4.8 million in 2009. Net losses in residential development and construction accounted for $4.7 million, or 99.5%, of the total losses from this portfolio segment, with a negligible portion coming from commercial construction. Of the residential purpose loan losses, 82% were located in Florida, with the remainder in Alabama.
 
Our allocation of the allowance for loan losses related to single-family mortgage loans increased $5.2 million, to $12.3 million at December 31, 2009 from $7.2 million at December 31, 2008. This allocation reflects the increased risk exposure due to the current downturn in the national economy and the effect on the housing sector which has increased our foreclosure activity within this portfolio. The following table includes our high


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loan-to-value (“LTV”) loans secured by single family properties, without private mortgage insurance (“PMI”) or other government guarantee at December 31, 2009:
 
                                                                                 
                Past Due and Nonaccrual  
          Percent
          Percent
          Percent
          Percent
          Percent
 
          of Loans
          of Loans
          of Loans
          of Loans
          of Loans
 
          to
          to
          to
          to
          to
 
    Total
    Total
          Total
          Total
          Total
          Total
 
    Outstanding
    Single-
    30-
    Single-
    90 days
    Single-
    Non-
    Single-
          Single-
 
    Balance     Family     89 days     Family     or more     Family     accrual     Family     Total     Family  
    (Dollars in thousands)  
 
90% up to 100% LTV
  $ 31,751       4.6 %   $ 260       0.0 %   $           $ 1,446       0.2 %   $ 1,706       0.2 %
100% and greater LTV
    4,937       0.7       469       0.1                   392       0.1       861       0.2  
                                                                                 
Total
  $ 36,688       5.3     $ 729       0.1     $           $ 1,838       0.3     $ 2,567       0.4  
                                                                                 
 
The overall increases in loss experience, nonperforming loans and pressure on home values continued to influence management’s risk assessment and decision to increase the allocation of the allowance for loan losses for single-family residential mortgages during 2009. At December 31, 2009, single-family residential mortgages accounted for $52.3 million, or 33%, of total nonperforming loans, up $29.6 million from $22.7 million as of December 31, 2008. Foreclosure activity during 2009 resulted in $28.9 million of new foreclosures, with residential construction properties accounting for $11.9 million, 41% of the new foreclosures, commercial construction represented $0.9 million, or 3% of the total; single family residential properties accounting for $11.7 million, or 40%, of the total; and commercial real estate (“CRE”) properties accounting for another $4.7 million, or 16%. Approximately 52% of 2009 foreclosures originated in Alabama, the remaining 48% in Florida. Our ORE acquired through foreclosure totaled $41.6 million at December 31, 2009 an increase of $21.6 million from $20.0 million at December 31, 2008. See the “Nonperforming Assets” section below for more information regarding our foreclosed ORE.s
 
Our consumer loan charge-offs were higher during 2009 when compared to 2008, primarily due to the increased losses in our consumer finance companies, which accounted for approximately $2.5 million, or 78.9%, of the total net consumer loan charge-offs. Going forward, we expect these losses to continue to be a substantial portion of the overall consumer loan losses; however, we believe the increased risk associated with these loans is offset by their higher yield.
 
The allowance for loan losses as a percentage of nonperforming loans, excluding troubled debt restructurings (“TDR’s”), decreased to 26.25% at December 31, 2009 from 45.98% at December 31, 2008. Approximately $11.6 million of the allowance for loan losses has been specifically allocated to nonperforming loans as of December 31, 2009. As of December 31, 2009, nonperforming loans totaled $159.6 million, of which $156.2 million, or 97.9%, were loans secured by real estate compared to $61.4 million, or 97.8%, as of December 31, 2008. See “Nonperforming Assets”. Despite the overall decline in the allowance for loan losses as a percentage of nonperforming loans, management believes the overall allowance for loan losses to be adequate.


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Summary of Loan Loss Experience.  The following table summarizes certain information with respect to our allowance for loan losses and the composition of charge-offs and recoveries for the periods indicated:
 
Summary of Loan Loss Experience
 
                                         
    December 31,  
    2009     2008     2007     2006     2005  
          (Dollars in thousands)        
 
Allowance for loan losses at beginning of period
  $ 28,850     $ 22,868     $ 18,892     $ 12,011     $ 12,543  
Allowance of acquired banks
                3,717       6,697        
Charge-offs:
                                       
Commercial and industrial
    1,390       504       1,162       1,450       2,097  
Real estate — construction and land development
    4,870       2,095       301       378       358  
Real estate — mortgage
                                       
Single-family
    5,372       2,460       1,149       625       795  
Commercial
    1,094       411       724       416       1,432  
Other
    210       241       206       15       85  
Consumer
    3,346       2,490       2,117       860       630  
Other
    379       243       63       2       345  
                                         
Total charge-offs
    16,661       8,444       5,722       3,746       5,742  
Recoveries:
                                       
Commercial and industrial
    161       646       398       465       413  
Real estate — construction and land development
    68       44       286       126       37  
Real estate — mortgage
                                       
Single-family
    71       89       174       102       335  
Commercial
    277       128       70       363       526  
Other
    251       71       82       73       118  
Consumer
    186       181       382       301       280  
Other
    131       155       48             1  
                                         
Total recoveries
    1,145       1,314       1,440       1,430       1,710  
                                         
Net charge-offs
    15,516       7,130       4,282       2,316       4,032  
Provision for loan losses
    28,550       13,112       4,541       2,500       3,500  
                                         
Allowance for loan losses at end of period
  $ 41,884     $ 28,850     $ 22,868     $ 18,892     $ 12,011  
                                         
Loans at end of period, net of unearned income
  $ 2,472,697     $ 2,314,921     $ 2,017,011     $ 1,639,528     $ 963,253  
Average loans, net of unearned income
    2,401,805       2,147,524       1,814,032       1,176,844       947,212  
Ratio of ending allowance to ending loans
    1.69 %     1.25 %     1.13 %     1.15 %     1.25 %
Ratio of net charge-offs to average loans
    0.65       0.33       0.24       0.20       0.43  
Net charge-offs as a percentage of:
                                       
Provision for loan losses
    54.35       54.38       94.30       92.64       115.20  
Allowance for loan losses
    37.04       24.71       18.72       12.26       33.57  
Allowance for loan losses as a percentage of nonperforming loans
    26.25       45.98       92.77       227.97       261.17  
 
Nonperforming Assets.  Nonperforming assets increased $118.5 million, to $201.5 million as of December 31, 2009 from $83.0 million as of December 31, 2008. As a percentage of net loans plus nonperforming assets, nonperforming assets increased to 8.01% at December 31, 2009 from 3.56% at December 31, 2008. The overall increase in nonperforming assets was primarily related to real estate construction, residential mortgage loans and commercial real estate portfolios. As of December 31, 2009, nonperforming residential mortgage loans increased $29.6 million to $52.3 million from $22.7 million as of December 31, 2008. Sixteen loans in excess of $0.5 million accounted for $17.3 million, or 59% of the increase; the average loan balance of all new nonperforming residential loans was $148,000, with the majority, or 57%, located in Florida. Approximately 86% of the increase in nonperforming real estate construction consists of ten real estate construction credits over $1 million totaling


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$44.0 million. Seven of these large credits, totaling $21.6 million, are located in Florida, $14.7 million in Alabama and $7.7 million in Kentucky. The commercial real estate increase of $15.0 million from December 31, 2008 consists primarily of three Florida commercial real estate credits, representing $12.0 million of the total increase, in the hospitality, multifamily and retail concentration categories. Our management continues to actively work to mitigate the risks of loss across all categories of the loan portfolio. As of December 31, 2009, of our total nonperforming credits, only 23 are in excess of $1.0 million in principal balance, which gives evidence of the granularity of this portfolio and explains our approach of liquidating it on a loan-by-loan basis rather than in large bulk sales. The following table shows our nonperforming assets for the dates shown:
 
Nonperforming Assets
 
                                         
    December 31,  
    2009     2008     2007     2006     2005  
    (Dollars in thousands)  
 
Nonaccrual
  $ 155,631     $ 54,712     $ 22,533     $ 7,773     $ 4,550  
Accruing loans 90 days or more delinquent
    3,920       8,033       2,117       514       49  
                                         
Total nonperforming loans
    159,551       62,745       24,650       8,287       4,599  
Other real estate owned assets
    41,618       19,971       4,277       1,684       1,842  
Repossessed assets
    380       332       138       137        
                                         
Total nonperforming assets
  $ 201,549     $ 83,048     $ 29,065     $ 10,108     $ 6,441  
                                         
Restructured and performing under restructured terms, net of specific allowance
  $ 110,777     $ 2,643     $ 671     $ 305     $ 153  
                                         
Nonperforming loans as a percentage of loans
    6.45 %     2.71 %     1.22 %     0.51 %     0.48 %
                                         
Nonperforming assets as a percentage of loans plus nonperforming assets
    8.01 %     3.56 %     1.44 %     0.62 %     0.67 %
                                         
Nonperforming assets as a percentage of total assets
    6.26 %     2.72 %     1.01 %     0.41 %     0.46 %
                                         
 
The following is a summary of nonperforming loans by category for the dates shown:
 
                                         
    December 31,  
    2009     2008     2007     2006     2005  
    (Dollars in thousands)  
 
Commercial and industrial
  $ 1,797     $ 166     $ 387     $ 399     $ 835  
Real estate — construction and land development
    73,058       20,976       10,569       2,067       469  
Real estate — mortgages
                                       
Single-family
    52,323       22,730       8,069       2,805       2,448  
Commercial
    30,343       15,378       4,045       1,765       675  
Other
    436       2,289       805       688       11  
Consumer
    734       723       775       559       161  
Other
    860       483             4        
                                         
Total nonperforming loans
  $ 159,551     $ 62,745     $ 24,650     $ 8,287     $ 4,599  
                                         
 
A delinquent loan is ordinarily placed on nonaccrual status no later than when it becomes 90 days past due and management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that the collection of interest is doubtful. When a loan is placed on nonaccrual status, all unpaid interest which has been accrued on the loan during the current period is reversed and deducted from earnings as a reduction of reported interest income; any prior period accrued and unpaid interest is reversed and charged against the allowance for loan losses. No additional interest income is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain. When a problem loan is finally resolved, there may be an actual write-down or charge-off of the principal balance of the loan to the allowance for loan losses.


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The following is a summary of other real estate owned by category for the dates shown:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Acreage
  $ 2,251     $ 1,222  
Commercial buildings
    5,226       656  
Residential condominiums
    2,730       1,314  
Residential single-family homes
    15,696       9,394  
Residential lots
    14,613       7,277  
Other
    1,102       108  
                 
Other real estate owned
  $ 41,618     $ 19,971  
                 
 
Other real estate, acquired through partial or total satisfaction of loans, is carried at the lower of cost or fair value, less estimated selling expenses. At the date of acquisition, any difference between the fair value and book value of the asset is charged to the allowance for loan losses. The value of other foreclosed real estate collateral is determined based on appraisals by qualified licensed appraisers approved and hired by our management. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Foreclosed real estate is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
 
Impaired Loans.  At December 31, 2009, our recorded investment in impaired loans, under ASC 310-35 totaled $280.3 million, an increase of $227.5 million from $52.9 million at December 31, 2008. Approximately $78.7 million is located in the Alabama Region and $201.6 million is located in the Florida Region. Approximately $14.5 million of the allowance for loan losses is specifically allocated to these loans, providing 5.18% coverage. Additionally, $277.2 million, or 98.9%, of the $280.3 million in impaired loans is secured by real estate.
 
The following is a summary of impaired loans and the specifically allocated allowance for loan losses by category for the dates shown:
 
                                 
    December 31,  
    2009     2008  
    Outstanding
    Specific
    Outstanding
    Specific
 
    Balance     Allowance     Balance     Allowance  
    (Dollars in thousands)  
 
Commercial and industrial
  $ 3,032     $ 1,053     $ 515     $ 42  
Real estate — construction and land development
    114,268       6,719       18,155       1,570  
Real estate — mortgages
                               
Single-family
    53,229       5,005       18,063       2,251  
Commercial
    109,222       1,686       15,615       1,173  
Other
    500       62       532       70  
Consumer
    97       2              
                                 
Total
  $ 280,348     $ 14,527     $ 52,880     $ 5,106  
                                 
 
At the time a loan is identified as impaired, it is evaluated and valued at the lower of cost or fair value. For collateral dependent loans, of which $155.5 million is included above and primarily secured by real estate, fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. The value of real estate collateral is determined based on appraisals by qualified licensed appraisers approved and hired by management. The value of business equipment is determined based on appraisals by qualified licensed appraisers approved and hired by management, if significant. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.
 
Our other impaired loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate. Impairment measured under this method is comprised primarily of loans


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considered troubled debt restructurings (“TDRs”) where the terms of these loans have been restructured based on the expected future cash flows. A restructuring of debt constitutes a TDR if for economic or legal reasons related to borrower’s financial difficulties we grant a concession to the borrower that we would not otherwise consider.
 
All impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.
 
Included in our impaired loans are nonperforming loans with specific impairment and loans considered TDRs. The following is a summary of our TDRs as of December 31, 2009:
 
                                 
    Restructured  
    Performing
    Not-Performing
 
    in Accordance
    in Accordance
 
    with Restructured Terms     with Restructured Terms  
    Outstanding
    Specific
    Outstanding
    Specific
 
    Balance     Allowance     Balance     Allowance  
    (Dollars in thousands)  
 
Alabama:
                               
Commercial and industrial
  $     $     $     $  
Real estate — construction and land development
    924       1              
Real estate — mortgages
                               
Single-family
    8,317       287       1,106       93  
Commercial
    22,580       222              
Consumer
    97       1              
                                 
Total Alabama
  $ 31,918     $ 511     $ 1,106     $ 93  
                                 
Florida
                               
Commercial and industrial
  $ 1,212     $ 883     $     $  
Real estate — construction and land development
    19,369       482              
Real estate — mortgages
                               
Single-family
    4,334       276       2,760       388  
Commercial
    56,038       442       2,227       85  
Consumer
                       
                                 
Total Florida
  $ 80,953     $ 2,083     $ 4,987     $ 473  
                                 
Total
                               
Commercial and industrial
  $ 1,212     $ 883     $     $  
Real estate — construction and land development
    20,293       483              
Real estate — mortgages
                               
Single-family
    12,651       563       3,866       481  
Commercial
    78,618       664       2,227       85  
Consumer
    97       1              
                                 
Total TDRs
  $ 112,871     $ 2,594     $ 6,093     $ 566  
                                 
 
Potential Problem Loans.  In addition to nonperforming loans, management has identified $31.5 million in potential problem loans as of December 31, 2009. Potential problem loans are loans where known information about possible credit problems of the borrowers causes management to have doubts as to the ability of such borrowers to comply with the present repayment terms and may result in disclosure of such loans as nonperforming in future periods. Three categories accounted for 99% of total potential problem loans. Real estate construction loans account for 49% of the total and single family residential loans and commercial real estate loans accounted for 17% and 33%, respectively. Geographically, 72% of the loans were located in Florida, with the remainder located in Alabama. In each case, management is actively working a plan of action to ensure that any loss exposure is mitigated and will continue to monitor the cash flow and collateral characteristics of each credit.


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Deposits.  Noninterest-bearing deposits totaled $257.7 million at December 31, 2009, an increase of 21.2%, or $45.0 million, from $212.7 million at December 31, 2008. Noninterest-bearing deposits were 9.7% of total deposits at December 31, 2009 compared to 9.1% at December 31, 2008.
 
Interest-bearing deposits totaled $2.399 billion at December 31, 2009, an increase of 12.6%, or $268.6 million, from $2.130 billion at December 31, 2008. Interest-bearing deposits averaged $2.290 billion for the year ended December 31, 2009 compared to $2.010 billion for the year ended December 31, 2008. The average rate paid on all interest-bearing deposits during 2009 was 2.60%, compared to 3.40% for 2008.
 
As shown below, there were significant increases in our demand and savings deposits within our reportable segments that represent core deposits received through our branch network. Growth in our core deposit base has largely been concentrated in 22 de novo branches opened between 2006 and 2009, which have grown to $432.9 million by December 31, 2009. Of this growth, $147.9 million occurred in 2009. This expansion of our core funding has significantly improved our liquidity and has enabled us to grow earning assets while reducing reliance on borrowings and other non-core sources.
 
The following table sets forth the composition of our total deposit accounts at the dates indicated:
 
                         
    December 31,     Percent
 
    2009     2008     Change  
    (Dollars in thousands)        
 
Noninterest-bearing demand
  $ 257,744     $ 212,732       21.2 %
Alabama segment
    137,160       127,115       7.9  
Florida segment
    103,621       78,639       31.8  
Other
    16,963       6,978       NCM  
Interest-bearing demand
    690,677       632,430       9.2  
Alabama segment
    385,246       298,405       29.1  
Florida segment
    233,740       178,850       30.7  
Other
    71,691       155,175       (53.8 )
Savings
    284,430       185,522       53.3  
Alabama segment
    151,263       106,946       41.4  
Florida segment
    131,185       76,449       71.6  
Other
    1,982       2,127       (6.8 )
Time deposits
    1,423,722       1,312,304       8.5  
Alabama segment
    663,510       608,056       9.1  
Florida segment
    555,262       490,266       13.3  
Other
    204,950       213,982       (4.2 )
                         
Total deposits
  $ 2,656,573     $ 2,342,988       13.4 %
                         
Alabama segment
  $ 1,337,179     $ 1,140,522       17.2 %
                         
Florida segment
  $ 1,023,808     $ 824,204       24.2 %
                         
Other
  $ 295,586     $ 378,262       (21.9 )%
                         
 
 
 
NCM — Not considered meaningful
 
At December 31, 2009 and 2008, we had deposits from related parties of approximately $31.5 million and $22.1 million, respectively. We believe that all of the deposit transactions were made on terms and conditions in the ordinary course of business.


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The following table sets forth our average deposits by category for the periods indicated:
 
Average Deposits
 
                                                 
    December 31,  
    2009     2008     2007  
    Average
          Average
          Average
       
    Amount
    Average
    Amount
    Average
    Amount
    Average
 
    Outstanding     Rate Paid     Outstanding     Rate Paid     Outstanding     Rate Paid  
    (Dollars in thousands)  
 
Noninterest-bearing demand
  $ 246,428       %   $ 218,486       %   $ 191,066       %
Interest-bearing demand
    653,371       1.31       637,800       2.31       568,125       3.66  
Savings
    243,566       1.50       121,645       2.25       50,652       1.61  
Time deposits — customer
    1,163,530       3.12       1,096,841       4.07       1,023,573       4.90  
                                                 
Total average customer deposits
    2,306,895       2.10       2,074,772       3.00       1,833,416       3.92  
Time deposits — brokered
    229,433       2.60       153,631       4.08       148,369       5.31  
                                                 
Total average deposits
  $ 2,536,328       2.14 %   $ 2,228,403       3.07 %   $ 1,981,785       4.02 %
                                                 
 
Deposits, particularly core deposits, have historically been our primary source of funding and have enabled us to meet successfully both our short-term and long-term liquidity needs. Our core deposits, which exclude our time deposits greater than $100,000, represent 71.1% of our total deposits at December 31, 2009 compared to 70.1% at December 31, 2008. We anticipate that such deposits will continue to be our primary source of funding in the future. Our loan-to-deposit ratio was 93.1% at December 31, 2009, compared to 98.8% at December 31, 2008.
 
Borrowings.  During 2009, average borrowed funds decreased $62.2 million, or (17.5)%, to $294.0 million, from $356.2 million during 2008, which in turn increased $106.8 million, or 42.8%, from $249.4 million during 2007. The average rate paid on borrowed funds during 2009, 2008 and 2007 was 3.43%, 3.40% and 5.20%, respectively. Because of a relatively high loan-to-deposit ratio, the existence and stability of these funding sources are important to our maintenance of short-term and long-term liquidity.
 
Advances from the FHLB totaled $218.3 million at December 31, 2009, a decrease of 39.6%, or $143.0 million, from $361.3 million at December 31, 2008. Borrowings from the FHLB have declined as the increase in customer deposits has outpaced loan growth since December 31, 2008. FHLB advances had a weighted average interest rate of approximately 3.74% at December 31, 2009. The advances are secured by FHLB stock, agency securities and a blanket lien on certain residential real estate loans and commercial loans, all with a carrying value of approximately $942.7 million at December 31, 2009. We have available approximately $177.2 million in unused advances under the blanket lien subject to the availability of qualifying collateral.
 
The following is a summary, by year of contractual maturity, of advances from the FHLB for the periods ended December 31:
 
                                 
    2009     2008  
    Weighted
          Weighted
       
Year:
  Average Rate     Balance     Average Rate     Balance  
    (Dollars in thousands)  
 
2009
    %   $       1.03 %   $ 142,984  
2010
    3.36       29,982       6.41       5,000  
2011
    2.66       50,000       2.69       75,000  
2012
    4.44       5,000       4.44       5,000  
2013
    3.46       35,000       3.46       35,000  
2015
    4.58       66,340       4.58       66,340  
2020
    4.28       32,000       4.28       32,000  
                                 
Total
    3.74 %   $ 218,322       2.67 %   $ 361,324  
                                 
 
The above schedule is by contractual maturity. Call dates for the above are as follows: 2010, $215.3 million.


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On March 31, 2009, Superior Bank completed a placement of a $40 million aggregate principal amount 2.625% Senior Note due 2012 (the “Note”). The Note is guaranteed by the FDIC under its TLGP and is backed by the full faith and credit of the United States. The Note is a direct, unsecured general obligation of Superior Bank and it is not subject to redemption prior to maturity. The Note is solely the obligation of Superior Bank and is not guaranteed by us. Superior Bank received net proceeds, after discount, FDIC guarantee premium and other issuance cost, of approximately $38.6 million, which will be used by Superior Bank for general corporate purposes. The debt will yield an effective interest rate, including amortization, of 3.89%.
 
In connection with the TLGP, the Bank entered into a Master Agreement with the FDIC. The Master Agreement contains certain terms and conditions that must be included in the governing documents for any senior debt securities issued by the Bank that are guaranteed pursuant to the TLGP.
 
Subordinated Debentures.
 
Issuance of Subordinated Debt and Related Warrant.  On September 17, 2008, Superior Bank entered into an Agreement to Purchase Subordinated Notes (the “Agreement”) with Durden Enterprises, LLC (the “Purchaser”). Pursuant to the terms of the Agreement, Superior Bank issued to the Purchaser $10 million in aggregate principal amount of 9.5% Subordinated Notes due September 15, 2018 (the “Notes”), and Superior Bancorp issued to the Purchaser a warrant (the “Warrant”) to purchase up to one million shares of our common stock, $.001 par value per share, at a price of $7.53 per share. The exercise price for the Warrant was based on the average of the closing prices of our common stock for the 10 trading days immediately preceding September 17, 2008. Interest on the Note is payable quarterly. The Purchaser may, subject to regulatory approval, accelerate the payment of principal and interest if there is an event of default under the terms of the Note. Events of default are limited to the commencement of voluntary or involuntary bankruptcy or similar proceedings with respect to Superior Bank. Beginning on September 15, 2013, Superior Bank may redeem all or a portion of the Notes on any interest payment date at a price equal to 100% of the principal amount of the redeemed Notes plus accrued but unpaid interest.
 
The fair value of the Warrant totaling $2.6 million was determined using the Black-Scholes option-pricing model. The value of the Warrant is being amortized into interest expense over the term of the Agreement. The Warrant is exercisable at any time prior to the close of business on September 15, 2013. We agreed to register with the Securities and Exchange Commission the stock that would be issued to the Purchaser upon the exercise of the Warrant. We also granted to the Purchaser an option to purchase up to $10 million in additional subordinated notes and receive additional warrants in the future on similar terms and conditions with such changes as are necessary to reflect market conditions at that time. K. Earl Durden, the managing member of the Purchaser, is a director of Superior Bancorp and Superior Bank.
 
Junior Subordinated Debentures.  On July 19, 2007, we issued approximately $22 million in aggregate principal amount of trust preferred securities and a like amount of related subordinated debentures through our wholly-owned, unconsolidated subsidiary trust, Superior Capital Trust I. The trust preferred securities and subordinated debentures bear interest at a floating rate of three-month LIBOR plus 1.33% that is payable quarterly. The trust preferred securities, which may be redeemed on or after September 15, 2012, will mature on September 15, 2037 (See Note 30 to the consolidated financial statements).
 
On July 25, 2007, we completed a redemption of approximately $16 million in aggregate outstanding principal amount of trust preferred securities and related six-month LIBOR plus 3.75% junior subordinated debentures due July 25, 2031, both of which were issued by our wholly-owned, unconsolidated subsidiary trust, TBC Capital Statutory Trust III. We called the securities for redemption effective July 25, 2007 at a redemption price equal to 106.15% of par. The remaining proceeds from the issuance of the new trust preferred securities were used in the stock repurchase program and for other corporate purposes. We incurred a loss of approximately $1.5 million ($0.9 million, net of tax, or $.02 per share), during the third quarter of 2007 relating to the redemption of the outstanding trust preferred securities.
 
In addition to the trust described in the immediately following paragraph, we have three more sponsored trusts, TBC Capital II, Community Capital I and Peoples Trust I, of which 100% of the common equity is owned by us. The trusts were formed for the purpose of issuing obligated mandatory redeemable trust preferred securities to third-party investors and investing the proceeds from the sale of such trust preferred securities solely in junior


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subordinated debt securities of ours (the debentures). The debentures held by each trust are the sole assets of that trust. Distributions on the trust preferred securities issued by each trust are payable semi-annually at a rate per annum equal to the interest rate being earned by the trust on the debentures held by that trust. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. We have entered into agreements which, taken collectively, fully and unconditionally guarantee the trust preferred securities subject to the terms of each of the guarantees. The debentures held by the TBC Capital II, Community Capital I and Peoples Trust I trusts are first redeemable, in whole or in part, by us on September 7, 2010, March 8, 2010 and December 15, 2010, respectively.
 
On December 11, 2009, we issued approximately $69.0 million in aggregate principal amount of trust preferred securities and a like amount of related subordinated debentures through our wholly-owned, unconsolidated subsidiary trust, Superior Capital Trust II. The trust preferred securities and subordinated debentures bear interest, payable quarterly, at a rate of 5% until February 15, 2014 when the rate increases to 9%. The trust preferred securities are perpetual, having no stated maturity, but may be redeemed at any time by us on 30 days’ notice. See Note 29 to the consolidated financial statements for additional details.
 
Consolidated debt obligations related to these subsidiary trusts and other subordinated debt are as follows:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Junior Subordinated Debentures
               
5.00% perpetual junior subordinated debentures owed to Superior Capital Trust II(3)(4)
  $ 69,100     $  
10.6% junior subordinated debentures owed to TBC Capital Statutory Trust II due September 7, 2030
    15,464       15,464  
10.875% junior subordinated debentures owed to Community Capital Trust I due March 8, 2030
    10,310       10,310  
3-month LIBOR plus 1.33% junior subordinated debentures owed to Superior Capital Trust I due September 15, 2037(1)
    22,681       22,681  
6.41% junior subordinated debentures owed to Peoples Community Capital Trust I due December 15, 2035(2)
    4,124       4,124  
Add (subtract):
               
Purchase accounting adjustment
    471       819  
Discount related to 5.00% perpetual junior subordinated debentures owed to Superior Capital Trust II(4)
    (45,598 )      
                 
Total junior subordinated debentures owed to unconsolidated subsidiary trusts
    76,552       53,398  
Other Subordinated Debt
               
9.5% subordinated debentures owed to Durden Enterprises, LLC due September 15, 2013
    10,000       10,000  
Add (subtract):
               
Discount related to 9.5% subordinated debentures owed to Durden Enterprises, LLC
    (2,382 )     (2,514 )
                 
Total other subordinated debt
    7,618       7,486  
                 
Total subordinated debentures
  $ 84,170     $ 60,884  
                 
 
 
(1) Interest rate is equal to 1.58% at December 31, 2009. The Corporation has entered into interest rate swap agreements to an average effective fixed rate of 4.42%. (see Note 15 to the consolidated financial statements).
 
(2) Converts to quarterly floating rate of LIBOR plus 1.45% in December 2010.
 
(3) Converts to 9.00% on February 15, 2014 (see Note 29 to the consolidated financial statements).
 
(4) Effective yield is equal to 20.22% (see Note 29 to the consolidated financial statements).


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Stockholders’ Equity.
 
Overview.  Our stockholders’ equity totaled $191.7 million at December 31, 2009 compared to $251.2 million at December 31, 2008. This decrease was primarily due to the amount of cumulative dividends on preferred stock, exchange of preferred stock for trust preferred securities and the net loss for the period, partially offset by the components of other comprehensive income (loss) as shown below. See the “Statement of Changes in Stockholders Equity” in the consolidated financial statements included elsewhere in this report.
 
In November 2009, after approval by our Board of Directors and our stockholders, we amended our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 20 million to 200 million.
 
During 2009, we sold approximately 1.5 million shares of our common stock at prices ranging from $2.21 to $2.71 per share to approximately 20 accredited investors in a series of transactions exempt from the registration requirements of the Securities Act of 1933 pursuant to Securities and Exchange Commission Regulation D. Of the shares issued, approximately $0.3 million were issued from Treasury. We received total cash consideration of approximately $3.3 million in connection with these transactions.
 
On April 28, 2008, we completed a 1-for-4 reverse split of our common stock, reducing the number of authorized shares of common stock from 60 million to 15 million and the number of common shares outstanding from 40.2 million to 10.1 million. This action brought our authorized common shares and common shares outstanding more nearly in line with peer community banks. All disclosures in this annual report regarding common stock and related per share information have been retroactively restated for all periods presented to reflect the reverse stock split. The 1-for-4 reverse stock split was effective in the market as of the opening of trading on April 28, 2008.
 
Other Comprehensive (Loss) Income.  Our stockholders’ equity was affected by various components of our comprehensive loss. The components of other comprehensive (loss) income for the years ended December 31, 2009 and 2008 are as follows:
 
                         
    Pre-Tax
    Income Tax
    Net of
 
    Amount     Expense     Income Tax  
    (Dollars in thousands)  
 
2009
                       
Unrealized loss on available for sale securities
  $ (10,748 )   $ 3,977     $ (6,771 )
Less reclassification adjustment for losses realized in net loss
    10,102       (3,738 )     6,364  
Unrealized gain on derivatives
    189       (71 )     118  
Defined benefit pension plan — net gain arising during the period
    617       (228 )     389  
                         
Net unrealized gain
  $ 160     $ (60 )   $ 100  
                         
2008
                       
Unrealized loss on available for sale securities
  $ (16,885 )   $ 6,203     $ (10,682 )
Less reclassification adjustment for losses realized in net loss
    8,453       (3,128 )     5,325  
Unrealized loss on derivatives
    (955 )     354       (601 )
Defined benefit pension plan — net loss arising during the period
    (3,398 )     1,257       (2,141 )
                         
Net unrealized loss
  $ (12,785 )   $ 4,686     $ (8,099 )
                         
 
Please refer to the “Financial Condition — Investment Securities” section for additional discussion regarding the realized/unrealized gains and losses on the investment securities portfolio. Additional discussion is included in the “Market Risk — Derivative Positions” on the unrealized loss on derivatives. Certain information regarding our pension liability is disclosed in Note 20 to the consolidated financial statements, which includes asset values, projected benefit obligations, investment policies and asset allocations.


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Exchange of preferred stock held by the Treasury Department for trust preferred securities.  On December 5, 2008, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, we issued and sold, and the Treasury Department purchased, (i) 69,000 shares (the “Preferred Stock”) of our Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and (ii) a ten-year warrant (the “Warrant”) to purchase up to 1,923,792 shares of our voting common stock, par value $0.001 per share at an exercise price of $5.38 per share, for an aggregate purchase price of $69 million in cash. The issuance and sale of these securities was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
 
On December 11, 2009, we entered into an exchange agreement with the Treasury Department pursuant to which the Treasury Department agreed that it would exchange all 69,000 shares of our outstanding Preferred Stock owned by the Treasury Department for 69,000 newly issued trust preferred securities, $1,000 liquidation amount per capital security, issued by Superior Capital Trust II, a wholly-owned, unconsolidated subsidiary of Superior Bancorp. The trust preferred securities were issued to the Treasury Department on December 11, 2009. In connection with this exchange, the trust used the Preferred Stock, together with the proceeds of the issuance and sale by the trust of $0.1 million aggregate liquidation amount of their fixed rate common securities, to purchase the $69.1 million aggregate principal amount of junior subordinated debentures we issued.
 
The trust preferred securities issued to the Treasury Department have a distribution rate of 5% until, but excluding February 15, 2014 and 9% thereafter (which is the same as the dividend rate on the Preferred Stock). We hold the common securities of the trust, in the amount of $0.1 million. The sole asset and only source of funds to make payments on the trust preferred securities and the common securities of the trust is $69.1 million of our Fixed Rate Perpetual Junior Subordinated Debentures, which we issued to the trust. The debentures are perpetual and we may redeem them at any time on 30 days’ notice.
 
Under the guarantee agreement dated as of December 11, 2009, we irrevocably and unconditionally agree to pay in full to the Treasury Department the guaranteed payments, as and when due. Our obligation to make the guaranteed payment may be satisfied by direct payment of the required amounts to the Treasury Department of the trust preferred securities or by causing the issuer trust to pay such amounts to the Treasury Department. Our obligations under the guarantee agreement constitute unsecured obligations and rank subordinate and junior in right of payment to all senior debt. Our obligations under the guarantee agreement rank pari passu with any of our obligations under similar guarantee agreements which we issue on behalf of the holders of preferred or capital securities issued by any statutory trust, among others stated in the guarantee agreement. Under the guarantee agreement, we have guaranteed the payment of the liquidation amount of the trust preferred securities upon liquidation of the trust, but only to the extent that the trust has funds available to make such payments.
 
Under the exchange agreement, our agreement that, without the consent of the Treasury Department, we would not increase our dividend rate per share of common stock above that in effect as of October 13, 2008 or repurchase shares of our common stock until, in each case, the earlier of December 5, 2011 or such time as all of the new trust preferred securities have been redeemed or transferred by the Treasury Department, remains in effect.
 
Initially, in connection with the issuance of the Preferred Stock on December 5, 2008, the Treasury Department was issued a warrant to purchase 1,923,392 shares of our common stock at an exercise price of $5.38 per share. However, as a result of the issuance of 1,491,618 additional shares in July 2009, we adjusted the warrant share position to 1,975,688 shares with a strike price of $5.239.
 
The trust preferred securities issued to the Treasury Department continue to qualify as Tier 1 regulatory capital as of December 31, 2009. The trust preferred securities are subject to the 25% limitation on Tier 1 capital.
 
This transaction with the Treasury Department was accounted for as an extinguishment of previously issued Preferred Stock. The accounting impact of this transaction included (1) recognition of junior subordinated debentures and derecognition of the Preferred Stock; (2) recognition of a favorable impact to accumulated deficit resulting from the excess of (a) the carrying amount of the securities exchanged (Preferred Stock) over (b) the fair value of the consideration exchanged (the trust preferred securities); (3) the reversal of any unamortized discount outstanding on the Preferred Stock and (4) issuance costs.
 
At the date of the exchange agreement, the fair value of the trust preferred securities (junior subordinated debentures for purposes of our financial statements) was determined internally using a discounted cash flow model.


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The main considerations were (1) quarterly interest payment of 5% until, but excluding February 15 2014 and 9% thereafter; (2) assumed maturity date of 30 years; and (3) assumed discount rate of 19.63%. The assumed discount rate used for estimating the fair value was estimated by obtaining the yields at which comparable issuers were trading as assets in the market and computing an implied credit spread. The discount rate used is the amount of the implied credit spread of 14.69% plus the 30-year swap rate of 4.94%.
 
The discount as well as the debt issuance costs will be amortized through interest expense using the interest yield method over the estimated life of the junior subordinated debentures. The effective yield of the issue will be 20.22%.
 
This particular exchange resulted in a gain on retirement of preferred stock favorably impacting accumulated deficit by $23.1 million (net of deferred taxes), which is also considered as part of earnings (losses) applicable to common stockholders in the earnings (losses) per common share (“EPS”) computations. See Note 23 to the consolidated financial statements for a reconciliation of EPS. A summary of this transaction and the increases (decreases) in the related asset, liability and stockholders’ equity accounts is as follows (Dollars in thousands):
 
                 
Assets
               
Other assets — investment in common stock of trust
          $ 100  
 — deferred income taxes (see Note 14 to the consolidated financial statements)
            (16,544 )
                 
Total assets
          $ (16,444 )
                 
Liabilities
               
Subordinated debentures, net (see Note 11 to the consolidated financial statements):
               
Issuance
          $ 69,100  
Discount
            (44,714 )
                 
Total liabilities
            24,386  
                 
Stockholders’ equity (see Note 27 to the consolidated financial statements)
               
Preferred stock, par value $.001 per share
          $  
Surplus — preferred ($69,000 less discount of $5,073)
            (63,927 )
Accumulated deficit (net of $16,544 deferred taxes)
            23,097  
                 
Total stockholders’ equity
            (40,830 )
                 
Total liabilities and stockholders’ equity
          $ (16,444 )
                 
 
Exchange of non-pooled trust preferred securities for newly issued common stock
 
On January 15, 2010, we entered into an agreement with Cambridge Savings Bank (“Cambridge”) pursuant to which Cambridge will exchange $3.5 million of trust preferred securities issued by our wholly owned unconsolidated subsidiary, Superior Capital Trust I, for shares of our common stock. The number of shares of common stock to be issued to Cambridge will equal 77% of the face value of the trust preferred securities divided by a weighted average of the sales prices of newly issued shares of our common stock sold between the date of the agreement and the closing of the exchange or, if lower, the weighted average of the sales prices of such stock within forty-eight hours prior to the closing of the exchange. The consummation of the transaction is conditioned upon selling at least $75 million of our common stock either for cash or in exchange for trust preferred securities or debt, obtaining consent of our stockholders if required by NASDAQ, and other customary closing conditions.
 
On January 20, 2010, we entered into an agreement with KBW, Inc. (“KBW”) pursuant to which KBW will exchange $4.0 million of trust preferred securities issued by our unconsolidated subsidiary, Superior Capital Trust I, for shares of our common stock. The number of shares of common stock to be issued to KBW will equal 50% of the face value of the trust preferred securities divided by the greater of the following prices of our common stock during the ten trading days prior to the closing of the exchange: (1) the average of the closing prices or (2) 90% of the volume weighted average price. The consummation of the transaction is conditioned upon obtaining consent of our stockholders if required by NASDAQ, and other customary closing conditions.
 
Neither we nor our affiliates have any material relationship with Cambridge other than in respect of the exchange agreement. Neither we nor our affiliates have any material relationship with KBW except that we have


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engaged an affiliate of KBW to assist us in formulating and implementing strategies to strengthen our capital position.
 
We expect to record a net after-tax gain of $1.8 million upon exchange of the trust preferred securities. The ultimate effect of the transactions will be to increase stockholders’ equity by approximately $6.5 million, consisting of both the increase in equity upon recording gains on retirement of the securities, and the value of the newly issued shares.
 
See Notes 27, 29 and 30 to the consolidated financial statements.
 
Stock Repurchase Plan.  We announced in June 2007 that our Board of Directors had approved the repurchase of up to 250,000 shares of our outstanding common stock. During the quarter ended September 30, 2007, we purchased 250,000 shares of then outstanding stock at an average price of $36.88 per share, which have been recorded, at cost, as treasury stock in the consolidated statement of financial condition. The shares were purchased in the open market through negotiated or block transactions and were not repurchased from our management team or other insiders.
 
We announced in October 2007, that our Board of Directors approved the purchase of an additional 250,000 shares of our outstanding common stock beginning on or after November 2, 2007. During the quarter ended December 31, 2007, we purchased 45,500 shares of then outstanding stock at an average price of $26.44, which have been recorded, at cost, as treasury stock in the consolidated statement of financial condition. The shares were purchased in the open market through negotiated or block transactions. We did not repurchase any shares from our management team or other insiders. This stock repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time.
 
Stock Incentive Plan.  In April 2008, our stockholders approved the Superior Bancorp 2008 Incentive Compensation Plan (the “2008 Plan”) which succeeded the 1998 Plan. The purpose of the 2008 Plan is to provide additional incentive for our directors and key employees to further the growth, development and our financial success by personally benefiting through the ownership of our common stock, or other rights which recognize such growth, development and financial success. Our Board also believes the 2008 Plan will enable it to obtain and retain the services of directors and employees who are considered essential to its long-range success by offering them an opportunity to own stock and other rights that reflect our financial success. The maximum aggregate number of shares of common stock that may be issued or transferred pursuant to awards under the 2008 Plan is 300,000 (restated for 1-for-4 reverse stock split) shares, of which no more than 90,000 shares may be issued for “full value awards” (defined under the 2008 Plan to mean any awards permitted under the 2008 Plan that are neither stock options nor stock appreciation rights). Only those employees and directors who are selected to receive grants by the administrator may participate in the 2008 Plan.
 
A summary of stock option activity as of December 31, 2009 and changes during the year then ended is set forth below:
 
                                 
                Weighted-
       
          Weighted-
    Average
       
          Average
    Remaining
    Aggregate
 
          Exercise
    Contractual
    Intrinsic
 
    Number     Price     Term     Value  
 
Under option, beginning of period
    848,922     $ 29.94                  
Granted
    104,100       2.97                  
Exercised
                           
Forfeited
    (27,375 )     (31.77 )                
                                 
Under option, end of period
    925,647     $ 26.85       5.65     $ 39  
                                 
Exercisable at end of period
    625,903     $ 31.76       2.90     $  
                                 
Weighted-average fair value per option of options granted during the period
  $ 1.47                          
                                 


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During the year ended December 31, 2009, 2008 and 2007, the Corporation recognized approximately $0.5 million, $0.6 million and $0.5 million in compensation expense related to options granted. Additional disclosure regarding our stock incentive plan is included in Note 12 to the consolidated financial statements.
 
In January 2008, members of our management received restricted common stock grants totaling 26,788 shares. These grants exclude certain senior executive management who received cash under the short-term management incentive plan in lieu of restricted stock. The grant date fair value of this restricted common stock is equal to $18.56 per share, or $0.5 million in the aggregate which will be recognized over a 24-month period as 50% of the stock vests on January 22, 2009 and the remaining 50% vests on January 22, 2010. During the twelve-month periods ended December 31, 2009 and 2008, we recognized approximately $0.2 million and $0.3 million, respectively, in compensation expense related to restricted stock. The outstanding shares of restricted common stock are included in the diluted earnings per share calculation, using the treasury stock method, until the shares vest. Once vested, the shares become outstanding for basic earnings per share. If an executive’s employment terminates prior to a vesting date for any reason other than death, disability or a change in control, the unvested stock is forfeited pursuant to the terms of the restricted common stock agreement. Unvested restricted common stock becomes immediately vested upon death, disability or a change in control. Under the restricted common stock agreements, the restricted stock may not be sold or assigned in any manner during the vesting period, but the executive will have the rights of a shareholder with respect to the stock (i.e. the right to vote, receive dividends, etc), prior to vesting.
 
Regulatory Capital.  During the fourth quarter of 2005, we became a unitary thrift holding company and, as such, we are subject to regulation, examination and supervision by the OTS.
 
Simultaneously, Superior Bank’s charter was changed to a federal savings bank charter, and Superior Bank is also subject to various regulatory requirements administered by the OTS. Prior to November 1, 2005, Superior Bank was regulated by the Alabama Banking Department and the Federal Reserve. 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 our financial position and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Superior Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Superior 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 Superior 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 capital to risk weighted assets (as defined). Management believes that Superior Bank meets all applicable capital adequacy requirements as of December 31, 2009.
 
The table below represents Superior Bank’s actual regulatory and minimum regulatory capital requirements at December 31, 2009 (Dollars in thousands):
 
                                                 
                To Be Well
 
          For Capital
    Capitalized Under
 
          Adequacy
    Prompt Corrective
 
    Actual     Purposes     Action  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
    (Dollars in thousands)  
 
Tier 1 Core Capital (to Adjusted Total Assets)
  $ 249,253       7.79 %   $ 127,957       4.00 %   $ 159,947       5.00 %
Total Capital (to Risk Weighted Assets)
    286,748       10.69       214,517       8.00       268,146       10.00  
Tier 1 Capital (to Risk Weighted Assets)
    249,253       9.30       NA       NA       160,888       6.00  
Tangible Capital (to Adjusted Total Assets)
    249,253       7.79       47,984       1.50       NA       NA  


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Impact of Inflation
 
Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, interest rates have a more significant effect on our performance than do the effects of changes in the general rate of inflation and changes in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. We seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.
 
Forward-Looking Statements
 
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Some of the disclosures in this Annual Report on Form 10-K, including any statements preceded by, followed by or which include the words “may,” “could,” “should,” “will,” “would,” “hope,” “might,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “assume” or similar expressions constitute forward-looking statements.
 
These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business, including our expectations and estimates with respect to our revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality, the adequacy of our allowance for loan losses and other financial data and capital and performance ratios.
 
Although we believe that the expectations reflected in our forward-looking statements are reasonable, these statements involve risks and uncertainties which are subject to change based on various important factors (some of which are beyond our control). Such forward looking statements should, therefore, be considered in light of various important factors set forth from time to time in our reports and registration statements filed with the SEC. The following factors, among others, could cause our financial performance to differ materially from our goals, plans, objectives, intentions, expectations and other forward-looking statements: (1) the strength of the United States economy in general and the strength of the regional and local economies in which we conduct operations; (2) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (3) inflation, interest rate, market and monetary fluctuations; (4) our ability to successfully integrate the assets, liabilities, customers, systems and management we acquire or merge into our operations; (5) our timely development of new products and services in a changing environment, including the features, pricing and quality compared to the products and services of our competitors; (6) the willingness of users to substitute competitors’ products and services for our products and services; (7) the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies; (8) our ability to resolve any legal proceeding on acceptable terms and its effect on our financial condition or results of operations; (9) technological changes; (10) changes in consumer spending and savings habits; (11) the effect of natural disasters, such as hurricanes, in our geographic markets; (12) regulatory, legal or judicial proceedings; (13) the continuing instability in the domestic and international capital markets; (14) the effects of new and proposed laws relating to financial institutions and credit transactions; (15) the effects of policy initiatives that have been and may continue to be introduced by the new Presidential administration and related regulatory actions; and (16) our success in any new capital financing activities we may undertake.


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If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this annual report. Therefore, we caution you not to place undue reliance on our forward-looking information and statements.
 
We do not intend to update our forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risks.
 
Please refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk — Interest Rate Sensitivity,” which is incorporated herein by reference.
 
Item 8.   Financial Statements and Supplementary Data.
 
Consolidated financial statements of Superior Bancorp meeting the requirements of Regulation S-X are filed on the succeeding pages of this Item 8 of this Annual Report on Form 10-K.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Shareholders
Superior Bancorp
 
We have audited the accompanying consolidated statements of financial condition of Superior Bancorp (a Delaware corporation) and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2009. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Superior Bancorp and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Superior Bancorp’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 11, 2010, expressed an unqualified opinion.
 
/s/  GRANT THORNTON LLP
 
Raleigh, North Carolina
March 11, 2010


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SUPERIOR BANCORP AND SUBSIDIARIES
 
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands, except per share amounts)  
 
ASSETS
Cash and due from banks
  $ 74,020     $ 74,237  
Interest-bearing deposits in other banks
    23,714       10,042  
Federal funds sold
    2,036       5,169  
                 
Total cash and cash equivalents
    99,770       89,448  
Investment securities available-for-sale
    286,310       347,142  
Tax lien certificates
    19,292       23,786  
Mortgage loans held for sale
    71,879       22,040  
Loans
    2,475,590       2,316,915  
Unearned income
    (2,893 )     (1,994 )
                 
Loans, net of unearned income
    2,472,697       2,314,921  
Allowance for loan losses
    (41,884 )     (28,850 )
                 
Net loans
    2,430,813       2,286,071  
Premises and equipment, net
    104,022       104,085  
Accrued interest receivable
    15,581       14,794  
Stock in FHLB
    18,212       21,410  
Cash surrender value of life insurance
    50,142       48,291  
Core deposit and other intangible assets
    16,694       21,052  
Other real estate
    41,618       19,971  
Other assets
    67,536       54,611  
                 
Total assets
  $ 3,221,869     $ 3,052,701  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
               
Noninterest-bearing demand
  $ 257,744     $ 212,732  
Interest-bearing demand
    690,677       632,430  
Savings
    284,430       185,522  
Time deposits $100,000 and over
    761,585       662,175  
Other time deposits
    662,137       650,129  
                 
Total deposits
    2,656,573       2,342,988  
Advances from FHLB
    218,322       361,324  
Security repurchase agreements
    841       3,563  
Notes payable
    45,917       7,000  
Subordinated debentures, net
    84,170       60,884  
Accrued expenses and other liabilities
    24,342       25,703  
                 
Total liabilities
    3,030,165       2,801,462  
Commitments and contingencies (Notes 6 and 17)
               
Stockholders’ equity:
               
Preferred stock, par value $.001 per share; shares authorized 5,000,000:
               
Series A, fixed rate cumulative perpetual preferred stock, -0- and 69,000 shares issued and outstanding as of December 31, 2009 and 2008, respectively
           
Common stock, par value $.001 per share; shares authorized 200,000,000; shares issued 11,673,837 in 2009 and 10,403,087 in 2008; outstanding 11,667,794 in 2009 and 10,074,999 in 2008
    12       10  
Surplus — preferred
          62,978  
 — warrants
    8,646       8,646  
 — common
    322,043       329,461  
Accumulated deficit
    (130,889 )     (129,904 )
Accumulated other comprehensive loss
    (7,825 )     (7,925 )
Treasury stock, at cost — 321,485 shares outstanding as of December 31, 2008
          (11,373 )
Unearned ESOP stock
    (263 )     (443 )
Unearned restricted stock
    (20 )     (211 )
                 
Total stockholders’ equity
    191,704       251,239  
                 
Total liabilities and stockholders’ equity
  $ 3,221,869     $ 3,052,701  
                 
 
See accompanying notes


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SUPERIOR BANCORP AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
    Year Ended December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Interest income:
                       
Interest and fees on loans
  $ 144,660     $ 147,162     $ 150,443  
Interest on taxable securities
    14,085       16,310       17,174  
Interest on tax-exempt securities
    1,610       1,716       897  
Interest on federal funds sold
    9       122       471  
Interest and dividends on other investments
    1,718       2,578       2,944  
                         
Total interest income
    162,082       167,888       171,929  
Interest expense:
                       
Interest on deposits
    54,360       68,405       79,667  
Interest on other borrowed funds
    10,097       12,104       12,971  
Interest on subordinated debentures
    5,063       4,094       4,129  
                         
Total interest expense
    69,520       84,603       96,767  
                         
Net interest income
    92,562       83,285       75,162  
Provision for loan losses
    28,550       13,112       4,541  
                         
Net interest income after provision for loan losses
    64,012       70,173       70,621  
Noninterest income:
                       
Service charges and fees on deposits
    10,112       9,295       7,957  
Mortgage banking income
    7,084       3,972       3,860  
Investment securities gains (losses)
                       
Gain on sale of securities
    5,644       1,489       308  
Total other-than-temporary impairment losses (“OTTI”)
    (23,079 )     (9,942 )      
Portion of OTTI recognized in other comprehensive
                       
income
    7,333              
                         
Investment securities (loss) gain
    (10,102 )     (8,453 )     308  
Change in fair value of derivatives
    (826 )     1,240       1,310  
Increase in cash surrender value of life insurance
    2,198       2,274       1,895  
Gain on extinguishment of liabilities
          2,918        
Other income
    5,113       5,521       4,027  
                         
Total noninterest income
    13,579       16,767       19,357  
Noninterest expenses:
                       
Salaries and employee benefits
    49,962       49,672       42,316  
Occupancy, furniture and equipment
    18,643       17,197       13,391  
Amortization of core deposit intangibles
    3,941       3,585       1,691  
Goodwill impairment charge
          160,306        
FDIC assessments
    6,348       1,105       282  
Foreclosure losses
    8,116       908       227  
Loss on extinguishment of debt
                1,469  
Other expenses
    23,475       21,905       18,847  
                         
Total noninterest expenses
    110,485       254,678       78,223  
                         
(Loss) income before income taxes
    (32,894 )     (167,738 )     11,755  
Income tax (benefit) expense
    (13,005 )     (4,588 )     4,134  
                         
Net (loss) income
    (19,889 )     (163,150 )     7,621  
Preferred stock dividends and amortization
    (4,193 )     (311 )      
Gain on exchange of preferred stock for trust preferred debt
    23,097              
                         
Net (loss) income applicable to common stockholders
  $ (985 )   $ (163,461 )   $ 7,621  
                         
Weighted average common shares outstanding
    10,687       10,021       9,243  
Weighted average common shares outstanding, assuming dilution
    10,687       10,021       9,333  
Basic net (loss) income per common share
  $ (0.09 )   $ (16.31 )   $ 0.82  
Diluted net (loss) income per common share
    (0.09 )     (16.31 )     0.82  
 
See accompanying notes


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SUPERIOR BANCORP AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
                                                                                         
                                  Accumulated
    Accumulated
                         
                                  (Deficit)
    Other
          Unearned
    Unearned
    Total
 
    Preferred
    Common
    Surplus     Retained
    Comprehensive
    Treasury
    ESOP
    Restricted
    Stockholders’
 
    Stock     Stock     Preferred     Warrants     Common     Earnings     (Loss) Gain     Stock     Stock     Stock     Equity  
    (Dollars in thousands, except per share data)  
 
Balance at January 1, 2007
  $     $ 8     $     $     $ 253,842     $ 26,491     $ (1,452 )   $ (716 )   $ (2,086 )   $     $ 276,087  
Adoption of FIN 48
                                  (555 )                             (555 )
Comprehensive income:
                                                                                       
Net income
                                  7,621                               7,621  
Other comprehensive income, net of tax expense of $798, unrealized gain on securities available for sale, arising during the period, net of reclassification adjustment
                                        1,238                         1,238  
Defined benefit pension plan — net gain
                                        388                         388  
                                                                                         
Comprehensive income
                                                                                    9,247  
Repurchase of 295,500 shares of treasury stock
                                              (10,428 )                 (10,428 )
Issuance of 1,658,781 shares for People’s purchase
          2                   73,802                                     73,804  
Issuance of 6,941 shares related to board compensation
                            278                                     278  
Stock options exercised — 21,250 shares
                            640                                     640  
Compensation expense related to stock options
                            472                                     472  
Release of 12,284 shares by ESOP
                            198                         299             497  
Termination of ESOP — 31,867 shares transferred
                                              (1,165 )     1,165              
                                                                                         
Balance at December 31, 2007
          10                   329,232       33,557       174       (12,309 )     (622 )           350,042  
Comprehensive loss:
                                                                                       
Net loss
                                  (163,150 )                             (163,150 )
Other comprehensive loss, net of tax benefit of $3,075 unrealized loss on securities available for sale, arising during the period, net of reclassification adjustment
                                        (5,357 )                       (5,357 )
Change in accumulated loss on cash flow hedging instrument, net of tax expense of $354
                                        (601 )                       (601 )
Defined benefit pension plan — net loss
                                        (2,141 )                       (2,141 )
                                                                                         
Comprehensive loss
                                                                                    (171,249 )
Issuance of warrant to purchase 1,000,000 shares of common stock related to subordinated notes
                      2,553                                           2,553  
Issuance of 69,000 shares of cumulative preferred stock
                69,000                                                 69,000  
Issuance of warrant to purchase 1,923,392 shares of common stock related to preferred stock; adjusted to 1,975,688
                (6,093 )     6,093                                            
Cumulative preferred stock dividend of $240, net of amortization
                71                   (311 )                             (240 )
Issuance of 26,788 shares of restricted stock
                            (447 )                 944             (497 )      
Amortization of unearned restricted stock
                                              (8 )           286       278  
Issuance of 26,795 shares related to board compensation
                            292                                     292  
Compensation expense related to stock options
                            623                                     623  
Fractional shares and issuance costs
                            (94 )                                   (94 )
Release of 3,881 shares by ESOP
                            (145 )                       179             34  
                                                                                         
Balance at December 31, 2008
          10       62,978       8,646       329,461       (129,904 )     (7,925 )     (11,373 )     (443 )     (211 )     251,239  
Comprehensive loss:
                                                                                       
Net loss
                                  (19,889 )                             (19,889 )
Other comprehensive loss, net of tax benefit of $239 on unrealized loss on securities available for sale, arising during the period, net of reclassification adjustment
                                        (407 )                       (407 )
Change in accumulated gain on cash flow hedging instrument, net of tax expense of $71
                                        118                         118  
Defined benefit pension plan — net gain, net of tax expense of $228
                                        389                         389  
                                                                                         
Comprehensive loss
                                                                                    (19,789 )
Cumulative preferred stock dividend of $3,245, net of amortization
                948                   (4,193 )                             (3,245 )
Exchange of preferred stock for trust preferred debt
                    (63,926 )                 23,097                               (40,829 )
Issuance of 1,491,618 shares
          2                   (8,036 )                 11,333                     3,299  
Issuance of restricted stock
                            18                   40             (52 )     6  
Amortization of unearned restricted stock
                                                          243       243  
Issuance of 91,284 shares related to board compensation
                            768                                     768  
Release of 3,938 shares by ESOP
                            (168 )                       180             12  
                                                                                         
Balance at December 31, 2009
  $     $ 12     $     $ 8,646     $ 322,043     $ (130,889 )   $ (7,825 )   $     $ (263 )   $ (20 )   $ 191,704  
                                                                                         
 
See accompanying notes


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SUPERIOR BANCORP AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                         
    Year Ended December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Operating activities
                       
Net (loss) income
  $ (19,889 )   $ (163,150 )   $ 7,621  
Adjustments to reconcile net (loss) income to net cash (used) provided by operations:
                       
Goodwill impairment charge
          160,306        
Depreciation
    7,249       6,576       4,630  
Amortization of core deposit and other intangibles
    4,358       4,001       1,868  
Net (discount) premium amortization on securities
    136       (63 )     (116 )
OTTI
    15,746       9,942        
Gain on sale of investment securities
    (5,644 )     (1,489 )     (308 )
Gain on sale of interest rate floors
          (678 )      
Loss on the sale of foreclosed assets
    5,670       528       170  
Provision for loan losses
    28,550       13,112       4,541  
(Decrease) increase in accrued interest receivable
    (787 )     1,718       (386 )
Deferred income tax (benefit) expense
    (13,739 )     (4,736 )     4,021  
Loss (gain) on sale of assets
    130       (11 )     (139 )
(Gain) loss on extinguishment of liabilities
          (2,918 )     1,469  
Origination of mortgage loans held for sale
    (729,716 )     (396,330 )     (335,424 )
Proceeds from sale of mortgage loans held for sale
    679,877       407,698       326,449  
Other operating activities, net
    (17,495 )     (8,538 )     (10,653 )
                         
Net cash (used) provided by operating activities
    (45,554 )     25,968       3,743  
Investing activities
                       
Proceeds from sales of investment securities available for sale
    157,614       44,620       18,378  
Proceeds from maturities of investment securities available for sale
    65,848       112,106       82,873  
Purchase of investment securities available for sale
    (173,556 )     (159,430 )     (59,910 )
Net increase in loans
    (215,153 )     (328,452 )     (132,769 )
Net cash received in business combinations
                1,231  
Redemptions of tax lien certificates
    42,885       27,242       20,499  
Purchase of tax lien certificates
    (38,391 )     (35,413 )     (19,801 )
Purchase of premises and equipment
    (8,476 )     (12,045 )     (23,833 )
Proceeds from sale of premises and equipment
    1,134       7,643       5,630  
Proceeds from sale of foreclosed assets
    14,496       6,996       7,327  
Decrease (increase) in stock of FHLB
    3,198       (6,465 )     (2,563 )
Other investing activities, net
          177       4,005  
                         
Net cash used in investing activities
    (150,401 )     (343,021 )     (98,933 )
Financing activities
                       
Net increase (decrease) in demand and savings deposits
    202,365       105,222       (7,824 )
Net increase in time deposits
    111,418       36,611       92,150  
(Decrease) increase in FHLB advances
    (143,002 )     138,496       (2,995 )
Proceeds from note payable
    38,575       10,000       10,000  
Principal payment on note payable
          (12,500 )     (6,045 )
Net decrease in other borrowed funds
    (2,870 )     (13,679 )     (13,304 )
Proceeds from issuance of subordinated debentures
          10,000       22,680  
Principal payment on junior subordinated debentures
                (16,495 )
Purchase of treasury stock
                (10,428 )
Proceeds from issuance of common stock
    3,299             640  
Proceeds from issuance of preferred stock
          69,000        
Cash dividends paid
    (3,508 )            
                         
Net cash provided by financing activities
    206,277       343,150       68,379  
                         
Increase in cash and cash equivalents
    10,322       26,097       (26,811 )
Cash and cash equivalents at beginning of year
    89,448       63,351       90,162  
                         
Cash and cash equivalents at end of year
  $ 99,770     $ 89,448     $ 63,351  
                         
Supplemental disclosures of cash flow information
                       
Cash paid (received) during the year for:
                       
Interest
  $ 70,278     $ 86,229     $ 97,848  
Income taxes
    941       (1,432 )     (564 )
Exchange of preferred stock for trust preferred debt
    69,000              
Transfer of foreclosed assets
    42,136       28,419       9,239  
Assets acquired in business combinations
                376,061  
Liabilities assumed in business combinations
                303,487  
Issuance of common stock in acquisitions
                73,804  
 
See accompanying notes


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SUPERIOR BANCORP AND SUBSIDIARIES
 
 
1.   Summary of Significant Accounting Policies
 
Superior Bancorp (“Corporation”), through its subsidiaries, provides a full range of banking and bank-related services to individual and corporate customers in Alabama and Florida. The accounting and reporting policies of the Corporation conform with U.S. generally accepted accounting principles and to general practice within the banking industry. The following summarizes the most significant of these policies.
 
Basis of Presentation and Variable Interest Entities
 
The accompanying consolidated financial statements and notes to consolidated financial statements include the accounts of the Corporation and its consolidated wholly-owned subsidiaries. The Corporation also has investments in certain unconsolidated variable interest entities (“VIE”) as described below. All significant intercompany balances and transactions have been eliminated. Certain amounts in the prior years’ financial statements have been reclassified to conform to the 2009 presentation. These reclassifications are immaterial and had no effect on net income (loss), total assets or stockholders’ equity.
 
The Corporation considers a voting rights entity to be a subsidiary and consolidates it if the Corporation has a controlling financial interest in the entity. VIE’s are consolidated if the Corporation is exposed to the majority of the VIE’s expected losses and/or residual returns (i.e., the Corporation is considered to be the primary beneficiary).
 
The Corporation holds variable interests in five special purpose trusts which were formed for the issuance of trust preferred securities to outside investors (See Note 11). The Corporation does not absorb a majority of the expected losses or residual returns of the trusts; therefore, the Corporation is not considered the primary beneficiary and does not consolidate the trusts. At December 31, 2009 and 2008, the Corporation had recorded common equity investments in other assets on its Consolidated Statement of Financial Condition of $1,679,000 and $1,579,000, respectively that were associated with these trusts.
 
The Corporation also has limited partnership investments in affordable housing projects for which it provides funding as a limited partner and anticipates receiving future income tax credits related to its investments in the projects. At December 31, 2009 and 2008, the Corporation had recorded equity method investments in other assets on its Consolidated Statement of Financial Condition of approximately $4,207,000 and $2,241,000, respectively. The projects were certified for occupancy and placed into service during the early part of 2009. The Corporation has determined that these structures meet the definition of VIEs but that consolidation of these direct limited partnership investments in affordable housing projects is not required, as the Corporation is not the primary beneficiary. At December 31, 2009, the Corporation’s maximum exposure to loss associated with these limited partnerships was limited to the Corporation’s investment. The Corporation accounts for these investments and the related tax credits using the effective yield method. Under the effective-yield method, the Corporation recognizes the tax credits as they are allocated and amortizes the initial costs of the investment to provide a constant effective yield over the period that the tax credits are allocated. Unfunded commitments to the partnerships included in other liabilities were $213,000 as of December 31, 2009 and $2,241,000 as of December 31, 2008.
 
Restatement to Reflect 1-for-4 Reverse Stock Split
 
All disclosures regarding common stock and related earnings per share have been retroactively restated for all periods presented prior to 2008 to reflect a 1-for-4 reverse stock split effective April 28, 2008 (see Note 27).
 
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 could differ from those estimates.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
Cash and Cash Equivalents
 
For the purpose of presentation in the statements of cash flows, cash and cash equivalents are defined as those amounts included in the statements of financial condition caption “Total cash and cash equivalents.” These amounts include cash and due from banks, interest-bearing deposits with other financial institutions and federal funds sold.
 
The Corporation’s banking subsidiary is required to maintain minimum average reserve balances by the Federal Reserve Bank, which are based on a percentage of deposits. At December 31, 2009 and 2008, the Corporation’s reserve requirements were $4,656,000 and $2,941,000, respectively, with which it was in full compliance.
 
Investment Securities
 
Investment securities are classified as either held to maturity, available for sale or trading at the time of purchase. The Corporation defines held to maturity securities as debt securities which management has the positive intent and ability to hold to maturity.
 
Held to maturity securities are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using the effective yield method.
 
Securities available for sale are reported at fair value and consist of bonds, notes, debentures, and certain equity securities not classified as trading securities or as securities to be held to maturity. Unrealized holding gains and losses, net of deferred taxes, on securities available for sale are excluded from earnings and reported in accumulated other comprehensive income (loss) within stockholders’ equity.
 
Gains and losses on the sale of securities available for sale are determined using the specific-identification method.
 
Other-Than-Temporary-Impairment
 
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into the various segments outlined in Note 3 and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI according to ASC 320-10 guidance. In addition, certain purchased beneficial interests, which may include private-label mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in ASC 325-40.
 
In determining OTTI according to the Financial Accounting Standards Board (“FASB”) guidance, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
 
When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI is recognized in earnings at an amount equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
current-period loss, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
 
Tax lien certificates
 
Tax lien certificates represent a priority lien against real property for which assessed real estate taxes are delinquent. Tax lien certificates are carried at cost plus accrued interest which approximates fair value. Tax lien certificates and resulting deeds are classified as non-accrual when a tax lien certificate is 24 to 48 months delinquent, depending on the municipality, from the acquisition date, at which time interest ceases to be accrued.
 
Loans and Allowance for Loan Losses
 
Loans are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses. The Corporation defers certain nonrefundable loan origination and commitment fees and the direct costs of originating loans. The net deferred amount is amortized over the estimated lives of the related loans as an adjustment to yield. Interest income with respect to loans is accrued on the principal amount outstanding, except for loans classified as nonaccrual.
 
Accrual of interest is discontinued on loans which are more than ninety days past due unless the loan is well secured and in the process of collection. “Well secured” indicates that the debt must be secured by collateral having sufficient realizable value to discharge the debt, including accrued interest, in full. “In the process of collection” indicates that collection of the debt is proceeding in due course either through legal action or other collection effort that is reasonably expected to result in repayment of the debt in full within a reasonable period of time, usually within one hundred eighty days of the date the loan became past due. Any unpaid interest previously accrued on these loans is reversed from income. Interest payments received on these loans are applied as a reduction of the loan principal balance.
 
It is the responsibility of management to assess and maintain the allowance for loan losses at a level it believes is appropriate to absorb the estimated credit losses within our loan portfolio through the provision for loan losses. The determination of the allowance for loan losses is based on management’s analysis of the credit quality of the loan portfolio including its judgment regarding certain internal and external factors that affect loan collectability. This process is performed on a quarterly basis under the oversight of the Board of Directors. The estimation of the allowance for loan losses is based on two basic components — those estimations calculated in accordance with the requirements of ASC 450-20 and those specific impairments under ASC 310-35 (see discussions below). The calculation of the allowance for loan losses is inherently subjective and actual losses could be greater or less than the estimates.
 
The allowance for loan loss is considered to be a significant estimate and is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes the collectability of principal is unlikely. The allowance is the amount that management believes will be adequate to absorb inherent losses on existing loans.
 
Under ASC 450-20, estimated losses on all loans that have not been identified with specific impairment, under ASC 310-35, are calculated based on the historical loss ratios applied to standard loan categories using a rolling average, adjusted for certain qualitative factors, as shown below. In addition to these standard loan categories, management may identify other areas of risk based on its analysis of such qualitative factors and estimate additional


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
losses as it deems necessary. The qualitative factors that management uses in its estimate include but are not limited to the following:
 
  •  trends in volume;
  •  effects of changes in credit concentrations;
  •  levels of and trends in delinquencies, classified loans and non-performing assets;
  •  levels of and trends in charge-offs and recoveries;
  •  changes in lending policies and underwriting guidelines;
  •  national and local economic trends and condition; and
  •  mergers and acquisitions
 
Pursuant to ASC 310-35, impaired loans are loans which are specifically reviewed and for which it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement. Impairment is measured by comparing the recorded investment in the loan with the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A valuation allowance is provided to the extent that the measure of the impaired loans is less than the recorded investment. A loan is not considered impaired during a period of delay in payment if the ultimate collectability of all amounts due is expected. The Credit Administration department maintains supporting documentation regarding collateral valuations and/or discounted cash flow analyses. Payments received on impaired loans for which the ultimate collectability of principal is uncertain are generally applied first as principal reductions. Impaired loans and other nonaccrual loans are returned to accrual status if the loan is brought contractually current as to both principal and interest and repayment ability is demonstrated, or if the loan is in the process of collection and no loss is anticipated.
 
The Corporation manages and controls risk in the loan portfolio through adherence to credit standards established by the Board of Directors and implemented by senior management. These standards are set forth in a formal loan policy which establishes loan underwriting and approval procedures, sets limits on credit concentration and enforces regulatory requirements.
 
Loan portfolio concentration risk is reduced through concentration limits for borrowers and varying collateral types. Concentration risk is measured and reported to senior management and the board of directors on a regular basis.
 
The assignment of loan risk ratings is the primary responsibility of the lending officer and is subject to independent review by internal loan review, which also performs ongoing, independent review of the risk management process. The risk management process includes underwriting, documentation and collateral control. Loan review is centralized and independent of the lending function. The loan review results are reported to senior management and the Audit and Enterprise Risk Management Committee of the Board of Directors. The Corporation has a centralized loan administration department to serve our entire bank. This department provides standardized oversight for compliance with loan approval authorities and bank lending policies and procedures, as well as centralized supervision, monitoring and accessibility.
 
Mortgage Loans Held for Sale
 
Mortgage loans held for sale are carried at the lower of cost or market, determined on a net aggregate basis. The carrying value of these loans is adjusted for any origination fees and cost incurred to originate these loans. Differences between the carrying amount of mortgage loans held for sale and the amounts received upon sale are credited or charged to income at the time the proceeds of the sale are collected. The fair values are based on quoted market prices of similar loans, adjusted for differences in loan characteristics.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
Premises and Equipment
 
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over the estimated service lives of the assets using straight-line and accelerated methods, generally using 5 to 40 years for premises and 5 to 10 years for furniture and equipment.
 
Expenditures for maintenance and repairs are charged to operations as incurred; expenditures for renewals and betterments are capitalized and written off by depreciation charges. Property retired or sold is removed from the asset and related accumulated depreciation accounts and any gain or loss resulting there from is reflected in the statement of operations.
 
The Corporation reviews any long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
 
Intangible Assets
 
Intangible assets include primarily core deposit intangible assets that are amounts recorded related to the value of acquired non-maturity deposits. Core deposit intangibles are amortized over their expected useful lives. The Corporation realized a goodwill impairment charge in the fourth quarter of 2008, representing the entire goodwill intangible asset. As of December 31, 2009, the Corporation did not have any goodwill.
 
ASC Topic 350 requires goodwill and intangible assets with indefinite useful lives to no longer be amortized but instead tested for impairment at least annually, or more often if events or circumstances indicate that there may be impairment. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill. If the implied fair value is less than the carrying amount, a loss is recognized in noninterest expense to reduce the carrying amount to implied fair value of goodwill. A goodwill impairment test includes two steps. Step One, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Step Two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit’s goodwill, an impairment loss is recognized in an amount equal to that excess.
 
Management tested goodwill for impairment during the fourth quarter of 2008 and recorded a $160,306,000 impairment charge ($63,815,000 Alabama Region and $96,491,000 Florida Region), for that quarter representing all of the goodwill intangible asset. The primary cause of the goodwill impairment within these reporting units was the significant decline in the estimated fair value of the units as a result of increases in nonperforming loans, overall decline in our market capitalization and compression of the net interest margin, all resulting from the economic crisis and its effect on financial institutions which occurred during the fourth quarter.
 
For purposes of testing goodwill for impairment, management uses both the income and market approaches to value its reporting units. The income approach quantifies the present value of future economic benefits by the “capitalizing of benefits” method or the “discounted cash flow” (“DCF”) method. In estimating the fair value of our reporting units under the income approach model, management used the DCF method which relies on a forecast of growth and earnings over a period of time and includes a measure of cash flow based on projected earnings and projected dividends, or dividend paying capacity, in addition to an estimate of a residual value. The projected future cash flows are discounted using a discount rate determined under a build-up approach using the risk-free rate of return, adjusted equity beta, equity risk premium, and a company-specific risk factor. The company-specific risk factor is used to address the uncertainty of growth estimates and earnings projections of management.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
The Corporation uses the “guideline company transaction” method to apply the market approach. Management selected a group of comparable transactions that it believes would likely reference comparable transactions pricing when making a decision to purchase the applicable reporting unit. An estimate of value can be determined by comparing the financial condition of the subject reporting unit against the financial characteristics and pricing information of the comparable companies.
 
Management used the results of these methods to estimate fair value. The table below shows the assumptions used in estimating the fair value of each reporting unit at December 31, 2008. The table includes the discount rate used in the income approach model and the market multipliers used in the market approach.
 
                 
    Alabama
    Florida
 
    Region     Region  
 
Discount rate used in income approach
    14.0 %     14.5 %
Transaction method multiplier — Price to tangible book(1)
    2.00 x     1.35 x
 — Premium to deposit valuation(2)
    5.0 %     4.0 %
Implied premium to trading prices(3)
    30.0 %     30.0 %
 
 
(1) This multiplier is applied to tangible book value.
 
(2) This multiplier is applied to tangible book value plus deposits.
 
(3) Average based on bank and thrift transactions in Southeast Region announced since January 1, 2003.
 
At December 31, 2009 and 2008, the Corporation’s core deposit intangible, which is being amortized over ten years from the date of acquisition, was as follows:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Core deposit intangible
  $ 26,355     $ 26,355  
Accumulated amortization
    (10,764 )     (6,823 )
                 
Net core deposit intangible
  $ 15,591     $ 19,532  
                 
 
Amortization expense was $3,941,000, $3,585,000, and $1,691,000 for the years ended December 31, 2009, 2008, and 2007, respectively. Aggregate amortization expense for the years ending December 31, 2009 through December 31, 2014, is estimated to be as follows:
 
         
Year
  Annual Expense  
    (In thousands)  
 
2010
  $ 3,479  
2011
    3,049  
2012
    2,492  
2013
    2,235  
2014
    2,051  
         
Total
  $ 13,306  
         
 
Other Real Estate
 
Other real estate, acquired through partial or total satisfaction of loans, is carried at fair value, less estimated selling expenses, in other assets. At the date of acquisition, any difference between the fair value and book value of the asset is charged to the allowance for loan losses. Subsequent gains or losses on the sale or losses from the


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
valuation of and the cost of maintaining and operating other real estate are included in other income or expense. Other real estate totaled $41,618,000 and $19,971,000 at December 31, 2009 and 2008, respectively.
 
Security Repurchase Agreements
 
Securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or re-pledged by the secured party.
 
Income Taxes
 
The consolidated financial statements are prepared on the accrual basis. The Corporation accounts for income taxes using the balance sheet method pursuant to ASC Topic 740. 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 expected to apply to taxable income in the years in which those temporary differences are expected to reverse.
 
Off-Balance Sheet Financial Instruments
 
In the ordinary course of business the Corporation has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements and commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable to the extent that they do not qualify as derivatives.
 
Per Share Amounts
 
Earnings per common share computations are based on the weighted average number of common shares outstanding during the periods presented.
 
Diluted earnings per common share computations are based on the weighted average number of common shares outstanding during the period, plus the dilutive effect of stock options, warrants, convertible preferred stock and restricted stock awards.
 
Stock-Based Compensation
 
Under ASC Topic 718, which became effective for the Corporation in the first quarter of 2006, companies are required to recognize an expense in the statement of operations for the grant-date fair value of stock options and other equity-based compensation issued to employees, but expresses no preference for a type of valuation method. This expense is recognized over the period during which an employee is required to provide service in exchange for the award. This topic carried forward prior guidance on accounting for awards to non-employees. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately prior to the modification.
 
Pension Plan
 
Liabilities and contributions to the plan are calculated using the actuarial unit credit method of funding.
 
Derivative Financial Instruments and Hedging Activities
 
ASC Topic 815 requires companies to recognize all of their derivative instruments as either assets or liabilities in the consolidated statement of financial position at fair value.
 
Under the guidance, derivative financial instruments that qualify as a hedging relationship are designated, based on the exposure being hedged, as either fair value or cash flow hedges. Fair value hedge relationships mitigate


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
exposure to the change in fair value of an asset, liability or firm commitment. Under the fair value hedging model, gains or losses attributable to the change in fair value of the derivative instrument, as well as the gains and losses attributable to the change in fair value of the hedged item, are recognized in earnings in the period in which the change in fair value occurs.
 
Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. Under the cash flow hedging model, the effective portion of the gain or loss related to the derivative instrument, if any, is recognized as a component of other comprehensive income. For derivative financial instruments not designated as a fair value or cash flow hedges, gains and losses related to the change in fair value are recognized in earnings during the period of change in fair value.
 
The Corporation formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.
 
The Corporation also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative instrument is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Corporation discontinues hedge accounting prospectively, as discussed below.
 
The Corporation discontinues hedge accounting prospectively when: (1) it is determined that the derivative instrument is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative instrument expires or is sold, terminated or exercised; (3) the derivative instrument is de-designated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative instrument as a hedge instrument is no longer appropriate.
 
When hedge accounting is discontinued because it is determined that the derivative instrument no longer qualifies as an effective fair-value hedge, the derivative instrument will continue to be carried on the balance sheet at its fair value and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative instrument will continue to be carried on the balance sheet at its fair value and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in the then-current-period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative instrument will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings.
 
When the derivative instrument is de-designated, terminated or sold, any gain or loss will remain in accumulated other comprehensive income and will be reclassified into earnings over the same period during which the underlying hedged item affects earnings. In all other situations in which hedge accounting is discontinued, the derivative instrument will be carried at its fair value on the balance sheet, with changes in its fair value recognized in the then-current-period earnings.
 
Fair Value Measurements
 
Management measures fair value at the price the Corporation would receive by selling an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Management prioritizes the assumptions that market participants would use in pricing the asset or liability (the “inputs”) into a


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect management’s estimates about the assumptions market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.
 
Accounting Pronouncements Recently Adopted
 
In March of 2008, FASB issued Accounting Standards Codification (“ASC”) 815-10, Disclosures About Derivative Instruments and Hedging Activities (“ASC 815-10”), which amended and expanded the disclosure requirements to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, the guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. ASC 815-10 became effective on January 1, 2009 and did not have a significant impact on the Corporation’s financial position, results of operations or cash flows (see Note 15 to the consolidated financial statements).
 
In December of 2008, FASB issued guidance that requires additional disclosures related to Postretirement Benefit Plan Assets. This guidance will provide users of financial statements with an understanding of: 1) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies, 2) the major categories of plan assets, 3) the inputs and valuation techniques used to measure the fair value of plan assets, 4) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period, and 5) significant concentrations of risk within plan assets. This guidance does not require any changes to current accounting. The disclosure requirements became effective for the Corporation during this period ending December 31, 2009. The adoption of this guidance did not have an impact on the Corporation’s results of operations or financial condition.
 
In April of 2009, FASB finalized certain guidance regarding the accounting treatment for investments including mortgage-backed securities which included revising the method for determining if OTTI exists and the amount of OTTI to be recorded through an entity’s income statement. These revisions provide greater clarity and reflect a more accurate representation of the credit and noncredit components of an OTTI event and are summarized as follows:
 
  •  ASC 820-10, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“ASC 820-10”) provides guidelines for making fair value measurements more consistent by emphasizing that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same. Fair value is the price that would be received in a sale of an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale), between market participants at the measurement date under current market conditions.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
 
  •  ASC 320-10, Recognition and Presentation of Other-than-temporary impairments (“ASC 320-10”) provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. It amends OTTI impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to OTTI of equity securities.
 
  •  ASC 825-10 and ASC 270-10, Interim Disclosures about Fair Value of Financial Instruments (“ASC 825-10 and ASC 270-10”) enhance consistency in financial reporting by increasing the frequency of fair value disclosures.
 
This guidance became effective for financial statements issued for periods ending after June 15, 2009, with early application possible for the first quarter of 2009. The Corporation elected to adopt ASC 820-10 and ASC 320-10 as of March 31, 2009, while deferring the election of ASC 825-10 and ASC 270-10 until June 30, 2009. The adoption of this guidance did not have a significant impact on the Corporation’s financial condition, results of operations or cash flow other than requiring additional disclosures (See Note 19 to the condensed consolidated financial statements). The effect of the adoption of ASC 320-10 resulted in the portion of OTTI determined to be credit-related ($15.7 million, pre-tax) being recognized in current earnings, while the portion of OTTI related to other factors ($7.3 million, pre-tax) was recognized in other comprehensive loss (see Notes 3 and 28 to the consolidated financial statements).
 
In June of 2009, FASB issued Accounting Standard Update (“ASU”) No. 2009-01 — Generally Accepted Accounting Principles amendments based on FASB Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 168”). In June of 2009, the FASB issued SFAS No. 168 to replace FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”) and authorize the Accounting Standard Codification (“ASC” or “Codification”) as the new source for authoritative U.S. GAAP and ends the practice of FASB issuing standards in the familiar forms. On July 1, 2009, the FASB implemented the ASC as the authoritative source, along with SEC guidance, for U.S. GAAP through issuance of Accounting Standards Update (“ASU” or “Update”) 2009-01. The FASB will no longer issue Statements of Financial Accounting Standards, but rather will issue Updates that will provide background information about the amended guidance along with a basis for conclusions regarding the change. These Updates will amend the ASC to reflect the new guidance issued by the FASB. The Corporation implemented the use of the ASC in the third quarter of 2009. The ASC changed the way the Corporation will reference authoritative accounting literature in its filings. The recently adopted standards are now part of the ASC. Accounting standards not yet adopted will consist of Updates as well as Statements issued before July 1, 2009 that are not yet effective.
 
In August of 2009, FASB issued ASU No. 2009-05 — Fair Value Measurements and Disclosures — Measuring Liabilities at Fair Value (“ASU 2009-05”). This Update provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures, for the fair value measurement of liabilities. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: 1) a valuation technique that uses the quoted price of the identical liability when traded as an asset and/or quoted prices for similar liabilities when traded as assets; 2) another valuation technique that is consistent with the principles of Topic 820. This Update became effective for the Corporation on September 30, 2009, and had a material impact on the Corporation’s financial statements during the fourth quarter of 2009. At the date of the exchange agreement, the Corporation’s valuation of the trust preferred securities received in the exchange of $69,000,000 in preferred stock held by the U.S. Treasury was determined internally using a discounted cash flow model. The assumed discount rate used for estimating the fair value was estimated by obtaining the yields at which comparable issues were trading as assets in


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.   Summary of Significant Accounting Policies — (Continued)
 
the market. This valuation yielded a discount of $44,714,000 which resulted in a $23, 097,000 increase of common stockholders’ equity, net of tax (see Note 29).
 
Accounting Pronouncements Not Yet Adopted
 
There are no new accounting pronouncements that have not yet been adopted that will have a significant impact to the Corporation’s consolidated financial statements.
 
2.   Business Combinations
 
People’s Acquisition
 
The Corporation completed the acquisition of 100% of the outstanding stock of People’s Community Bancshares, Inc. (“People’s”), of Sarasota, Florida on July 27, 2007 in exchange for 1,658,781 shares (restated to reflect 1-for-4 reverse stock split) of the Corporation’s common stock valued at approximately $73,982,000. The shares were valued by using the average of the closing prices of the Corporation’s stock for several days prior to and after the terms of the acquisition were agreed to and announced. The total purchase price, which includes certain direct acquisition costs, was $76,429,000. As a result of the acquisition, the Corporation now operates three banking locations in Sarasota and Manatee Counties, Florida. This area is a significant addition to the Corporation’s largest market, which was expanded in 2006 by the acquisition of Kensington Bankshares, Inc., in Tampa, Florida.
 
The People’s transaction resulted in $47,313,000 of goodwill allocated to the Florida reporting unit and $9,810,000 of core deposit intangibles (see Note 1). The goodwill acquired is not tax-deductible. The amount allocated to the core deposit intangible is being amortized over an estimated useful life of ten years based on the undiscounted cash flow.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (dollars in thousands):
 
         
    Amount  
 
Cash and due from banks
  $ 3,854  
Federal funds sold
    4,200  
Investment securities
    47,684  
Loans, net
    254,047  
Premises and equipment, net
    2,318  
Goodwill
    47,313  
Core deposit intangibles
    9,810  
Other assets
    10,478  
Deposits
    (245,459 )
Federal funds purchased and repurchase agreements
    (6,905 )
Advances from FHLB
    (37,983 )
Junior subordinated debentures
    (3,962 )
Other liabilities
    (8,966 )
         
Total consideration paid for People’s
  $ 76,429  
         


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities
 
The amounts at which investment securities are carried and their approximate fair values at December 31, 2009 are as follows:
 
                                 
          Gross
    Gross
       
    Amortized
    Unrealized
    Unrealized
    Estimated
 
    Cost     Gains     Losses     Fair Value  
          (Dollars in thousands)        
 
Investment securities available-for-sale
                               
U.S. agency securities
  $ 54,156     $ 30     $ 505     $ 53,681  
Mortgage-backed securities (“MBS”):
                               
U.S. Agency MBS — residential
    160,713       3,293       282       163,724  
U.S. Agency MBS — collateralized mortgage obligation (“CMO”)
    12,780       76       97       12,759  
Private-label — CMO
    19,410       152       3,371       16,191  
                                 
Total MBS
    192,903       3,521       3,750       192,674  
                                 
State, county and municipal securities
    31,235       450       223       31,462  
                                 
Corporate obligations :
                               
Corporate debt
    4,138             138       4,000  
Pooled trust preferred securities
    8,255             5,052       3,203  
Single issue trust preferred securities
    5,000             4,023       977  
                                 
Total corporate obligations
    17,393             9,213       8,180  
Equity securities
    563             250       313  
                                 
Total investment securities available-for-sale
  $ 296,250     $ 4,001     $ 13,941     $ 286,310  
                                 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
The amounts at which investment securities are carried and their approximate fair values at December 31, 2008 are as follows:
 
                                 
          Gross
    Gross
       
    Amortized
    Unrealized
    Unrealized
    Estimated
 
    Cost     Gains     Losses     Fair Value  
          (Dollars in thousands)        
 
Investment securities available-for-sale
                               
U.S. agency securities
  $ 3,713     $ 132     $ 2     $ 3,843  
Mortgage-backed securities:
                               
U.S. Agency MBS — residential
    234,026       3,692       210       237,508  
U.S. Agency MBS — CMO
    16,000       189       3       16,186  
Private-label — CMO
    30,421       45       4,036       26,430  
                                 
Total MBS
    280,447       3,926       4,249       280,124  
                                 
State, county and municipal securities
    41,379       445       1,202       40,622  
                                 
Corporate obligations :
                               
Corporate debt
    5,944             198       5,746  
Pooled trust preferred securities
    14,390             4,451       9,939  
Single issue trust preferred securities
    10,000             3,296       6,704  
                                 
Total corporate obligations
    30,334             7,945       22,389  
Equity securities
    563             399       164  
                                 
Total investment securities available-for-sale
  $ 356,436     $ 4,503     $ 13,797     $ 347,142  
                                 
 
Investment securities with an amortized cost of $237,535,000 and $268,245,000 at December 31, 2009 and 2008, respectively, were pledged to secure public funds and for other purposes as required or permitted by law.
 
The amortized cost and estimated fair values of investment securities at December 31, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
                 
    Securities Available-for-Sale  
    Amortized
    Estimated
 
    Cost     Fair Value  
    (Dollars in thousands)  
 
Due in one year or less
  $ 280     $ 281  
Due after one year through five years
    7,331       7,297  
Due after five years through ten years
    59,001       58,566  
Due after ten years
    36,735       27,492  
Mortgage-backed securities
    192,903       192,674  
                 
    $ 296,250     $ 286,310  
                 
 
Gross realized gains on sales of investment securities available for sale in 2009, 2008 and 2007 were $5,644,000, $1,509,000, and $308,000, respectively, and gross realized losses for the same periods were $-0-, $20,000, and $-0-, respectively. During the third quarter of 2009, management sold approximately 63 securities with combined amortized cost and market values of $151,970,000 and $157,620,000, respectively. Nearly all of the


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
sale proceeds were reinvested in 30 federal agency securities (direct and MBS) and classified in portfolio as available-for-sale.
 
In January 2008, the Corporation securitized approximately $18,000,000 of residential mortgage loans retaining 100 percent of the beneficial interest and retained interest. The beneficial interest includes federal agency securities issued by the Federal Home Loan Mortgage Corporation (“FHLMC”) and the retained interest includes a servicing asset, which was not significant. No gain or loss was recognized on the securitization; however, the Corporation entered a commitment to sell the securities for a gain of approximately $347,000 which closed in February 2008. The Company retained servicing responsibilities and will receive servicing fees amounting to approximately 25 basis points of the outstanding balance of these loans. The FHLMC has no recourse to the Corporation for failure of debtors to pay when due.
 
The following tables present the age of gross unrealized losses and fair value by investment category for the periods shown:
 
                                                 
    December 31, 2009  
    Less Than 12 Months     More Than 12 Months     Total  
          Unrealized
          Unrealized
          Unrealized
 
    Fair Value     Losses(1)     Fair Value     Losses(1)     Fair Value     Losses(1)  
                (Dollars in thousands)              
 
Temporarily Impaired
                                               
U.S. Agency securities
  $ 48,409     $ 505     $     $     $ 48,409     $ 505  
Mortgage-backed securities:
                                               
U.S. Agency MBS — residential
    75,493       272       239       10       75,732       282  
U.S. Agency MBS — CMO
    6,036       97                   6,036       97  
Private-label — CMO
                12,059       1,753       12,059       1,753  
                                                 
Total MBS
    81,529       369       12,298       1,763       93,827       2,132  
                                                 
State, county and municipal securities
    7,360       121       1,019       102       8,379       223  
                                                 
Corporate obligations:
                                               
Corporate debt
                4,000       138       4,000       138  
Single issue trust preferred securities
                977       4,023       977       4,023  
                                                 
Total corporate obligations
                4,977       4,161       4,977       4,161  
Equity securities
                314       250       314       250  
                                                 
Total temporarily impaired securities
    137,298       995       18,608       6,276       155,906       7,271  
Other-than-temporarily Impaired
                                               
Mortgage-backed securities:
                                               
Private-label — CMO
                3,037       1,618       3,037       1,618  
Corporate obligations:
                                               
Pooled trust preferred securities
                3,203       5,052       3,203       5,052  
                                                 
Total OTTI securities
                6,240       6,670       6,240       6,670  
                                                 
Total temporarily and other-than-temporarily impaired
  $ 137,298     $ 995     $ 24,848     $ 12,946     $ 162,146     $ 13,941  
                                                 
 
 
(1) Unrealized losses are included in other comprehensive income (loss), net of unrealized gains and applicable income taxes.
 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
                                                 
    December 31, 2008  
    Less Than 12 Months     More Than 12 Months     Total  
          Unrealized
          Unrealized
          Unrealized
 
    Fair Value     Losses(1)     Fair Value     Losses(1)     Fair Value     Losses(1)  
    (Dollars in thousands)  
 
Temporarily Impaired
                                               
U.S. agency securities
  $     $     $ 249     $ 2     $ 249     $ 2  
Mortgage-backed securities:
                                               
U.S. Agency MBS — residential
    21,602       178       3,655       32       25,257       210  
U.S. Agency MBS — CMO
                700       3       700       3  
Private-label — CMO
    17,126       3,912       3,017       124       20,143       4,036  
                                                 
Total MBS
    38,728       4,090       7,372       159       46,100       4,249  
                                                 
State, county and municipal securities
    17,275       831       3,662       371       20,937       1,202  
                                                 
Corporate obligations:
                                               
Corporate debt
                5,745       198       5,745       198  
Pooled trust preferred securities
    896       481       9,043       3,970       9,939       4,451  
Single issue trust preferred securities
                6,705       3,296       6,705       3,296  
                                                 
Total corporate obligations
    896       481       21,493       7,464       22,389       7,945  
Equity securities
    164       399                   164       399  
                                                 
Total temporarily impaired securities
  $ 57,063     $ 5,801     $ 32,776     $ 7,996     $ 89,839     $ 13,797  
                                                 
 
 
(1) Unrealized losses are included in other comprehensive income (loss), net of unrealized gains and applicable income taxes.

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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
 
The following is a summary of the total count by category of investment securities with gross unrealized losses:
 
                         
    December 31, 2009  
    Less Than
    Greater Than
       
    12 Months     12 Months     Total  
 
Temporarily Impaired
                       
U.S. Agency securities
    10             10  
Mortgage-backed securities:
                       
U.S. Agency MBS — residential
    17       1       18  
U.S. Agency MBS — CMO
    1             1  
Private-label — CMO
          8       8  
                         
Total MBS
    18       9       27  
                         
State, county and municipal securities
    22       4       26  
                         
Corporate obligations:
                       
Corporate debt
          3       3  
Single issue trust preferred securities
          1       1  
                         
Total corporate obligations
          4       4  
Equity securities
          3       3  
                         
Total temporarily impaired securities
    50       20       70  
Other-than-temporarily Impaired
                       
Mortgage-backed securities:
                       
Private-label — CMO
          4       4  
Corporate obligations:
                       
Pooled trust preferred securities
          5       5  
                         
Total OTTI securities
          9       9  
                         
Total temporarily and other-than-temporarily impaired
    50       29       79  
                         
 
Other-Than-Temporary Impairment.
 
Management evaluates securities for OTTI at least on a quarterly basis. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into the various segments outlined in the tables above and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI according to ASC 320-10 guidance. In addition, certain purchased beneficial interests, which may include private-label mortgage-backed securities, asset-backed securities and collateralized debt obligations that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in ASC 325-40 guidance.
 
In determining OTTI according to FASB guidance, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
The pooled trust preferred segment of the portfolio uses the OTTI guidance that is specific to purchased beneficial interests that, on the purchase date, were rated below AA. Under the model, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.
 
When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI is recognized in earnings at an amount equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
 
At December 31, 2009, the Corporation’s securities portfolio consisted of 228 securities, 79 of which were in an unrealized loss position. The majority of unrealized losses are related to the Corporation’s private-label CMOs and trust preferred securities, as discussed below.
 
Mortgage-backed Securities
 
At December 31, 2009, approximately 92% of the dollar volume of mortgage-backed securities we held was issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, GNMA and Freddie Mac, institutions which the government has affirmed its commitment to support, and these securities have nominal unrealized losses. Our mortgage-backed securities portfolio also includes 12 private-label CMOs with a market value of $16,191,000, which had net unrealized losses of approximately $3,219,000 at December 31, 2009. These private-label CMOs were rated AAA at purchase. The following is a summary of the investment grades for these securities:
 
                         
          Credit Support
       
          Coverage
    Unrealized
 
Rating Moody/Fitch
  Count     Ratios(1)     Loss  
 
A 1/A A A
    1       3.07     $ (137 )
Aaa/AAA
    1       4.18       (5 )
Aaa/NR
    1       N/A       (1 )
NR/AAA
    1       6.29       (374 )
NR/AA
    1       2.84       (339 )
NR/A+
    1       3.08       (111 )
Baa2/NR
    1       N/A       (622 )
B2/AAA
    1       3.59       (162 )
Caa1/NR(2)
    1       1.43       (1,619 )
Ca/NR(2)
    1       0.00        
NR/CCC(2)
    2       0.26-0.53       151  
                         
Total
    12             $ (3,219 )
                         


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
 
(1) The Credit Support Coverage Ratio, which is the ratio that determines the multiple of credit support, based on assumptions for the performance of the loans within the delinquency pipeline. The assumptions used are: Current Collateral Support/ ((60 day delinquencies x.60) + (90 day delinquencies x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for loss severity.
 
(2) Includes all private-label CMOs that have OTTI. See discussion that follows.
 
During the third and fourth quarters of 2008, the Corporation recognized a $1,894,000, pre-tax non-cash OTTI charge on three private-label CMOs which experienced significant rating downgrades in those respective quarters. These downgrades continued in 2009 and resulted in a total OTTI of $6,850,000 on the CMO’s, including a credit portion of $4,577,000. The assumptions used in the valuation model include expected future default rates, loss severity and prepayments. The model also takes into account the structure of the security, including credit support. Based on these assumptions, the model calculates and projects the timing and amount of interest and principal payments expected for the security. At December 31, 2009, the fair values of these four securities totaling $4,131,000 were measured using Level 3 inputs because the market for them has become illiquid, as indicated by few, if any, trades during the period. These securities were previously measured using Level 2 inputs. The discount rates used in the valuation model were based on a yield that the market would require for such securities with maturities and risk characteristics similar to the securities being measured (See Note 19 for additional disclosure). The following table provides additional information regarding these CMO valuations as of December 31, 2009 (Dollars in thousands):
 
                                                                                 
          Discount
                            Life-to-Date
 
          Margin
                      Actual
    Other-Than-Temporary-Impairment  
    Price
    Basis
          Cumulative
    Average
    60+ Days
    Credit Portion              
Security
  (%)     Points     Yield     Default     Security     Delinquent     2008     2009     Other     Total  
 
CMO 1
    19.90       1698       18.00 %     58.60 %     50.00 %     15.31 %   $ (599 )   $ (1,231 )   $ (195 )   $ (2,025 )
CMO 2
    2.08       1777       18.00 %     59.70 %     60.00 %     31.52 %     (492 )     (1,443 )     (127 )     (2,062 )
CMO 3
    22.15       1598       17.00 %     47.65 %     45.00 %     26.13 %     (803 )     (1,558 )     (332 )     (2,693 )
CMO 4
    60.73       1362       17.00 %     27.60 %     45.00 %     14.82 %           (345 )     (1,619 )     (1,964 )
                                                                                 
                                                    $ (1,894 )   $ (4,577 )   $ (2,273 )   $ (8,744 )
                                                                                 
 
As of December 31, 2009, management does not intend to sell these securities, nor is it more likely than not that we will be required to sell the securities before the entire amortized cost basis is recovered since our current financial condition, including liquidity and interest rate risk, will not require such action.
 
State, county and municipal securities
 
The unrealized losses in the municipal securities portfolio are primarily impacted by changes in interest rates. This portfolio segment is not experiencing any credit problems at December 31, 2009. We believe that all contractual cash flows will be received on this portfolio.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
Trust Preferred Securities
 
The Corporation’s investment portfolio includes five pooled trust preferred securities (“CDO”) and two single issuances. The determination of fair value of the CDO’s was determined with the assistance of an external valuation firm. The valuation was accomplished by evaluating all relevant credit and structural aspects of the CDOs, determining appropriate performance assumptions and performing a discounted cash flow analysis. The valuation was structured as follows:
 
  •  Detailed credit and structural evaluation for each piece of collateral in the CDO;
 
  •  Collateral performance projections for each piece of collateral in the CDO (default, recovery and prepayment/amortization probabilities);
 
  •  Terms of the CDO structure, as laid out in the indenture;
 
  •  The cash flow waterfall (for both interest and principal);
 
  •  Overcollateralization and interest coverage tests;
 
  •  Events of default/liquidation;
 
  •  Mandatory auction call;
 
  •  Optional redemption;
 
  •  Hedge agreements; and
 
  •  Discounted cash flow modeling.
 
On the basis of the evaluation of collateral credit, and in combination with a review of historical industry default data and current/near-term operating conditions, appropriate default and recovery probabilities are determined for each piece of collateral in the CDO. Specifically, an estimate of the probability that a given piece of collateral will default in any given year. Next, on the basis of credit factors like asset quality and leverage, a recovery assumption is formulated for each piece of collateral in the event of a default. For collateral that has already defaulted, we assume no recovery. For collateral that is deferring we assume a recovery rate of 10%. It is also noted that there is a possibility, in some cases, that deferring collateral will become current at some point in the future. As a result, deferring issuers are evaluated on a case-by-case basis and in some instances, based on an analysis of the credit; a probability is assigned that the deferral will ultimately cure.
 
The base-case collateral-specific assumptions are aggregated into cumulative weighted-average default, recovery and prepayment probabilities. In light of generally weakening collateral credit performance and a challenging U.S. credit and real estate environment, our assumptions generally imply a larger amount of collateral defaults during the next three years than that which has been experienced historically and a gradual leveling off of defaults thereafter.
 
The discount rates used to determine fair value are intended to reflect the uncertainty inherent in the projection of the issuance’s cash flows. Therefore, spreads were chosen that are comparable to spreads observed currently in the market for similarly rated instruments and is intended to reflect general market discounts currently applied to structured credit products. The discount rates used to determine the credit portion of the OTTI are equal to the current yield on the issuances as prescribed under ASC 325-40.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
The following tables provide various information and fair value model assumptions regarding our CDOs at December 31, 2009 (Dollars in thousands):
 
                                                                 
                              Year-to-Date
 
                              Other-Than-Temporary-Impairment  
    Single/
  Class/
  Amortized
    Fair
    Unrealized
    Credit
                   
Name
  Pooled   Tranche   Cost     Value     Loss     Portion     Other           Total  
 
MM Caps Funding I Ltd
  Pooled   MEZ   $ 1,895     $ 745     $ (1,150 )   $ (245 )   $ (1,150 )           $ (1,395 )
MM Community Funding Ltd
  Pooled   B     2,110       881       (1,229 )     (2,921 )     (1,229 )             (4,150 )
Preferred Term Securities V
  Pooled   MEZ     1,218       436       (782 )     (165 )     (782 )             (947 )
Tpref Funding III Ltd
  Pooled   B-2     3,032       1,141       (1,891 )     (962 )     (1,891 )             (2,853 )
Trapeza 2007-13A LLC
  Pooled   D                       (1,876 )                   (1,876 )
New South Capital Corp(1)
  Single   Sole                       (5,000 )                   (5,000 )
Emigrant Capital Trust(2)
  Single   Sole     5,000       977       (4,023 )                          
                                                                 
            $ 13,255     $ 4,180     $ (9,075 )   $ (11,169 )   $ (5,052 )           $ (16,221 )
                                                                 
 
                     
            Original Collateral —
  Performing Collateral —
   
            Percent of Actual
  Percent of Expected
   
    Lowest
  Performing
  Deferrals and
  Deferrals and
  Excess
Name
  Rating   Banks   Defaults   Defaults   Subordination(3)
 
MM Caps Funding I Ltd
  Ca   23   15%   23%   0%
MM Community Funding Ltd
  Ca   8   21%   83%   0%
Preferred Term Securities V
  CC   1   5%   54%   0%
Tpref Funding III Ltd
  Ca   25   23%   24%   0%
Trapeza 2007-13A LLC
  C   38   27%   27%   0%
New South Capital Corp(1)
  NR   NA   NA   NA   NA
Emigrant Capital Trust(2)
  CC   NA   NA   NA   NA
 
                 
    Fair Value
    Discount Margin
  Yield
Name
  (Price to Par)     (Basis Points)   (Basis Points)
 
MM Caps Funding I Ltd
  $ 37.26     Swap + 1800   9.48% Fixed
MM Community Funding Ltd
    17.61     LIBOR + 1300   LIBOR + 310
Preferred Term Securities V
    31.67     LIBOR + 1300   LIBOR + 210
Tpref Funding III Ltd
    28.53     LIBOR + 1200   LIBOR + 190
Trapeza 2007-13A LLC
        NA   LIBOR + 120
Emigrant Capital Trust(2)
    19.53     LIBOR + 2342   LIBOR + 200
 
 
(1) Management received notification in April 2009 that interest payments on this issue will be deferred for up to 20 quarters. In addition, New South’s external auditor issued a going concern opinion on May 2, 2009. Management determined that there was not sufficient positive evidence that this issue will ever pay principal or interest. Therefore, OTTI was recognized on the full amount of the security during the first quarter of 2009. In December 2009, the banking subsidiary of New South Capital was closed by its regulator and placed in receivership.
 
(2) There has been no notification of deferral or default on this issue. An analysis of the company, including discussion with its management, indicates there is adequate capital and liquidity to service the debt. The discount margin of 2342 basis points was derived from implied credit spreads from certain publicly traded trust preferred securities within the issuers peer group.
 
(3) Excess subordination represents the additional defaults in excess of both the current and projected defaults the issue can absorb before the security experiences any credit impairment. Excess subordination is calculated by


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
determining what level of defaults an issue can experience before the security has any credit impairment and then subtracting both the current and projected future defaults.
 
In addition to the impact of interest rates, the estimated fair value of these CDOs have been and continue to be depressed due to the unusual credit conditions that the financial industry has faced since the middle of 2008 and a weakening economy, which has severely reduced the demand for these securities and rendered their trading market inactive.
 
As of December 31, 2009, management does not intend to sell these securities, nor is it more likely than not that the Corporation will be required to sell the securities before the entire amortized cost basis is recovered since the current financial condition of the Corporation, including liquidity and interest rate risk, will not require such action.
 
The following table provides a rollforward of the amount of credit-related losses recognized in earnings for which a portion of OTTI has been recognized in other comprehensive income through December 31, 2009:
 
         
    For the
 
    Year Ended
 
    December 31, 2009  
    (Dollars in thousands)  
 
Balance at beginning of period
  $  
Amounts related to credit losses for which an OTTI was not previously recognized
    4,637  
Reductions for securities sold during the period
     
Increases in credit loss for which an OTTI was previously recognized when the investor does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost
    4,232  
Reductions for securities where there is an intent to sale or requirement to sale
     
Reductions for increases in cash flows expected to be collected
     
         
Balance at end of period
  $ 8,869  
         
 
Management will continue to evaluate the investment ratings in the securities portfolio, severity in pricing declines, market price quotes along with timing and receipt of amounts contractually due. Based upon these and other factors, the securities portfolio may experience further impairment.
 
Stock in the Federal Home Loan Bank of Atlanta (“FHLB Atlanta”)
 
As of December 31, 2009, the Corporation has stock in FHLB Atlanta totaling $18,212,000 (its par value), which is presented separately on the face of our statement of financial condition. There is no ready market for the stock and no quoted market values, as only member institutions are eligible to be shareholders and all transactions are, by charter, to take place at par with FHLB Atlanta as the only purchaser. Therefore, the Corporation accounts for this investment as a long-term asset and carries it at cost. Management reviews this stock quarterly for impairment and conducts its analysis in accordance with ASC 942-325-35-3.
 
Management’s determination as to whether this investment is impaired is based on management’s assessment of the ultimate recoverability of its par value (cost) rather than recognizing temporary declines in its value. The


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Investment Securities — (Continued)
 
determination of whether the decline affects the ultimate recoverability of our investment is influenced by available information regarding criteria such as:
 
  •  The significance of the decline in net assets of FHLB Atlanta as compared to the capital stock amount for FHLB Atlanta and the length of time this decline has persisted;
 
  •  Commitments by FHLB Atlanta to make payments required by law or regulation and the level of such payments in relation to the operating performance of FHLB Atlanta;
 
  •  The impact of legislative and regulatory changes on financial institutions and, accordingly, on the customer base of FHLB Atlanta; and
 
  •  The liquidity position of FHLB Atlanta.
 
Management has reviewed publicly available information regarding the financial condition of FHLB Atlanta and concluded that no impairment existed based on its assessment of the ultimate recoverability of the par value of the investment. Management noted that FHLB Atlanta reported operating income of $191,700,000 and $11,100,000 during the second and third quarters of 2009, respectively. In addition, during the second quarter of 2009, FHLB Atlanta reinstated its dividend, at a rate of 0.84% and 0.41%, for the second and third quarters of 2009, respectively, compared to a prior rate of 2.89% for the last dividend paid in the third quarter of 2008, prior to its dividend suspension. On the basis of a review of the financial condition, cash flow, liquidity and asset quality indicators of the FHLB Atlanta as of the end of its third quarter of 2009, as well as the decision of FHLB Atlanta to reinstate the dividend announced in the second and third quarters, management has concluded that no impairment exists on our investment in the stock of FHLB Atlanta. This is a long-term investment that serves a business purpose of enabling us to enhance the liquidity of the Bank through access to the lending facilities of FHLB Atlanta. For the foregoing reasons, management believes that FHLB Atlanta’s current position does not indicate that our investment will not be recoverable at par, our cost, and thus the investment is not impaired as of December 31, 2009.
 
4.   Loans
 
At December 31, 2009 and 2008, the composition of the loan portfolio was as follows:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Commercial and industrial
  $ 213,329     $ 207,372  
Real estate — construction and land development
    680,445       637,587  
Real estate — mortgages
               
Single-family
    691,364       655,216  
Commercial
    801,813       726,704  
Other
    28,885       31,187  
Consumer
    58,785       57,877  
Other
    969       972  
                 
Total loans
  $ 2,475,590     $ 2,316,915  
                 
 
Nonperforming loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category. Included in our impaired loans are nonperforming loans with specific impairment and loans considered troubled debt restructurings (“TDRs”). A restructuring of debt constitutes a TDR if for economic or legal reasons related to borrower’s financial difficulties we grant a concession to the borrower that we would not otherwise consider.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
4.   Loans — (Continued)
 
The following is a summary of information pertaining to impaired loans:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Impaired loans with specific valuation allowance
  $ 129,298     $ 32,299  
Valuation allowance related to impaired loans
    (14,527 )     (5,106 )
Impaired loans without specific valuation allowance
    151,050       20,581  
                 
Impaired loans, net
  $ 265,821     $ 47,774  
                 
 
Nonperforming loans were as follows:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Nonaccrual loans
  $ 155,631       54,712  
Accruing loans 90 days or more delinquent
    3,920       8,033  
 
The following is a summary of our TDRs, net of specific allowance:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Restructured and performing under restructured terms
  $ 110,277     $ 2,643  
Restructured and not performing under restructured terms
    5,527        
 
Interest income on impaired loans is recognized as earned on an accrual basis except for impaired loans that have been placed on nonaccrual status. Interest income received on nonaccrual impaired loans is recognized as received on a cash basis:
 
                         
    December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Average investment in impaired loans for the period
  $ 136,567     $ 37,385     $ 11,767  
Interest recognized during the period for impaired loans
    4,661       1,714       873  
Interest recognized on a cash basis during the period for impaired loans
    274              
 
There are commitments to lend additional funds to the borrowers of impaired or non-accrual loans at December 31, 2009 of approximately $2,700,000.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
5.   Allowance for Loan Losses
 
A summary of the allowance for loan losses for the years ended December 31, is as follows:
 
                         
    2009     2008     2007  
          (Dollars in thousands)        
 
Balance at beginning of year
  $ 28,850     $ 22,868     $ 18,892  
Allowance of acquired banks
                3,717  
Provision for loan losses
    28,550       13,112       4,541  
Total charge-offs
    (16,661 )     (8,444 )     (5,722 )
Total recoveries
    1,145       1,314       1,440  
                         
Balance at end of year
  $ 41,884     $ 28,850     $ 22,868  
                         
 
6.   Premises and Equipment
 
Components of premises and equipment at December 31, are as follows:
 
                 
    2009     2008  
    (Dollars in thousands)  
 
Land
  $ 22,867     $ 21,575  
Premises
    85,891       83,986  
Furniture and equipment
    31,360       27,646  
                 
      140,118       133,207  
Less accumulated depreciation and amortization
    (37,926 )     (31,253 )
                 
Net book value of premises and equipment in service
    102,192       101,954  
Construction in process (also includes land for branch expansion)
    1,830       2,131  
                 
Total
  $ 104,022     $ 104,085  
                 
 
Depreciation expense for the years ended December 31, 2009, 2008 and 2007 was $7,249,000, $6,576,000 and $4,630,000, respectively.
 
During 2000, Community entered into sale/leaseback arrangements on its Hamilton, Alabama bank location. Due to the structure of this transaction, the lease qualified and has been accounted for under capitalized lease rules.
 
The following is an analysis of the leased property located in Hamilton, Alabama on which the Company maintains a capital lease:
 
                 
    2009     2008  
    (Dollars in thousands)  
 
Buildings
  $ 2,450     $ 2,450  
Accumulated depreciation
    (261 )     (180 )
                 
Total
  $ 2,189     $ 2,270  
                 


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
6.   Premises and Equipment — (Continued)
 
The following is a schedule by year of future minimum lease payments under the capital lease and all other operating leases, together with the present value of the net minimum lease payments as of December 31, 2009:
 
                                 
    Operating        
Years Ending December 31,
  Property     Equipment     Total     Capitalized  
    (Dollars in thousands)  
 
2010
  $ 3,536     $ 235     $ 3,771     $ 275  
2011
    3,275       129       3,404       269  
2012
    2,724       69       2,793       263  
2013
    2,153       8       2,161       258  
2014
    1,952             1,952       252  
2015 and thereafter
    14,821             14,821       3,208  
                                 
Total minimum lease payments
  $ 28,461     $ 441     $ 28,902       4,525  
                                 
Amount representing interest
                            (1,141 )
                                 
Present value of net minimum lease payments
                          $ 3,384  
                                 
 
Rental expense relating to operating leases amounted to approximately $3,835,000, $3,721,000 and $2,460,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
 
On May 31, 2002, the purchaser of Community’s Marshall County branch offices acquired the land, building and land improvements located in Albertville, Alabama under a sales-type lease. The lease agreement called for 60 payments of $14,000 per month beginning June 1, 2002. The lease ended on May 31, 2007 and was subject to options which gave the right for the seller to require the purchaser to purchase the property and gave the right to the purchaser to require the seller to sell the property. The purchase option was exercised on May 31, 2007 and proceeds totaling $2,621,544 were received by the Bank.
 
Property Classified as Held-for-Sale
 
During the second quarter of 2008, management committed to a plan to sell real estate which consists of the former corporate headquarters and administrative office facilities of Community in Blountsville, Alabama. Management committed to the sale of the Community property in Blountsville because the size and location of the facility does not meet the Corporation’s current needs or future expansion plans. Management initially expected the property to sell within 12 months but has not been able to secure a buyer. Management believes the property is appropriately priced and expects a sale within the next year. The property’s current carrying value, included in other assets, is $1,965,000, which approximates its market value.
 
This asset is included as part of the administrative reporting unit.
 
Sale-Leaseback Transactions
 
On July 24, 2007, the Corporation’s banking subsidiary sold a branch office building in Huntsville, Alabama to a limited liability company, of which one of the Corporation’s directors is a member, for $3,000,000. The limited liability company then leased the building back to the banking subsidiary. The initial term of the lease is 14 years and may be renewed, at the banking subsidiary’s option, for three additional terms of five years each. The amount of the monthly lease payments to be made by the banking subsidiary is $19,500 for the first year of the lease and increases annually until it reaches $26,881 per month in year 14. Annual rent escalations associated with this lease are being accounted for on a straight-line basis over 14 years. Rent for the renewal terms is to be determined based on appraisals of the property. No gain or loss was recognized on this transaction, which was entered into in the ordinary course of business and is being accounted for as an operating lease.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
6.   Premises and Equipment — (Continued)
 
On September 7, 2007, the Corporation’s banking subsidiary sold an additional branch office building in Huntsville, Alabama to an unrelated party for $2,445,000. The purchaser then leased the building back to the banking subsidiary. The initial term of the lease is 15 years and may be renewed, at the banking subsidiary’s option, for three additional terms of five years each. The amount of the monthly lease payments to be made by the banking subsidiary is $11,225 for the initial term. Rent for the renewal terms is to be determined based on future appraisals of the property. No gain or loss was recognized on this transaction, which was entered into in the ordinary course of business and is being accounted for as an operating lease.
 
On January 30, 2008, the Corporation’s banking subsidiary entered into agreements with a limited liability company, of which one of the Corporation’s directors is a member, pursuant to which the limited liability company purchased on January 31, 2008 office buildings located in Albertville and Athens, Alabama for a total of $4,250,000. The limited liability company then leased the building back to the banking subsidiary. The initial term of each lease is 13 years and each lease may be renewed, at the banking subsidiary’s option, for two additional terms of five years each. The amount of the monthly lease payments to be made by the banking subsidiary in the first year is $13,240 for the Albertville office and $14,208 for the Athens office. These amounts increase annually until the monthly lease payments reach $17,393 for the Albertville office and $18,666 for the Athens office in year 13. Annual rent escalations associated with these leases are being accounted for on a straight line basis over the lease terms. Rent for the renewal terms is to be determined based on appraisals of the properties. A gain of $73,000 was realized on these transactions which will be recognized as a reduction of rental expense over the remaining term of the leases. These transactions were entered into in the ordinary course of business and are being accounted for as operating leases.
 
On June 27, 2008, the Bank entered into a lease with a limited liability company of which one of our directors is a member. The initial term of the lease is 10 years and commenced on September 1, 2009. The lease may be renewed, at the Bank’s option, for two additional terms of five years each. The amount of the monthly lease payments to be made by the Bank is $21,221 for the first year of the lease and increases annually until it reaches $27,688 per month in year 10.
 
7.   Deposits
 
The following schedule details interest expense on deposits:
 
                         
    December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Interest-bearing demand
  $ 8,543     $ 14,705     $ 20,791  
Savings
    3,651       2,731       819  
Time deposits $100,000 and over
    15,975       19,356       21,122  
Other time deposits
    26,191       31,613       36,935  
                         
Total
  $ 54,360     $ 68,405     $ 79,667  
                         
 
At December 31, 2009, the scheduled maturities of time deposits are as follows (Dollars in thousands):
 
         
2010
  $ 1,144,280  
2011
    207,520  
2012
    27,721  
2013
    8,603  
2014 and thereafter
    35,598  
         
Total
  $ 1,423,722  
         


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
8.   Advances from Federal Home Loan Bank (“FHLB”)
 
The following is a summary, by year of maturity, of advances from the FHLB as of December 31:
 
                                 
    2009     2008  
    Weighted
          Weighted
       
Year:
  Average Rate     Balance     Average Rate     Balance  
          (Dollars in thousands)        
 
2009
    %   $       1.03 %   $ 142,984  
2010
    3.36       29,982       6.41       5,000  
2011
    2.66       50,000       2.69       75,000  
2012
    4.44       5,000       4.44       5,000  
2013
    3.46       35,000       3.46       35,000  
2015
    4.58       66,340       4.58       66,340  
2020
    4.28       32,000       4.28       32,000  
                                 
Total
    3.74 %   $ 218,322       2.67 %   $ 361,324  
                                 
 
The above schedule is by contractual maturity. Call dates for the above are as follows: 2010, $215,340,000.
 
The advances are secured by a blanket lien on certain residential and commercial real estate loans and agency mortgage-backed securities, all with a carrying value of approximately $942,728,000 at December 31, 2009. The Corporation has available approximately $177,229,000 in unused advances under the blanket lien subject to the availability of qualifying collateral.
 
In February 2008, FHLB advances totaling $100,000,000 were refinanced to lower the current interest rate in response to current market conditions. This refinancing was accounted for as debt modification therefore no gain or loss was recognized on the transaction. The following table summarizes the terms of the refinanced advances by contractual maturity:
 
                         
          Weighted
       
          Average
       
    Current
    Rate
       
    Weighted
    Before
       
Matures
  Average Rate     Refinancing     Balance  
    (Dollars in thousands)  
 
2011
    2.77 %     4.60 %   $ 25,000  
2013
    3.46       4.21       35,000  
2015
    4.05       4.57       40,000  
                         
Total
    3.52 %     4.45 %   $ 100,000  
                         
 
The FHLB has issued for the benefit of the Corporation’s banking subsidiary two irrevocable letters of credit. The Bank has a $20,000,000 irrevocable letter of credit in favor of the Chief Financial Officer of the State of Florida to secure certain deposits of the State of Florida. The letter of credit expires January 4, 2011 upon 60 days’ prior notice of non-renewal; otherwise it automatically extends for a successive one-year term. In addition, the Bank has a $50,000,000 irrevocable letter of credit in favor of the State of Alabama SAFE Program to secure certain deposits of the State of Alabama. This letter of credit expires on September 15, 2010 and will automatically be extended, without amendments, for successive one-year periods from the expiration date, without ninety days’ prior notice of non-renewal.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
9.   Federal Funds Borrowed and Security Repurchase Agreements
 
Detail of Federal funds borrowed and security repurchase agreements follows:
 
                 
    As of December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Balance at December 31:
               
Federal funds borrowed
  $     $  
Security repurchase agreements
    841       3,563  
Maximum outstanding at any month end:
               
Federal funds borrowed
          3,135  
Security repurchase agreements
    4,026       7,817  
Daily average amount outstanding:
               
Federal funds borrowed
    17       1,145  
Security repurchase agreements
    1,935       6,367  
Weighted daily average interest rate:
               
Federal funds borrowed
    1.01 %     2.93 %
Security repurchase agreements
    0.85       2.14  
Weighted daily interest rate for amounts outstanding at December 31:
               
Federal funds borrowed
    %     %
Security repurchase agreements
    1.82       0.29  
 
The carrying value of securities sold under repurchase agreements is $4,227,000 and $10,015,000 as of December 31, 2009 and 2008, respectively.
 
10.   Notes Payable
 
The following is a summary of notes payable for the periods shown:
 
                                 
    As of December 31,  
    2009     2008  
    Principal     Rate     Principal     Rate  
    (Dollars in thousands)  
 
Note payable to bank, borrowed under $7,000,000 line of credit, due September 3, 2010; interest is based on Wall Street prime plus 1.25 but not less than 4.5%, secured by 100% of the outstanding Superior Bank stock(1)
  $ 7,000       4.50 %   $        
Note payable to bank, borrowed under $10,000,000 line of credit, due September 3, 2009; interest is based on the lender’s base rate, secured by 100% of the outstanding Superior Bank stock
                7,000       4.50 %
Senior note guaranteed under the TLGP, due March 30, 2012, 2.625% fixed rate due semi-annually
    40,000       2.625 %            
Less: Discount, FDIC guarantee premium and other issuance costs
    (1,083 )                  
                                 
Total notes payable
  $ 45,917             $ 7,000          
                                 
 
 
(1) Borrowings under this line are subject to certain customary affirmative and negative covenants on capital levels, indebtedness, mergers and other related matters. As of December 31, 2009, the Corporation was in compliance with all covenants.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
10.   Notes Payable — (Continued)
 
On March 31, 2009, Superior Bank (the “Bank”), completed an offering of a $40,000,000 aggregate principal amount 2.625% Senior Note due 2012 (the “Note”). The Note is guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) under its Temporary Liquidity Guarantee Program (the “TLGP”) and is backed by the full faith and credit of the United States. The Note is a direct, unsecured general obligation of the Bank and it is not subject to redemption prior to maturity. The Note is solely the obligation of the Bank and is not guaranteed by the Corporation. The Bank received net proceeds, after discount, FDIC guarantee premium and other issuance costs, of approximately $38,575,000, which will be used by the Bank for general corporate purposes. The debt will yield an effective interest rate, including amortization, of 3.89%.
 
In connection with the TLGP, the Bank entered into a Master Agreement with the FDIC. The Master Agreement contains certain terms and conditions that must be included in the governing documents for any senior debt securities issued by the Bank that are guaranteed pursuant to the TLGP.
 
11.   Subordinated Debentures
 
Subordinated Debt and Related Warrant
 
On September 17, 2008, the Corporation’s banking subsidiary (“Bank”) entered into an Agreement to Purchase Subordinated Notes (the “Agreement”) with Durden Enterprises, LLC (the “Purchaser”). Pursuant to the terms of the Agreement, the Bank issued to the Purchaser $10,000,000 in aggregate principal amount of 9.5% Subordinated Notes due September 15, 2018 (the “Notes”), and the Bank issued to the Purchaser a warrant (the “Warrant”) to purchase up to one million shares of our common stock, $.001 par value per share, at a price of $7.53 per share. The exercise price for the Warrant was based on the average of the closing prices of the Corporation’s common stock for the 10 trading days immediately preceding September 17, 2008. Interest on the Notes is payable quarterly. The Purchaser may, subject to regulatory approval, accelerate the payment of principal and interest if there is an event of default under the terms of the Notes. Events of default are limited to the commencement of voluntary or involuntary bankruptcy or similar proceedings with respect to the Bank. Beginning on September 15, 2013, the Bank may redeem all or a portion of the Notes on any interest payment date at a price equal to 100% of the principal amount of the redeemed Notes plus accrued but unpaid interest.
 
The fair value of the Warrant of $2,553,000 was determined using the Black-Scholes option-pricing model and the value allocated on an incremental basis. The assumptions used in the model were; risk-free rate of 2.57%, volatility factor of 37.14%, and a dividend rate of 0.00%. The value of the Warrant is being amortized into interest expense over the term of the Agreement. The Warrant is exercisable at any time prior to the close of business on September 15, 2013. The Corporation agreed to register with the Securities and Exchange Commission (“SEC”) the stock that would be issued to the Purchaser upon the exercise of the Warrant. We also granted to the Purchaser an option to purchase up to $10,000,000 in additional subordinated notes and receive additional warrants in the future on similar terms and conditions with such changes as are necessary to reflect market conditions at that time. K. Earl Durden, the managing member of the Purchaser, is a director of the Corporation and the Bank.
 
Junior Subordinated Debentures
 
On July 19, 2007, the Corporation issued approximately $22,000,000 in aggregate principal amount of trust preferred securities and a like amount of related subordinated debentures through the Corporation’s wholly-owned, unconsolidated subsidiary trust, Superior Capital Trust I. The trust preferred securities and subordinated debentures bear interest at a floating rate of three-month LIBOR plus 1.33% that is payable quarterly. The trust preferred securities, which may be redeemed on or after September 15, 2012, will mature on September 15, 2037 (see Note 30).
 
On July 25, 2007, the Corporation completed its redemption of approximately $16,000,000 in aggregate outstanding principal amount of Trust Preferred Securities and related six-month LIBOR plus 3.75% junior subordinated debentures due July 25, 2031, both of which were issued by the Corporation’s wholly-owned,


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
11.   Subordinated Debentures — (Continued)
 
unconsolidated subsidiary trust, TBC Capital Statutory Trust III. The Corporation called the securities for redemption effective July 25, 2007 at a redemption price equal to 106.15% of par. The remaining proceeds from the issuance of the new trust preferred securities were used in the stock repurchase program and for other corporate purposes. The Corporation incurred a loss of approximately $1,469,000 ($925,000 net of tax, or $.02 per share), during the third quarter of 2007 relating to the redemption of the outstanding trust preferred securities.
 
 
In addition to the trust described in the immediately following paragraph, the Corporation has three more sponsored trusts, TBC Capital Statutory Trust II (“TBC Capital II”), Community (AL) Capital Trust I (“Community Capital I”) and Peoples Community Statutory Trust I (“Peoples Trust I”), of which 100% of the common equity is owned by the Corporation. All trusts were formed for the purpose of issuing Corporation-obligated mandatory redeemable trust preferred securities to third-party investors and investing the proceeds from the sale of such trust preferred securities solely in junior subordinated debt securities of the Corporation (the debentures). The debentures held by each trust are the sole assets of that trust. Distributions on the trust preferred securities issued by each trust are payable quarterly and semi-annually, at a rate per annum equal to the interest rate being earned by the trust on the debentures held by that trust. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Corporation has entered into agreements which, taken collectively, fully and unconditionally guarantee the trust preferred securities subject to the terms of each of the guarantees. The debentures held by the TBC Capital II, Community Capital I and Peoples Trust I trusts are first redeemable, in whole or in part, by the Corporation on September 7, 2010, March 8, 2010 and December 15, 2010, respectively.
 
Also, as described in Note 29, on December 11, 2009, the Corporation established the Superior Capital Trust II for the purpose of exchanging the shares of Series A preferred stock held by the United States Department of the Treasury (the ’Treasury Department”) for trust preferred securities issued by this trust. The Corporation issued approximately $69,100,000 in aggregate principal amount of Trust Preferred Securities. The proceeds from such issuance was used by the trusts to purchase junior subordinated deferrable interest debentures issued by the Corporation. The Trust Preferred Securities and subordinated debentures bear interest, payable quarterly, at a rate of 5% until February 15, 2014 when the rate increases to 9%. The Trust Preferred Securities are perpetual, having no stated maturity, but may be redeemed at any time by the Company on 30 days’ notice.
 
Refer to Note 29 to the consolidated financial statements for further information on the impact of the Exchange Offer on the trust preferred securities.
 
At December 31, 2009, the Corporation had five separate series of junior subordinated debentures outstanding with an aggregate principal amount of $121,700,000. Each series was issued under a separate indenture and with a separate guarantee. Each of these indentures, together with the related guarantee, prohibits the Corporation, subject to limited exceptions, from declaring or paying any dividends or distributions on, or redeeming, repurchasing, acquiring or making any liquidation payments with respect to, any of its capital stock at any time when (i) there shall have occurred and be continuing an event of default under such indenture or any event, act or condition that with notice or lapse of time or both would constitute an event of default under such indenture; (ii) the Corporation is in default with respect to payment of any obligations under such guarantee; or (iii) the Corporation has deferred payment of interest on the junior subordinated debentures outstanding under that indenture. In that regard, the Corporation is entitled, at its option but subject to certain conditions, to defer payments of interest on the junior subordinated debentures of each series from time to time for up to five years.
 
Events of default under the indentures generally consist of the Corporation’s failure to pay interest on the junior subordinated debt securities under certain circumstances, failure to pay any principal of or premium on such junior subordinated debt securities when due, the failure to comply with certain covenants under the indenture, and certain events of bankruptcy, insolvency or liquidation relating to the Corporation or Superior Bank.
 
As a result of these provisions, if the Corporation were to elect to defer payments of interest on any series of junior subordinated debentures, or if any of the other events described in clause (i) or (ii) of the first paragraph of this


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
11.   Subordinated Debentures — (Continued)
 
risk factor were to occur, the Corporation would be prohibited from declaring or paying any dividends on its common stock, from repurchasing or otherwise acquiring any such common stock, and from making any payments to holders of common stock in the event of the Corporation’s liquidation.
 
Consolidated debt obligations related to these subsidiary trusts and other subordinated debt are as follows:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Junior Subordinated Debentures
               
5.00% perpetual junior subordinated debentures owed to Superior Capital Trust II(3)(4)
  $ 69,100     $  
10.6% junior subordinated debentures owed to TBC Capital Statutory Trust II due September 7, 2030
    15,464       15,464  
10.875% junior subordinated debentures owed to Community Capital Trust I due March 8, 2030
    10,310       10,310  
3-month LIBOR plus 1.33% junior subordinated debentures owed to Superior Capital Trust I due September 15, 2037(1)
    22,681       22,681  
6.41% junior subordinated debentures owed to Peoples Community Capital Trust I due December 15, 2035(2)
    4,124       4,124  
Add (subtract):
               
Purchase accounting adjustment
    471       819  
Discount related to 5.00% perpetual junior subordinated debentures owed to Superior Capital Trust II(4)
    (45,598 )      
                 
Total junior subordinated debentures owed to unconsolidated subsidiary trusts
    76,552       53,398  
Other Subordinated Debt
               
9.5% subordinated debentures owed to Durden Enterprises, LLC due September 15, 2013
    10,000       10,000  
Add (subtract):
               
Discount related to 9.5% subordinated debentures owed to Durden Enterprises, LLC
    (2,382 )     (2,514 )
                 
Total other subordinated debt
    7,618       7,486  
                 
Total subordinated debentures
  $ 84,170     $ 60,884  
                 
 
 
(1) Interest rate is equal to 1.58% at December 31, 2009. The Corporation has entered into interest rate swap agreements to an average effective fixed rate of 4.42%. (see Note 15)
 
(2) Converts to quarterly floating rate of LIBOR plus 1.45% in December 2010.
 
(3) Converts to 9.00% on February 15, 2014 (see Note 29).
 
(4) Effective yield is equal to 20.22% (see Note 29).
 
12.   Stock Incentive Plans
 
The Corporation recognized compensation cost of $720,000 $910,000 and $473,000, in 2009, 2008, and 2007, respectively, for all share-based payments, based on the grant-date fair value estimated in accordance with the provisions of ASC 718.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
12.   Stock Incentive Plans — (Continued)
 
The Corporation established the Third Amended and Restated 1998 Stock Incentive Plan (the “1998 Plan”) for directors and certain key employees that provides for the granting of restricted stock and incentive and nonqualified options to purchase up to 625,000 (restated for 1-for-4 reverse stock split) shares of the Corporation’s common stock of which substantially all available shares have been granted. The compensation committee of the Board of Directors determines the terms of the restricted stock and options granted. All options granted have a maximum term of ten years from the grant date, and the option price per share of options granted cannot be less than the fair market value of the Corporation’s common stock on the grant date. Some of the options granted under the plan in the past vested over a five-year period, while others vested based on certain benchmarks relating to the trading price of the Corporation’s common stock, with an outside vesting date of five years from the date of grant. More recent grants have followed this benchmark-vesting formula.
 
In April 2008, the Corporation’s stockholders approved the Superior Bancorp 2008 Incentive Compensation Plan (the “2008 Plan”) which succeeded the 1998 Plan. The purpose of the 2008 Plan is to provide additional incentive for the Corporation’s directors and key employees to further the growth, development and financial success of the Corporation and its subsidiaries by personally benefiting through the ownership of the Corporation’s common stock, or other rights which recognize such growth, development and financial success. The Corporation’s Board also believes the 2008 Plan will enable it to obtain and retain the services of directors and employees who are considered essential to its long-range success by offering them an opportunity to own stock and other rights that reflect the Corporation’s financial success. The maximum aggregate number of shares of common stock that may be issued or transferred pursuant to awards under the 2008 Plan is 300,000 (restated for 1-for-4 reverse stock split) shares, of which no more than 90,000 shares may be issued for “full value awards” (defined under the 2008 Plan to mean any awards permitted under the 2008 Plan that are neither stock options nor stock appreciation rights). Only those employees and directors who are selected to receive grants by the administrator may participate in the 2008 Plan.
 
During the first quarter of 2005, the Corporation granted 422,734 options to the new management team. These options have exercise prices ranging from $32.68 to $38.52 per share and were granted outside of the stock incentive plan as part of the inducement package for new management. These shares are included in the tables below.
 
The fair value of each option award is estimated on the date of grant based upon the Black-Scholes pricing model that uses the assumptions noted in the following table. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term. Expected volatility has been estimated based on historical data. The expected term has been estimated based on the five-year vesting date and change of control provisions. The Corporation used the following weighted-average assumptions for the years ended December 31, 2009, 2008 and 2007:
 
                         
    2009     2008     2007  
 
Risk-free interest rate
    2.57 %     3.65 %     4.49 %
Volatility factor
    55.38 %     35.19 %     29.11 %
Expected term (in years)
    5.00       5.00       5.00  
Dividend yield
    0.00 %     0.00 %     0.00 %


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
12.   Stock Incentive Plans — (Continued)
 
A summary of stock option activity as of December 31, 2009, 2008 and 2007, and changes during the years then ended is set forth below:
 
                                 
                Weighted-
       
          Weighted-
    Average
       
          Average
    Remaining
    Aggregate
 
          Exercise
    Contractual
    Intrinsic
 
For the Year Ended December 31, 2009
  Number     Price     Term     Value  
 
Under option, beginning of period
    848,922     $ 29.94                  
Granted
    104,100       2.97                  
Exercised
                           
Forfeited
    (27,375 )     (31.77 )                
                                 
Under option, end of period
    925,647     $ 26.85       5.65     $ 39  
                                 
Exercisable at end of period
    625,903     $ 31.76       2.90     $  
                                 
Weighted-average fair value per option of options granted during the period
  $ 1.47                          
                                 
For the Year Ended December 31, 2008
                               
Under option, beginning of period
    802,048     $ 33.08                  
Granted
    114,875       9.45                  
Exercised
                           
Forfeited
    (68,001 )     (32.35 )                
                                 
Under option, end of period
    848,922     $ 29.94       6.19     $  
                                 
Exercisable at end of period
    634,028     $ 31.72       3.94     $  
                                 
Weighted-average fair value per option of options granted during the period
  $ 3.95                          
                                 
For the Year Ended December 31, 2007
                               
Under option, beginning of period
    760,649     $ 32.28                  
Granted
    69,149       40.20                  
Exercised
    (21,250 )     25.48                  
Forfeited
    (6,500 )     41.40                  
                                 
Under option, end of period
    802,048     $ 33.08       6.70     $  
                                 
Exercisable at end of period
    691,649     $ 31.76       5.44     $  
                                 
Weighted-average fair value per option of options granted during the period
  $ 13.80                          
                                 
 
The total intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 was $-0-, $-0- and $287,000, respectively. As of December 31, 2009, there was $409,000 of total unrecognized compensation expense related to the unvested awards. This expense will be recognized over approximately the next 30-months unless the shares vest earlier based on achievement of benchmark trading price levels. During the year ended December 31, 2009, 2008 and 2007, the Corporation recognized approximately $471,000, $623,000 and $473,000 in compensation expense related to options granted.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
12.   Stock Incentive Plans — (Continued)
 
In January 2008, members of the Corporation’s management received restricted common stock grants totaling 26,788 shares. These grants exclude certain senior executive management who received cash under the short-term management incentive plan in lieu of restricted stock. The grant date fair value of this restricted common stock is equal to $18.56 per share or $497,000 in the aggregate which will be recognized over a 24-month period as 50% of the stock vested on January 22, 2009 with the remaining 50% vesting on January 22, 2010. During the twelve month periods ended December 31, 2009 and 2008, the Corporation recognized approximately $249,000 and $286,000, respectively, in compensation expense related to restricted stock. The outstanding shares of restricted common stock are included in the diluted earnings per share calculation, using the treasury stock method, until the shares vest. Once vested, the shares become outstanding for basic earnings per share. If an executive’s employment terminates prior to a vesting date for any reason other than death, disability or a change in control, the unvested stock is forfeited pursuant to the terms of the restricted common stock agreement. Unvested restricted common stock becomes immediately vested upon death, disability or a change in control. Under the restricted common stock agreements, the restricted stock may not be sold or assigned in any manner during the vesting period, but the executive will have the rights of a shareholder with respect to the stock (i.e. the right to vote, receive dividends, etc), prior to vesting.
 
Employee Stock Ownership Plans
 
Superior Bancorp ESOP
 
Effective August 31, 2007, the Corporation terminated the Superior Bancorp Employee Stock Ownership Plan (the “ESOP”). The ESOP was leveraged, and a promissory note existed between the ESOP and the Corporation that had a remaining balance of $1,165,000 at the termination date. The promissory note was satisfied by the transfer from the ESOP to the Corporation of 31,867 unallocated shares of Corporation common stock valued at a price of $36.56 per share, the closing price that day. The Corporation transferred these shares during the third quarter of 2007 to treasury stock at current market value from the unallocated ESOP shares account. The remaining 4,295 unallocated shares were committed to be allocated to the participants’ accounts, and, as a result, the Corporation recognized additional compensation expense during the third quarter of 2007 of approximately $158,000.
 
On January 29, 2003, the ESOP trustees finalized a $2,100,000 promissory note, which has been fully repaid as discussed above, to reimburse the Corporation for the funds used to leverage the ESOP. The unreleased shares and a guarantee of the Corporation secured the promissory note, which had been classified as notes payable on the Corporation’s statement of financial condition. As the debt was repaid, shares were released from collateral based on the proportion of debt service. Principal payments on the debt were $17,500 per month for 120 months. The interest rate adjusted to the Wall Street Journal prime rate. Interest expense incurred on the debt in 2007 totaled $82,000. Total contributions to the plan during 2007 totaled $1,326,000. Released shares were allocated to eligible employees at the end of the plan year based on the employee’s eligible compensation to total compensation. The Corporation recognized compensation expense during the period as the shares were earned and committed to be released. As shares were committed to be released and compensation expense was recognized, the shares became outstanding for basic and diluted earnings per share computations. The amount of compensation expense reported by the Corporation is equal to the average fair value of the shares earned and committed to be released during the period. Compensation expense that the Corporation recognized during the period ended December 31, 2007 was $371,000.
 
Community Bancshares ESOP
 
As a result of its merger with Community, the Corporation became a sponsor of an internally leveraged ESOP maintained by Community. This ESOP has an outstanding loan to the Corporation that bears interest at a floating rate equal to the prime rate of interest. As of December 31, 2009, the interest rate on the note was 3.25%. Principal and interest payments on the ESOP loan are due monthly through August, 2011, based on the current amortization schedule, with the remaining principal and interest, if any, due upon that date. The ESOP loan may be prepaid in


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
12.   Stock Incentive Plans — (Continued)
 
whole or in part without penalty under the loan agreement, subject to applicable ERISA and tax restrictions. The Corporation makes contributions to the ESOP that enables the ESOP to make payments due under the ESOP loan. Under ASC 718-40, Employee Stock Ownership Plans, (“ASC 718-40”) employers that sponsor an ESOP with an employer loan should not report the ESOP’s note payable or the employer’s note receivable in the employer’s statement of condition, nor should interest cost or interest income be recognized on the employer loan. The Corporation has followed the provisions of ASC 718-40 accordingly. The ESOP was terminated effective December 31, 2009.
 
An employee becomes a participant in the ESOP after completing 12 months of service during which the employee is credited with 1,000 hours or more of service. Contributions to the plan are made at the discretion of the board but may not be less than the amount required to service the ESOP debt. Under the terms of the ESOP, after a person ceases to be an employee of the Corporation, that person is no longer eligible to participate in the ESOP. In that case, the person may demand to receive all stock credited to his benefit under the ESOP as of the end of the year immediately preceding that person’s termination of employment with the Corporation.
 
Dividends paid on released ESOP shares are credited to the accounts of the participants to whom the shares are allocated. Dividends on unreleased shares may be used to repay the debt associated with the ESOP or treated as other income of the ESOP and allocated to the participants. Compensation cost recognized during the period ended December 31, 2009, 2008 and 2007 was $16,000, $36,000 and $125,000, respectively. The ESOP shares as of December 31, 2009 and 2008 are as follows:
 
                 
    December 31,  
    2009     2008  
 
Allocated shares
    69,695       65,787  
Estimated shares committed to be released
    3,938       3,908  
Unreleased shares
    12,335       16,273  
                 
Total ESOP shares
    85,968       85,968  
                 
Fair value of unreleased shares
  $ 40,582     $ 51,585  
                 
                 
 
13.   Profit-Sharing Plan and Other Agreements
 
The Corporation sponsors a profit-sharing plan that permits participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet certain age and length of service requirements. The Corporation matches contributions at its discretion. The Corporation’s contributions to the plan were $1,082,000, $1,062,000 and $886,000 in 2009, 2008 and 2007, respectively.
 
The Corporation has various nonqualified retirement agreements with certain current and former directors and former executive officers. Generally, the agreements provide a fixed retirement benefit that will be paid in installments ranging from 10 to 20 years. As of December 31, 2009 and 2008, substantially all of the benefits due under these plans were vested. The Corporation’s nonqualified retirement agreements had an aggregate unfunded projected benefit of approximately $5,267,000 (see settlement discussion below) as of December 31, 2009 and $5,316,000 at December 31, 2008. The accrued liability, included in other liabilities, associated with these benefits totaled $2,346,000 and $2,312,000 at December 31, 2009 and 2008, respectively, which represents the present value of the future benefits. Compensation expense related to these plans totaled $83,000, $175,000 and $334,000 for 2009, 2008 and 2007, respectfully.
 
During 2008, the Corporation recognized two separate gains from the extinguishment of approximately $5,800,000 in liabilities. The first gain related to a settlement of a retirement agreement with a previous executive officer under which the Corporation had a remaining unfunded obligation to pay approximately $6,200,000 in


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
13.   Profit-Sharing Plan and Other Agreements — (Continued)
 
benefits over a 17-year period. This obligation was settled through a cash settlement payment of $3,000,000 with a recognized pre-tax gain of $574,000. The second gain related to a forfeiture of benefits owed to a former executive officer under the Community Bancshares, Inc. Benefit Restoration Plan (see Note 20) and resulted in a pre-tax gain of $2,344,000.
 
 
14.   Income Taxes
 
The components of the consolidated income tax (benefit) expense are as follows:
 
                         
    2009     2008     2007  
    (Dollars in thousands)  
 
Current:
                       
Federal
  $ 533     $ 73     $ 88  
State
    201       75       25  
                         
Total current expense
    734       148       113  
Deferred:
                       
Federal
    (12,062 )     (4,243 )     3,529  
State
    (1,677 )     (493 )     492  
                         
Deferred income tax (benefit) expense
    (13,739 )     (4,736 )     4,021  
                         
Total income tax (benefit) expense
  $ (13,005 )   $ (4,588 )   $ 4,134  
                         


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
14.   Income Taxes — (Continued)
 
Significant components of the Corporation’s deferred income tax assets and liabilities as of December 31, 2009 and 2008 are as follows:
 
                 
    2009     2008  
    (Dollars in thousands)  
 
Deferred income tax assets:
               
Rehabilitation tax credit
  $ 5,981     $ 5,981  
Allowance for loan losses
    15,455       10,601  
Nonaccrual interest
    2,993       998  
Deferred compensation
    1,194       1,423  
Net operating loss carryforwards
    11,635       12,562  
Alternative minimum tax credit carryover
    1,418       1,243  
Purchase accounting basis differences
    542       1,234  
Other-than-temporary impairment loss on securities
    9,587       3,761  
Unrealized loss on securities
    3,678       3,439  
Other
    4,094       2,991  
                 
Total deferred income tax assets
    56,577       44,233  
Less: valuation allowance on net operating loss carryforwards
    (1,207 )     (1,207 )
Deferred income tax liabilities:
               
Difference in book and tax basis of premises and equipment
    4,418       4,389  
Difference in book and tax basis on exchange of preferred stock
               
for trust preferred securities
    16,521        
Excess purchase price and intangibles
    4,660       5,848  
Other
    233       466  
                 
Total deferred income tax liabilities
    25,832       10,703  
                 
Net deferred income tax asset
  $ 29,538     $ 32,323  
                 
 
Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. These calculations are based on many complex factors, including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.
 
The recognition of deferred tax assets (“DTA”) is based upon management’s judgment that realization of the asset is more likely than not. Management’s judgment is based on estimates concerning various future events and uncertainties, including future reversals of existing taxable temporary differences, the timing and amount of future income earned by the Corporation’s subsidiaries and the implementation of various tax planning strategies to maximize realization of the DTA. Although realization is not assured, management believes that the realization of the $29,538,000 net DTA is more likely than not. This net DTA is comprised of $56,577,000 of deferred tax assets, net of $25,832,000 in deferred tax liabilities and a $1,200,000 valuation allowance. The major components of the $56,577,000 deferred tax asset are $7,400,000 in general and AMT tax credit carryforwards, $11,635,000 in net operating loss carryforwards and $37,500,000 in deductions that have not yet been taken on a tax return. The


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
14.   Income Taxes — (Continued)
 
Corporation’s deferred tax liabilities of $25,832,000 are comprised primarily of differences between the book and tax bases of certain assets and liabilities of which $12,600,000 are expected to reverse during the carryforward period to offset a corresponding amount of deferred tax asset. In general, net of the existing deferred tax liabilities the Corporation will need to generate approximately $106,000,000 of taxable income during the respective carryforward periods in order to fully realize its DTAs.
 
As a result of book losses incurred in 2009 and 2008, the Corporation is in three-year-cumulative loss position at December 31, 2009 and there are no taxes paid in prior years that are available for the carryback period. A cumulative loss position is considered significant negative evidence in assessing the realizability of a DTA. The Corporation’s management has concluded that sufficient positive evidence exists to overcome this negative evidence. The positive evidence which management based its conclusions includes the following:
 
  •  Management forecasts sufficient taxable income in the next five years, even under stressed economic scenarios, to realize the Corporation’s DTA in the carryforward periods allowed under the respective federal and state revenue codes (see discussion below).
 
  •  Management has a history of extremely accurate forecasting of asset/liability growth and corresponding interest margin, as well as reasonably accurate forecasting of controllable income and expense.
 
  •  The Corporation’s net interest margin remains strong and has steadily improved even in this weak economy.
 
  •  The Corporation’s liquidity is strong due to a mature branch network which provides a reliable and low cost funding source to support the interest margin.
 
  •  The Corporation has stable levels of core operating noninterest income and noninterest expenses.
 
  •  The Corporation’s executive team is experienced in managing through difficult credit cycles.
 
  •  A recent economic forecast indicates a strengthening real estate economy in Florida, where approximately 46% of the Corporation’s total loans and 71% of total classified loans are located.
 
  •  The Corporation’s general tax credit and federal net operating loss carryforwards do not begin expiring until the years 2018 and 2023, respectively. The AMT credit carryforwards have no expiration. In addition, the Corporation has no history of operating or tax credit carryforwards expiring unused.
 
The only tax planning strategy management considered involves the decision to hold any available-for-sale debt security in an unrealized loss position until they mature at which time the Corporation’s full investment will be recovered. The amount of the Corporation’s DTA considered realizable, however, could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are significantly lower than forecasted due to further decreases in market conditions, or the economy, which could produce additional credit losses within the loan and investment portfolios. In that regard, the forecasted taxable income has been based on several economic scenarios which have been stressed in varying degrees to reflect slower economic recovery than currently anticipated by management, which under the model results in additional credit losses and the corresponding impact net interest margin. Each scenario was assigned individually for each year a probability of occurring, with the final five-year forecast comprising the scenarios that exceeded a cumulative probability of 50% (the more likely than not threshold) in any year. Even though the Corporation’s forecasts project taxable income for an eight-year period, management did not rely on any forecast after the fifth year because years six through eight did not exceed the more likely than not threshold. Management evaluates quarterly the realizability of the net deferred tax assets and, if necessary adjust the valuation allowance accordingly.
 
In 2006, due to limitations on the use of state net operating losses acquired in the merger with Community, a valuation allowance of $1,207,000 was established against such deferred income tax assets in purchase accounting.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
14.   Income Taxes — (Continued)
 
The effective tax rate differs from the expected tax using the statutory rate. Reconciliation between the expected tax and the actual income tax (benefit) expense follows:
 
                         
    2009     2008     2007  
    (Dollars in thousands)  
 
Expected tax (benefit) expense at statutory rate of income (loss) before taxes
  $ (11,184 )   $ (57,031 )   $ 3,996  
Add (deduct):
                       
State income tax (benefit) expense, net of federal tax
    (974 )     (276 )     341  
Effect of interest income exempt from Federal income taxes
    (633 )     (665 )     (468 )
Increase in cash surrender value of life insurance
    (747 )     (654 )     (644 )
Effect of nondeductible goodwill impairment charge
          53,656        
Taxable exchange of cash surrender value of life insurance
                256  
Other items — net
    533       382       653  
                         
Income tax (benefit) expense
  $ (13,005 )   $ (4,588 )   $ 4,134  
                         
Federal statutory rate
    34 %     34 %     34 %
                         
 
The Corporation’s unused net operating loss carryforwards and expiration dates are as follows:
 
                 
Year of expiration:
  Federal     Alabama  
    (Dollars in thousands)  
 
2011
  $     $ 12,233  
2012
          14,769  
2013
          22,016  
2014
          6,751  
2015
          3,453  
2016
          2,527  
2017
          8  
2018 through 2022
          1,040  
2023
    2,788       56  
2024
    13,043        
2025
    5,813        
2026
    5,788        
2027
    143        
                 
    $ 27,575     $ 62,853  
                 


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
14.   Income Taxes — (Continued)
 
The Corporation has available at December 31, 2009 unused rehabilitation tax credits that can be carried forward and utilized against future Federal income tax liability. Unused credits and expiration dates are as follows (in thousands):
 
         
Year of expiration:
       
2018
  $ 1,734  
2019
    738  
2020
    1,261  
2021
    522  
2022
    366  
2023
    960  
2024
    400  
         
    $ 5,981  
         
 
This credit was established as a result of the restoration and enhancement of the John A. Hand Building, which is designated as an historical structure and serves as the corporate headquarters for the Corporation. This credit is equal to 20% of certain qualified expenditures incurred by the Corporation prior to December 31, 2005. The Corporation is required to reduce its tax basis in the John A. Hand Building by the amount of the credit.
 
Applicable income tax (benefit) expense of $(3,738,000), $(3,128,000), and $114,000 on investment securities (losses) gains for the years ended December 31, 2009, 2008, and 2007, respectively, is included in income taxes.
 
The Corporation recognized a ($98,000) tax benefit in 2007 related to the exercise of nonqualified stock options. This benefit was recognized as a credit to stockholders’ equity as additional surplus.
 
The Corporation adopted the revised provisions of ASC Topic 740-10, Recognition of Income Taxes, (“ASC 740-10”) on January 1, 2007. As a result of the adoption, the Corporation recognized a charge of approximately $555,000 to the January 1, 2007 retained earnings balance. As of the adoption date, the Corporation had unrecognized tax benefits of $459,000, all of which, if recognized, would affect the effective tax rate. Also, as of the adoption date, the Corporation had accrued interest expense related to the unrecognized tax benefits of approximately $146,000. Accrued interest related to unrecognized tax benefits is recognized in income tax expense. Penalties, if incurred, will be recognized in income tax expense as well. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows (Dollars in thousands):
 
                 
    2009     2008  
 
Balance at January 1
  $ 336,000     $ 459,000  
Additions based upon tax positions related to the current year
           
Additions for tax positions of prior years
           
Reductions for tax positions of prior years
          (123,000 )
Settlements
    (336,000 )      
                 
Balance at December 31
  $     $ 336,000  
                 
 
The Corporation and its subsidiaries are subject to U.S. federal income tax as well as to Alabama and Florida income taxes. The Corporation has concluded all U.S. federal and Florida income tax matters for years through 2005, including acquisitions.
 
All state income tax matters have been concluded for years through 2007. The Corporation had received notices of proposed adjustments relating to state taxes due for the years 2002, 2003, 2005, 2006 and 2007, which include proposed adjustments relating to income apportionment of a subsidiary. During the first quarter of 2009,


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
14.   Income Taxes — (Continued)
 
management settled these matters for $800,000 which had been estimated and accrued through December 31, 2008; therefore there was no effect on our reported earnings for 2009 or 2008. The $123,000 reduction in 2008 of the unrecognized tax benefit above was the result of a three-year statue of limitations on the 2004 taxable year.
 
 
15.   Derivatives
 
The fair value of derivative positions outstanding is included in other assets and other liabilities in the accompanying consolidated statement of financial condition and in the net change in each of these financial statement line items in the accompanying consolidated statements of cash flows.
 
The Corporation utilizes interest rate swaps, caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of its customers. The Corporation’s objectives for utilizing these derivative instruments are described below:
 
Interest Rate Swaps
 
The Corporation has entered interest rate swaps (“CD swaps”) to convert the fixed rate paid on brokered certificates of deposit (“CDs”) to a variable rate based upon three-month LIBOR. At December 31, 2009 and December 31, 2008, the Corporation had $723,000 and $1,166,000, respectively, in notional amount of CD swaps which had not been designated as hedges. These CD swaps had not been designated as hedges because they represent the portion of the interest rate swaps that are over-hedged due to principal reductions on the brokered CDs.
 
The Corporation has entered into certain interest rate swaps on commercial loans that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Corporation enters into an interest rate swap with a loan customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Corporation agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Corporation’s customer to effectively convert a variable rate loan to a fixed rate. Because the Corporation acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Corporation’s results of operations.
 
Fair Value Hedges
 
As of December 31, 2009 and December 31, 2008, the Corporation had $2,777,000 and $5,334,000, respectively, in notional amount of CD swaps designated and qualified as fair value hedges. These CD swaps were designated as hedging instruments to hedge the risk of changes in the fair value of the underlying brokered CD due to changes in interest rates. At December 31, 2009 and December 31, 2008, the amount of CD swaps designated as hedging instruments had a recorded fair value of $228,000 and $799,000, respectively, and a weighted average life of 2.5 and 6.8 years, respectively. The weighted average fixed rate (receiving rate) was 4.70% and the weighted average variable rate (paying rate) was 0.52% (LIBOR based).
 
Cash Flow Hedges
 
The Corporation has entered into interest rate swap agreements designated and qualified as a hedge with notional amounts of $22,000,000 to hedge the variability in cash flows on $22,000,000 of junior subordinated debentures. Under the terms of the interest rate swaps, which mature September 15, 2012, the Corporation receives a floating rate based on 3-month LIBOR plus 1.33% (1. 58% as of December 31, 2009) and pays a weighted average fixed rate of 4.42%. As of December 31, 2009 and December 31, 2008, these interest rate swap agreements are recorded as liabilities in the amount of $766,000 and $954,000, respectively.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
15.   Derivatives — (Continued)
 
Interest Rate Lock Commitments
 
In the ordinary course of business, the Corporation enters into certain commitments with customers in connection with residential mortgage loan applications. Such commitments are considered derivatives under FASB guidance and are required to be recorded at fair value. The aggregate amount of these mortgage loan origination commitments was $41,038,000 and $92,721,000 at December 31, 2009 and December 31, 2008, respectively. The fair value of the origination commitments was $(370,000) and $(117,000) at December 31, 2009 and December 31, 2008, respectively.
 
The notional amounts and estimated fair values of interest rate derivative contracts outstanding at December 31, 2009 and December 31, 2008 are presented in the following table. The Corporation obtains dealer quotations to value its interest rate derivative contracts designated as hedges of cash flows, while the fair values of other interest rate derivative contracts are estimated utilizing internal valuation models with observable market data inputs. The estimated fair values of these derivatives are included in the Assets and Liabilities Recorded at Fair Value on a Recurring Basis table of Note 19 to the consolidated financial statements.
 
                                 
    December 31,  
    2009     2008  
          Estimated
          Estimated
 
    Notional
    Fair
    Notional
    Fair
 
    Amount     Value     Amount     Value  
    (Dollars in thousands)  
 
Interest rate derivatives designated as hedges of fair value:
                               
Interest rate swap on brokered certificates of deposit
  $ 2,777     $ 228     $ 5,334     $ 799  
Interest rate derivatives designated as hedges of cash flows:
                               
Interest rate swaps on subordinated debenture
    22,000       (766 )     22,000       (954 )
Non-hedging interest rate derivatives:
                               
Brokered certificates of deposit interest rate swap
    723       59       1,166       164  
Mortgage loan held for sale interest rate lock commitment
    41,038       (370 )     92,721       (117 )
Commercial loan interest rate swap
    3,766       323       3,861       462  
Commercial loan interest rate swap
    3,766       (323 )     3,861       (462 )
 
The weighted-average rates paid and received for interest rate swaps outstanding at December 31, 2009 were as follows:
 
                 
    Weighted-Average
    Interest
  Interest
    Rate
  Rate
    Paid   Received
 
Interest rate swaps:
               
Fair value hedge on brokered certificates of deposit interest rate swap
    0.52 %     4.70 %
Cash flow hedge interest rate swaps on subordinated debentures
    4.42       1.58  
Non-hedging interest rate swap on commercial loan
    6.73       6.73  
 
Gains, Losses and Derivative Cash Flows
 
For fair value hedges, the changes in the fair value of both the derivative hedging instrument and the hedged item are included in noninterest income to the extent that such changes in fair value do not offset represents hedge ineffectiveness. For cash flow hedges, the effective portion of the gain or loss due to changes in the fair value of the derivative hedging instrument is included in other comprehensive income, while the ineffective portion (indicated by the excess of the cumulative change in the fair value of the derivative over that which is necessary to offset the


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
15.   Derivatives — (Continued)
 
cumulative change in expected future cash flows on the hedge transaction) is included in noninterest income. Net cash flows from the interest rate swap on subordinated debentures designated as a hedging instrument in an effective hedge of cash flows are included in interest expense on subordinated debentures. For non-hedging derivative instruments, gains and losses due to changes in fair value and all cash flows are included in other noninterest income.
 
Amounts included in the consolidated statements of operations related to interest rate derivatives designated as hedges of fair value were as follows:
 
                         
    December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Interest rate swap on brokered certificates of deposit:
                       
Amount of gain (loss) included in interest expense on deposits
  $ 109     $ 65     $ (61 )
Amount of (loss) gain included in other noninterest income
    (506 )     342       73  
 
Amounts included in the consolidated statements of operations and in other comprehensive income (loss) for the period related to interest rate derivatives designated as hedges of cash flows were as follows:
 
                         
    December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Interest rate swap on subordinated debenture:
                       
Net (loss) gain included in interest expense on subordinated debt
  $ (474 )   $ (50 )   $  
Amount of gain (loss) recognized in other comprehensive income
    119       (601 )      
 
No ineffectiveness related to interest rate derivatives designated as hedges of cash flows was recognized in the consolidated statements of operations during the reported periods. The accumulated net after-tax loss related to effective cash flow hedge included in accumulated other comprehensive income totaled $483,000, $602,000, and $-0- at December 31, 2009, 2008 and 2007, respectively.
 
Amounts included in the consolidated statements of operations related to non-hedging interest rate swap on commercial loans were not significant during any of the reported periods. As stated above, the Corporation enters into non-hedge related derivative positions primarily to accommodate the business needs of its customers. Upon the origination of a derivative contract with a customer, the Corporation simultaneously enters into an offsetting derivative contract with a third party. The Corporation recognizes immediate income based upon the difference in the bid/ask spread of the underlying transactions with its customers and the third party. Because the Corporation acts only as an intermediary for its customer, subsequent changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Corporation’s results of operations.
 
Gain (loss) included in noninterest income on the consolidated statements of operations related to non-hedging derivative instruments were as follows:
 
                         
    December 31,
    2009   2008   2007
    (Dollars in thousands)
 
Non-hedging interest rate derivatives:
                       
Brokered certificates of deposit interest rate swap
  $ (67 )   $ 426     $ 742  
Mortgage loan held for sale interest rate lock commitment
    (253 )     (239 )     122  
Interest rate floors
          678       374  
Commercial loan interest rate swap
          34        


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
15.   Derivatives — (Continued)
 
Counterparty Credit Risk
 
Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Corporation’s Asset/Liability Management Committee. The Corporation’s credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. There are no credit-risk-related contingent features associated with any of the Corporation’s derivative contracts.
 
The aggregate cash collateral posted with the counterparties as collateral by the Corporation related to derivative contracts totaled approximately $3,240,000 at December 31, 2009.
 
 
16.   Related Party Transactions
 
The Corporation has entered into transactions with its directors, executive officers, significant stockholders and their affiliates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The aggregate amount of loans to such related parties at December 31, 2009 and 2008 were $54,505,000 and $48,414,000, respectively. Activity during the year ended December 31, 2009 is summarized as follows (in thousands):
 
         
Balance at December 31, 2008
  $ 48,414  
Loans originated
     
Advances
    27,114  
Repayments
    (16,697 )
Other changes and reclassifications
    (4,326 )
         
Balance at December 31, 2009
  $ 54,505  
         
 
The other changes and reclassifications primarily relate to one loan that was transferred to an outside party.
 
At December 31, 2009 and 2008, the deposits of such related parties in the subsidiary bank amounted to approximately $31,500,000 and $22,100,000, respectively.
 
An insurance agency owned by one of the Corporation’s directors received commissions of approximately $187,000, $197,000, and $185,000 from the sale of insurance to the Corporation during 2009, 2008 and 2007, respectively. Also, several sale-leaseback transactions were completed with one of the directors of the Corporation during 2007 and 2008. The total amount of rent paid by Superior Bank during 2009 and 2008 pursuant to these leases was $691,244 and $300,680, respectively. These transactions are discussed further in Note 6.
 
The Corporation believes that all of the foregoing transactions were made on terms and conditions on an arm’s length basis.
 
17.   Commitments and Contingencies
 
The consolidated financial statements do not reflect the Corporation’s various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
17.   Commitments and Contingencies — (Continued)
 
letters of credit. The following is a summary of the Corporation’s maximum exposure to credit loss for loan commitments and standby letters of credit:
 
                 
    December 31,
    2009   2008
    (Dollars in thousands)
 
Commitments to extend credit
  $ 266,550     $ 355,243  
Standby letters of credit
    21,845       35,636  
 
Commitments to extend credit and standby letters of credit all include exposure to some credit loss in the event of nonperformance by the customer. The Corporation’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extension of credit that are recorded in the consolidated statement of financial condition. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Corporation.
 
During 2009, 2008 and 2007, the Corporation settled various litigation matters, none of which were significant. The Corporation is also a defendant or co-defendant in various lawsuits incidental to the banking business. Management, after consultation with legal counsel, believes that liabilities, if any, arising from such litigation and claims will not result in a material adverse effect on the consolidated financial statements of the Corporation.
 
 
18.   Regulatory Restrictions
 
A source of funds available to the Corporation is the payment of dividends by its subsidiary. Regulations limit the amount of dividends that may be paid without prior approval of the subsidiary’s regulatory agency. No amounts are available to be paid as dividends by the subsidiary at December 31, 2009.
 
During the fourth quarter of 2005 the Corporation became a unitary thrift holding company and, as such, is subject to regulation, examination and supervision by the OTS.
 
Simultaneously, the Corporation’s subsidiary bank’s charter was changed to a federal savings bank charter and is also subject to various regulatory requirements administered by the OTS. Prior to November 1, 2005 the Corporation’s banking subsidiary was regulated by the Alabama Banking Department and the Federal Reserve. 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 Corporation’s and its subsidiaries financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the subsidiary bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The subsidiary 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 Corporation’s subsidiary 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 capital to risk weighted assets (as defined). Management believes, as of December 31, 2009 and 2008, that the Corporation’s subsidiary bank meets all capital adequacy requirements to which it is subject.
 
As of December 31, 2009 and 2008, the most recent notification from the subsidiary’s primary regulators categorized the subsidiary as “well capitalized” under the regulatory framework for prompt corrective action. The


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
18.   Regulatory Restrictions — (Continued)
 
table below represents the Corporation’s bank subsidiary’s regulatory and minimum regulatory capital requirements at December 31, 2009 and 2008:
 
                                                 
                            To Be Well
 
                For Capital Adequacy
    Capitalized
 
    Actual     Purposes     Under Prompt Corrective Action  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
    (Dollars in thousands)  
 
December 31, 2009
                                               
Tier 1 Core Capital (to Adjusted Total Assets)
  $ 249,253       7.79 %   $ 127,957       4.00 %   $ 159,947       5.00 %
Total Capital (to Risk Weighted Assets)
    286,748       10.69       214,517       8.00       268,146       10.00  
Tier 1 Capital (to Risk Weighted Assets)
    249,253       9.30       NA       NA       160,888       6.00  
Tangible Capital (to Adjusted Total Assets)
    249,253       7.79       47,984       1.50       NA       NA  
December 31, 2008
                                               
Tier 1 Core Capital (to Adjusted Total Assets)
  $ 271,146       9.00 %   $ 120,510       4.00 %   $ 150,638       5.00 %
Total Capital (to Risk Weighted Assets)
    304,892       12.15       200,761       8.00       250,951       10.00  
Tier 1 Capital (to Risk Weighted Assets)
    271,146       10.80       N/A       NA       150,571       6.00  
Tangible Capital (to Adjusted Total Assets)
    271,146       9.00       45,191       1.50       NA       NA  
                                                 
 
19.   Fair Values of Financial Instruments
 
In accordance with FASB guidance, the Corporation measures fair value at the price that would be received by selling an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing the asset or liability (the “inputs”) into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect management’s estimates about the assumptions market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
19.   Fair Values of Financial Instruments — (Continued)
 
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
 
The table below presents our assets and liabilities measured at fair value on a recurring basis categorized by the level of inputs used in the valuation of each asset at December 31, 2009 and 2008 (Dollars in thousands).
 
                                 
          Quoted Prices in
          Significant
 
          Active Markets for
    Significant Other
    Unobservable
 
    Fair
    Identical Assets
    Observable Inputs
    Inputs
 
    Value     (Level 1)     (Level 2)     (Level 3)  
 
December 31, 2009
                               
Available for sale securities
  $ 286,310     $ 314     $ 272,667     $ 13,329  
Derivative assets
    610             610        
                                 
Total recurring basis measured assets
  $ 286,920     $ 314     $ 273,277     $ 13,329  
                                 
Derivative liabilities
  $ 1,459     $     $ 1,459     $  
                                 
Total recurring basis measured liabilities
  $ 1,459     $     $ 1,459     $  
                                 
December 31, 2008
                               
Available for sale securities
  $ 347,142     $ 164     $ 328,481     $ 18,497  
Derivative assets
    1,427             1,427        
                                 
Total recurring basis measured assets
  $ 348,569     $ 164     $ 329,908     $ 18,497  
                                 
Derivative liabilities
  $ 1,534     $     $ 1,534     $  
                                 
Total recurring basis measured liabilities
  $ 1,534     $     $ 1,534     $  
                                 
 
Valuation Techniques — Recurring Basis
 
Securities Available for Sale.  When quoted prices are available in an active market, securities are classified as Level 1. These securities include investments in Fannie Mae and Freddie Mac preferred stock. For securities reported at fair value utilizing Level 2 inputs, the Corporation obtains fair value measurements from an independent pricing service. These fair value measurements consider observable market data that may include benchmark yield curves, reported trades, broker/dealer quotes, issuer spreads and credit information, among other inputs. In certain cases where there is limited activity, securities are classified as Level 3 within the valuation hierarchy. These securities include primarily single issue and pooled trust preferred securities and certain private-label mortgage-backed securities. The fair value of the trust preferred securities is calculated using an income approach based on various spreads to LIBOR determined after a review of applicable financial data and credit ratings (see Note 3 — Trust Preferred Securities). At December 31, 2009, the fair values of six private-label mortgage-backed securities totaling $7,420,000 were measured using Level 3 inputs because the market has become illiquid, as indicated by few, if any, trades during the period. Prior to June 30, 2009, these securities were previously measured using Level 2 inputs. The assumptions used in the valuation model include expected future default rates, loss severity and prepayments. The model also takes into account the structure of the security including credit support. Based on these assumptions the model calculates and projects the timing and amount of interest and principal payments expected for the security. The discount rates used in the valuation model were based on a yield that the market would require for such securities with maturities and risk characteristics similar to the securities being measured (see Note 3 — Mortgage-backed Securities).
 
Derivative financial instruments.  Derivative financial instruments are measured at fair value based on modeling that utilizes observable market inputs for various interest rates published by leading third-party financial news and data providers. This is observable data that represents the rates used by market participants for instruments entered into at that date; however, they are not based on actual transactions so they are classified as Level 2.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
19.   Fair Values of Financial Instruments — (Continued)
 
Changes in Level 3 fair value measurements
 
The tables below include a roll-forward of the condensed consolidated statement of financial condition amounts for the twelve months ended December 31, 2009 and 2008, including changes in fair value for financial instruments within Level 3 of the valuation hierarchy. Level 3 financial instruments typically include unobservable components, but may also include some observable components that may be validated to external sources. The gains or (losses) in the following table may include changes to fair value due in part to observable factors that may be part of the valuation methodology:
 
Level 3 Assets Measured at Fair Value on a Recurring Basis
 
                 
    Available for
 
    Sale Securities  
    2009     2008  
    (Dollars in thousands)  
 
Balance at January 1
  $ 18,497     $  
Transfer into level 3 category during the year
    13,978       25,956  
Total gains (losses) (realized and unrealized)
               
Included in earnings — investment security loss
    (15,746 )     (7,459 )
Included in other comprehensive loss
    (1,610 )      
Other changes due to principal payments
    (1,790 )      
                 
Balance at December 31
  $ 13,329     $ 18,497  
                 
Total amount of loss for the period year-to-date included in earnings attributable to the change in unrealized gains (losses) related to assets held at December 31
  $ (15,746 )   $  
                 
 
Assets Recorded at Fair Value on a Nonrecurring Basis
 
The table below presents the assets measured at fair value on a nonrecurring basis categorized by the level of inputs used in the valuation of each asset (Dollars in thousands):
 
                                 
          Quoted Prices
             
          in
             
          Active Markets for
    Significant Other
    Significant
 
          Identical
    Observable
    Unobservable
 
    Fair
    Assets
    Inputs
    Inputs
 
    Value     (Level 1)     (Level 2)     (Level 3)  
 
December 31, 2009
                               
Mortgage loans held for sale
  $ 71,879     $     $ 71,879     $  
Impaired loans, net of specific allowance
    155,545                   155,545  
Other foreclosed real estate
    41,618                   41,618  
Other real estate held for sale
    3,349                   3,349  
                                 
Total nonrecurring basis measured assets
  $ 272,391     $     $ 71,879     $ 200,512  
                                 
December 31, 2008
                               
Mortgage loans held for sale
  $ 22,040     $     $ 22,040     $  
Impaired loans, net of specific allowance
    47,774                   47,774  
                                 
Total nonrecurring basis measured assets
  $ 69,814     $     $ 22,040     $ 47,774  
                                 


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
19.   Fair Values of Financial Instruments — (Continued)
 
Valuation Techniques — Nonrecurring Basis
 
Mortgage Loans Held for Sale.  Mortgage loans held for sale are recorded at the lower of aggregate cost or fair value. Fair value is generally based on quoted market prices of similar loans and is considered to be Level 2 in the fair value hierarchy.
 
Impaired Loans.  Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. These loans are collateral dependent and their fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral typically includes real estate and/or business assets including equipment. The value of real estate collateral is determined based on appraisals by qualified licensed appraisers approved and hired by the Corporation. The value of business equipment is determined based on appraisals by qualified licensed appraisers approved and hired by the Corporation, if significant. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
 
Other Foreclosed Real Estate.  Other real estate, acquired through partial or total satisfaction of loans, is carried at fair value, less estimated selling expenses. At the date of acquisition, any difference between the fair value and book value of the asset is charged to the allowance for loan losses. The value of other foreclosed real estate collateral is determined based on appraisals by qualified licensed appraisers approved and hired by the Corporation. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Foreclosed real estate is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
 
Other Real Estate Held for Sale.  Other real estate held for sale, which consists primarily of closed branch locations, is carried at the lower of cost or fair value, less estimated selling expenses. The fair value of other real estate held for sale is determined based on management’s appraisal of properties’ assessed values and general market conditions. Other real estate held for sale is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
 
The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and short-term instruments, accrued interest and the cash surrender value of life insurance policies. The methodologies for other financial assets and financial liabilities are discussed below:
 
Tax lien certificates.  The carrying amount of tax lien certificates approximates their fair value.
 
Net loans.  Fair values for variable-rate loans that re-price frequently and have no significant change in credit risk are based on carrying values. Fair values for all other loans are estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
 
Deposits.  The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit (“CDs”) approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on advances from the FHLB of Atlanta to a schedule of aggregated expected monthly maturities on time deposits.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
19.   Fair Values of Financial Instruments — (Continued)
 
Advances from FHLB.  The fair values of the FHLB advances were based on pricing supplied by the FHLB.
 
Federal funds borrowed and security repurchase agreements.  The carrying amount of federal funds borrowed and security repurchase agreements approximate their fair values.
 
Notes payable.  The carrying amount of notes payable approximates their fair values.
 
Subordinated debentures.  Rates currently available in the market for preferred offerings with similar terms and maturities are used to estimate fair value.
 
Limitations.  Fair value estimates are made at a specific point of time and are based on relevant market information, which is continuously changing. Because no quoted market prices exist for a significant portion of the Corporation’s financial instruments, fair values for such instruments are based on management’s assumptions with respect to future economic conditions, estimated discount rates, estimates of the amount and timing of future cash flows, expected loss experience, and other factors. These estimates are subjective in nature involving uncertainties and matters of significant judgment; therefore, they cannot be determined with precision. Changes in the assumptions could significantly affect the estimates.
 
The estimated fair values of the Corporation’s financial instruments are as follows:
 
                                 
    December 31, 2009     December 31, 2008  
    Carrying
    Fair
    Carrying
    Fair
 
    Amount     Value     Amount     Value  
    (In thousands)  
 
Financial assets:
                               
Cash and due from banks
  $ 74,020     $ 74,020     $ 74,237     $ 74,237  
Interest-bearing deposits in other banks
    23,714       23,714       10,042       10,042  
Federal funds sold
    2,036       2,036       5,169       5,169  
Securities available for sale
    286,310       286,310       347,142       347,142  
Tax lien certificates
    19,292       19,292       23,786       23,786  
Mortgage loans held for sale
    71,879       71,879       22,040       22,040  
Net loans
    2,430,813       2,440,026       2,286,071       2,374,637  
Stock in FHLB
    18,212       18,212       21,410       21,410  
Accrued interest receivable
    50,142       50,142       14,794       14,794  
Derivative assets
    610       610       1,427       1,427  
Financial liabilities:
                               
Deposits
    2,656,573       2,671,504       2,342,988       2,363,270  
Advances from FHLB
    218,322       233,028       361,324       382,547  
Security repurchase agreements
    841       841       3,563       3,563  
Note payable
    45,917       45,917       7,000       7,000  
Subordinated debentures
    84,170       51,609       60,884       46,839  
Derivative liabilities
    1,459       1,459       1,534       1,534  
 
20.   Pension Plan
 
As a result of its merger with Community, the Corporation became the sponsor of a defined benefit pension plan (the “Pension Plan”) and a nonqualified supplemental executive retirement plan (the “Benefit Restoration Plan”). Both plans were frozen by Community effective December 31, 2003. As long as the plans remain frozen, no


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
20.   Pension Plan — (Continued)
 
employees become eligible to participate in the plans and no participants accrue any additional benefits. Benefits accrued as of the date of the freeze will be paid to participants in accordance with the terms of the plans.
 
Benefits under the Pension Plan depend upon a participant’s years of credited service and his or her average monthly earnings for the highest five consecutive years out of the participant’s final 10 years of employment. The number of years of credited service and average monthly earnings for each participant were fixed as of December 31, 2003. Normal retirement age under the Pension Plan is age 65. A participant with 10 years of service is eligible to receive early retirement benefits beginning at age 55. The Corporation is required to make contributions to the Pension Plan in amounts sufficient to satisfy the funding requirements of the Employee Retirement Income Security Act, as amended. The Corporation was not required to make a contribution during the year ended December 31, 2009 and does not anticipate that any significant contribution will be required during the year ending December 31, 2010.
 
The Benefit Restoration Plan was designed to provide certain key executives of Community with benefits which would have been paid to them under the Pension Plan except for certain limitations imposed by the Internal Revenue Code of 1986, as amended. A participant’s benefit under the Benefit Restoration Plan is equal to the difference between his benefit under the Pension Plan calculated without regard to such limitations less the benefit payable to him from the Pension Plan. Benefit Restoration Plan benefits are unfunded.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
20.   Pension Plan — (Continued)
 
The following tables set forth the funding status and the amount recognized for both the Pension Plan and the Benefit Restoration Plan in the Corporation’s consolidated statements of financial condition and consolidated statements of operations:
 
Pension Plan:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Change in benefit obligation
               
Benefit obligation as of December 31, 2009 and 2008, respectively
  $ 10,634     $ 10,070  
Interest cost
    601       602  
Benefits paid (including expenses)
    (631 )     (602 )
Actuarial (gain)/loss
    413       564  
                 
Benefit obligation at end of year
  $ 11,017     $ 10,634  
                 
Change in plan assets
               
Fair value of plan assets as of December 31, 2009 and 2008, respectively
  $ 7,909     $ 10,537  
Actual return on plan assets
    1,439       (2,026 )
Benefits paid (including expenses)
    (631 )     (602 )
                 
Fair value of plan assets at end of year
  $ 8,717     $ 7,909  
                 
Funded status at end of year
               
Net amount recognized in statement of financial condition (after ASC 715)
  $ (2,300 )   $ (2,725 )
                 
Amounts Recognized in the Statement of Financial Condition consist of:
               
Assets
  $     $  
Liabilities
    (2,300 )     (2,725 )
                 
Net amount recognized in statement of financial condition (after ASC 715)
  $ (2,300 )   $ (2,725 )
                 
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive (loss) income:
               
Transition (obligation) cost
  $     $  
Prior service (cost) credit
           
Net (loss) gain
    (1,691 )     (2,327 )
                 
Accumulated other comprehensive (loss) income (AOCI)
    (1,691 )     (2,327 )
Cumulative employer contributions in excess of net periodic benefit cost
    (609 )     (398 )
                 
Net amount recognized in statement of financial condition
  $ (2,300 )   $ (2,725 )
                 
Additional year-end information for pension plans with accumulated benefit obligations in excess of plan assets:
               
Projected benefit obligation
  $ 11,017     $ 10,634  
                 
Accumulated benefit obligation
  $ 11,017     $ 10,634  
                 
Fair value of plan assets
  $ 8,717     $ 7,909  
                 
Weighted-average assumptions used to determine net periodic benefit obligations
               
Projected benefit obligation
    5.84 %     5.76 %
Rate of compensation increase
    NA       NA  


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
20.   Pension Plan — (Continued)
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Expected Cash Flows
               
Expected return of assets to employer in next year
  $     $  
                 
Expected employer contribution for next fiscal year
  $     $  
                 
Expected benefit payments
               
Year ending December 31, 2010
  $ 648          
Year ending December 31, 2011
    635          
Year ending December 31, 2012
    636          
Year ending December 31, 2013
    620          
Year ending December 31, 2014
    640          
Next five years
    3,498          
Components of net periodic benefit cost
               
Interest cost
  $ 601     $ 602  
Expected return on plan assets
    (531 )     (716 )
Amortization of net (gain) loss
    141        
                 
Net periodic benefit cost
  $ 211     $ (114 )
                 
Weighted-average assumptions used to determine net periodic benefit cost
               
Discount rate
    5.76 %     6.11 %
Expected long-term return on plan assets
    7.00 %     7.00 %
Rate of compensation increase
    N/A       N/A  
 
The long-term expected rate of return for determining net periodic Pension Plan cost for the periods ending December 31, 2009 and 2008 (7.00%) was chosen by the Corporation from a best estimate range based upon the anticipated long-term returns and long-term volatility for asset categories based on the target asset allocation of the Pension Plan.
 
The overall investment objective of the Pension Plan is to meet the long-term benefit obligations accrued under the Pension Plan through investment in a diversified mix of equity and fixed income securities. The investment policy as established by the Benefits Committee, to be followed by the Trustee, is to invest assets based on the target allocations shown in the table below. The assets are reallocated periodically to meet the target allocations. The investment policy is reviewed periodically, under the advisement of a certified investment advisor, to determine if the policy should be modified.
 
Within the equity asset allocation, domestic large cap equities comprise the majority of this category with a target of 36%; international and small to mid cap equities comprise the remaining with target goals of 18% and 8%, respectively. The equity securities allocation does not include any of the Corporation’s securities in 2009 or 2008. This portfolio is measured against an index such as the S&P 500 Index or Russell 1000 Index.
 
For the fixed income allocation, a prudent total return consisting of both capital appreciation and interest income is the expectation. The assets invested in this portfolio should not be those which are necessary for immediate operation. Liquidity will be managed through the use of readily marketable securities and adherence to certain fixed income specifications outlined in the investment policy. This portfolio will be measured against the Lehman Intermediate Government/Credit Index.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
20.   Pension Plan — (Continued)
 
The Corporation’s Pension Plan weighted average asset allocations at December 31, 2009 and 2008:
 
                                 
    Percentage of
             
    Pension Plan
             
    Assets at
             
    December 31,     Long-term
       
    2009     2008     target     Range  
 
Asset Category:
                               
Cash and cash equivalents
    3.4 %     6.0 %     3.0 %     0-10 %
Equity securities
    56.2       50.5       62.0       40-65 %
Debt securities
    40.4       43.5       35.0       30-55 %
                                 
Total
    100.0 %     100.0 %     100.0 %        
                                 
 
The fair value of the Corporation’s pension plan assets at December 31, 2009, by asset category are as follows:
 
                                 
          Quoted Prices in
          Significant
 
    Fair Value at
    Active Markets for
    Significant Other
    Unobservable
 
    December 31,
    Identical Assets
    Observable Inputs
    Inputs
 
    2009     (Level 1)     (Level 2)     (Level 3)  
    (Dollars in thousands)  
 
Cash
  $ 293     $ 293     $     $  
Equity securities:
                               
U.S. Companies
    4,046       4,046              
International Companies
    852       852              
U.S. Treasury securities
    3,526       3,526              
                                 
Total
  $ 8,717     $ 8,717     $     $  
                                 
 
The fair value of the Corporation’s pension plan assets at December 31, 2008, by asset category are as follows:
 
                                 
          Quoted Prices in
          Significant
 
    Fair Value at
    Active Markets for
    Significant Other
    Unobservable
 
    December 31,
    Identical Assets
    Observable Inputs
    Inputs
 
    2008     (Level 1)     (Level 2)     (Level 3)  
    (Dollars in thousands)  
 
Cash
  $ 477     $ 477     $     $  
Equity securities:
                               
U.S. Companies
    3,327       3,327              
International Companies
    665       665              
U.S. Treasury securities
    3,440       3,440              
                                 
Total
  $ 7,909     $ 7,909     $     $  
                                 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
20.   Pension Plan — (Continued)
 
Benefit Restoration Plan:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Change in benefit obligation
               
Benefit obligation as of December 31, 2009 and 2008, respectively
  $ 610     $ 2,829  
Interest cost
    34       90  
Benefits paid (including expenses)
    (58 )     (57 )
Forfeiture of benefits
          (2,224 )
Actuarial (gain)/loss
    18       (28 )
                 
Benefit obligation at end of year
  $ 604     $ 610  
                 
Change in plan assets
               
Fair value of plan assets as of December 31, 2009 and 2008, respectively
  $     $  
Actual return on plan assets
           
Employer contribution
    58       57  
Benefits paid (including expenses)
    (58 )     (57 )
                 
Fair value of plan assets at end of year
  $     $  
                 
Funded status at end of year
               
Net amount recognized in statement of financial condition (ASC 715)
  $ 604     $ 610  
                 
Amounts Recognized in the Statement of Financial Condition consist of:
               
Assets
  $     $  
Current liabilities
    (57 )     (56 )
Noncurrent liabilities
    (547 )     (554 )
                 
Net amount recognized in statement of financial condition (after ASC 715)
  $ (604 )   $ (610 )
                 
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive (loss) income:
               
Transition (obligation) cost
  $     $  
Prior service (cost) credit
           
Net (loss) gain
    (22 )     (4 )
                 
Accumulated other comprehensive (loss) income (AOCI)
    (22 )     (4 )
Cumulative employer contributions in excess of net periodic benefit cost
    (582 )     (606 )
                 
Net amount recognized in statement of financial condition
  $ (604 )   $ (610 )
                 
 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
20.   Pension Plan — (Continued)
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Additional year-end information for pension plans with accumulated benefit obligations in excess of plan assets:
               
Projected benefit obligation
  $ 604     $ 610  
                 
Accumulated benefit obligation
  $ 604     $ 610  
                 
Fair value of plan assets
  $     $  
                 
Weighted-average assumptions used to determine net periodic benefit obligations
               
Projected benefit obligation
    5.84 %     5.76 %
Rate of compensation increase
    NA       NA  
Components of net periodic benefit cost
               
Interest cost
  $ 34     $ 90  
                 
Net periodic benefit cost
  $ 34     $ 90  
                 
Weighted-average assumptions used to determine net periodic benefit cost
               
Discount rate
    5.76 %     6.11 %
Expected long-term return on plan assets
    NA       NA  
Rate of compensation increase
    NA       NA  
Expected Cash Flows
               
Expected return of assets to employer in next year
  $     $  
                 
Expected employer contribution for next fiscal year
  $ 57     $ 56  
                 
Expected benefit payments
               
Year ending December 31, 2010
  $ 57          
Year ending December 31, 2011
    56          
Year ending December 31, 2012
    55          
Year ending December 31, 2013
    54          
Year ending December 31, 2014
    52          
Next five years
    235          
 
21.   Other Noninterest Expense
 
Other noninterest expense consisted of the following:
 
                         
    December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Professional fees
  $ 4,202     $ 2,637     $ 2,269  
Directors fees
    377       438       397  
Insurance
    2,555       2,381       1,907  
Postage, stationery and supplies
    3,002       2,964       2,252  
Communications
    3,054       2,941       2,007  
Advertising
    2,530       3,522       2,397  
Other operating expense
    7,755       7,022       7,618  
                         
Total
  $ 23,475     $ 21,905     $ 18,847  
                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
22.   Concentrations of Credit Risk
 
All of the Corporation’s loans, commitments and standby letters of credit have been granted to customers in the Corporation’s market areas. The concentrations of credit by type of loan or commitment are set forth in Notes 4 and 17, respectively.
 
The Corporation maintains cash balances and federal funds sold at several financial institutions. At various times throughout the year, cash balances held at these institutions will exceed federally insured limits. Superior Bank’s management monitors these institutions on a quarterly basis in order to determine that the institutions meet “well-capitalized” guidelines as established by the FDIC.
 
23.   Net (Loss) Income Per Common Share
 
The following table sets forth the computation of basic net (loss) income per common share and diluted net (loss) income per common share:
 
                         
    December 31,  
    2009     2008     2007  
    (Dollars in thousands, except per share amounts)  
 
Numerator:
                       
Net (loss) income
  $ (19,889 )   $ (163,150 )   $ 7,621  
Less: preferred stock dividends and amortization
    4,193       311        
Add: gain on exchange of Series A preferred stock to
                       
trust preferred securities (See Note 29)
    23,097              
                         
For basic and diluted, net income (loss) applicable to common stockholders
  $ (985 )   $ (163,461 )   $ 7,621  
                         
Denominator:
                       
For basic, weighted average common shares outstanding
    10,687       10,021       9,243  
Effect of dilutive stock options
                90  
                         
Average common shares outstanding, assuming dilution
    10,687       10,021       9,333  
                         
Basic net income (loss) per common share
  $ (0.09 )   $ (16.31 )   $ 0.82  
                         
Diluted net income (loss) per common share
  $ (0.09 )   $ (16.31 )   $ 0.82  
                         
 
Basic net (loss) income per common share is calculated by dividing net income (loss), less dividend requirements on outstanding preferred stock, by the weighted-average number of common shares outstanding for the period.
 
Diluted net (loss) income per common share takes into consideration the pro forma dilution assuming certain warrants, unvested restricted stock and unexercised stock option awards were converted or exercised into common shares. Common stock equivalents of 159,561 and 65,226 were not included in computing diluted net loss per share for the years ended December 31, 2009 and 2008, respectively, as they were considered anti-dilutive.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
24.   Parent Company
 
The condensed financial information (unaudited) for Superior Bancorp (Parent Company only) is presented as follows:
 
                 
    December 31,  
    2009     2008  
    (Dollars in thousands)  
 
Statements of financial condition
               
Assets:
               
Cash
  $ 2,093     $ 1,414  
Investment in subsidiaries
    273,074       294,377  
Premises and equipment — net
    762       787  
Other assets
    3,947       18,115  
                 
    $ 279,876     $ 314,693  
                 
Liabilities:
               
Accrued expenses and other liabilities
  $ 4,620     $ 3,057  
Note payable
    7,000       7,000  
Subordinated debentures
    76,552       53,397  
Stockholders’ equity
    191,704       251,239  
                 
    $ 279,876     $ 314,693  
                 
 
                         
    Year Ended December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Statements of operations
                       
Income:
                       
Dividends from subsidiaries
  $ 6,000     $ 4,000     $ 7,000  
Interest
    127       156       156  
Other income
    145       3,160       404  
                         
    $ 6,272     $ 7,316     $ 7,560  
Expense:
                       
Directors’ fees
    301       293       269  
Salaries and benefits
    827       1,147       1,384  
Occupancy expense
    180       265       362  
Interest expense
    4,270       4,231       4,569  
Other
    1,020       766       2,373  
                         
      6,598       6,702       8,957  
Income (loss) before income taxes and equity in undistributed earnings of subsidiaries
    (326 )     614       (1,397 )
Income tax benefit
    1,734       1,948       3,513  
                         
Income before equity in undistributed (loss) earnings of subsidiaries
    1,408       2,562       2,116  
Equity in undistributed (loss) earnings of subsidiaries
    (21,297 )     (165,712 )     5,505  
                         
Net (loss) income
  $ (19,889 )   $ (163,150 )   $ 7,621  
                         


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
24.   Parent Company — (Continued)
 
                         
    Year Ended December 31,  
    2009     2008     2007  
    (Dollars in thousands)  
 
Statements of cash flows
                       
Operating activities
                       
Net (loss) income
  $ (19,889 )   $ (163,150 )   $ 7,621  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
                       
Amortization and depreciation expense
    25       60       184  
Equity in undistributed loss (earnings) of subsidiaries
    21,297       165,712       (5,505 )
Other decreases
    (545 )     (2,079 )     (1,120 )
                         
Net cash provided by operating activities
    888       543       1,180  
Investing activities
                       
Investment in subsidiary
          (66,550 )      
Proceeds from sale of premises and equipment
          316       339  
Purchases of premises and equipment
          (57 )      
Net cash paid in business combinations
                (2,527 )
                         
Net cash used by investing activities
          (66,291 )     (2,188 )
Financing activities
                       
Proceeds from issuance of common stock
    3,299             640  
Proceeds from issuance of preferred stock
          69,000        
Proceeds from note payable
          10,000       10,000  
Principal payment on note payable
          (12,500 )     (6,045 )
Proceeds from issuance of junior subordinated debentures
                22,680  
Principal payment on junior subordinated debentures
                (16,495 )
Purchase of treasury stock
                (10,428 )
Cash dividends paid
    (3,508 )            
                         
Net cash (used) provided by financing activities
    (209 )     66,500       352  
                         
Net increase (decrease) in cash
    679       752       (656 )
Cash at beginning of year
    1,414       662       1,318  
                         
Cash at end of year
  $ 2,093     $ 1,414     $ 662  
                         


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
25.   Selected Quarterly Results of Operations (Unaudited)
 
A summary of the unaudited results of operations for each quarter of 2009 and 2008 follows:
 
                                 
    First
    Second
    Third
    Fourth
 
    Quarter     Quarter     Quarter     Quarter  
    (Dollars in thousands, except per share data)  
 
2009
                               
Total interest income
  $ 39,756     $ 40,629     $ 41,049     $ 40,648  
Total interest expense
    18,428       17,912       17,136       16,044  
Net interest income
    21,328       22,717       23,913       24,604  
Provision for loan losses
    3,452       5,982       5,169       13,947  
Securities loss
    (5,845 )     (5,781 )     2,121       (597 )
Changes in fair value of derivatives
    (199 )     (67 )     435       (995 )
(Loss) income before income taxes
    (6,422 )     (10,233 )     1,581       (17,820 )
Net (loss) income
    (3,574 )     (5,694 )     880       (11,501 )
Net (loss) income applicable to common shareholders
    (4,717 )     (6,861 )     (287 )     10,880  
Basic net (loss) income per common share
    (0.47 )     (0.68 )     (0.03 )     0.94  
Diluted net (loss) income per common share
    (0.47 )     (0.68 )     (0.03 )     0.92  
2008
                               
Total interest income
  $ 42,552     $ 42,032     $ 41,880     $ 41,424  
Total interest expense
    24,060       20,644       20,254       19,645  
Net interest income
    18,492       21,388       21,626       21,779  
Provision for loan losses
    1,872       5,967       2,305       2,968  
Securities gain (loss)
    402       1,068       (8,541 )     (1,382 )
Changes in fair value of derivatives
    1,050       (418 )     141       467  
Goodwill impairment charge
                      160,306  
Income (loss) before income taxes
    957       1,151       (7,800 )     (162,046 )
Net loss
    695       841       (6,508 )     (158,178 )
Net income (loss) applicable to common shareholders
    695       841       (6,508 )     (158,489 )
Basic net income (loss) per common share
    0.07       0.08       (0.65 )     (15.80 )
Diluted net income (loss) per common share
    0.07       0.08       (0.65 )     (15.80 )
 
Due to the effect of quarterly weighted average share calculations, the sum of the quarterly net income (loss) per share amounts may not total to the year-to-date net (loss) income per share amounts.
 
26.   Segment Reporting
 
The Corporation has two reportable segments, the Alabama Region and the Florida Region. The Alabama Region consists of operations located throughout Alabama. The Florida Region consists of operations located primarily in the Tampa Bay area and panhandle region of Florida. The Corporation’s reportable segments are managed as separate business units because they are located in different geographic areas. Both segments derive revenues from the delivery of financial services. These services include commercial loans, mortgage loans, consumer loans, deposit accounts and other financial services. Administrative and other banking activities include the results of the Corporation’s investment portfolio, home mortgage division, brokered deposits and borrowed funds positions.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
26.   Segment Reporting — (Continued)
 
The Corporation evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Net interest income is used as the basis for performance evaluation rather than its components, total interest income and total interest expense. The accounting policies used by each reportable segment are the same as those discussed in Note 1 to the consolidated financial statements. All costs, except corporate administration and income taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the consolidated totals.
 
                                         
                Total
          Superior
 
    Alabama
    Florida
    Alabama and
    Administrative
    Bancorp
 
    Region     Region     Florida     and Other     Combined  
    (Dollars in thousands)  
 
2009
                                       
Net interest income
  $ 37,554     $ 38,785     $ 76,339     $ 16,223     $ 92,562  
Provision for loan losses
    6,496       10,150       16,646       11,904       28,550  
Noninterest income
    8,662       2,101       10,763       2,816       13,579  
Noninterest expense
    35,480       25,637       61,117       49,368       110,485  
                                         
Operating profit (loss)
  $ 4,240     $ 5,099     $ 9,339     $ (42,233 )     (32,894 )
                                         
Income tax benefit
                                    (13,005 )
                                         
Net loss
                                  $ (19,889 )
                                         
Total assets
  $ 1,060,530     $ 1,259,223     $ 2,319,753     $ 902,116     $ 3,221,869  
                                         
2008
                                       
Net interest income
  $ 33,114     $ 38,151     $ 71,265     $ 12,020     $ 83,285  
Provision for loan losses
    4,393       3,464       7,857       5,255       13,112  
Noninterest income
    7,589       1,934       9,523       7,244       16,767  
Noninterest expense
    30,654       21,730       52,384       41,988       94,372  
Goodwill impairment charge(1)
    63,815       96,491       160,306             160,306  
                                         
Operating (loss) profit
  $ (58,159 )   $ (81,600 )   $ (139,759 )   $ (27,979 )     (167,738 )
                                         
Income tax benefit
                                    (4,588 )
                                         
Net loss
                                  $ (163,150 )
                                         
Total assets
  $ 1,062,230     $ 1,109,011     $ 2,171,241     $ 881,460     $ 3,052,701  
                                         
2007
                                       
Net interest income
  $ 36,844     $ 38,059     $ 74,903     $ 259     $ 75,162  
Provision for loan losses
    3,845       1,632       5,477       (936 )     4,541  
Noninterest income
    7,021       1,723       8,744       10,613       19,357  
Noninterest expense
    24,924       14,702       39,626       38,597       78,223  
                                         
Operating profit (loss)
  $ 15,096     $ 23,448     $ 38,544     $ (26,789 )     11,755  
                                         
Income tax expense
                                    4,134  
                                         
Net income
                                  $ 7,621  
                                         
Total assets
  $ 1,029,652     $ 1,124,816     $ 2,154,468     $ 730,957     $ 2,885,425  
                                         
 
(1) — See Note 1 “Intangible Assets” for additional information.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
27.   Stockholders’ Equity
 
Common Stock
 
On November 19, 2009, after approval by the Board of Directors and the Corporation’s stockholders, the Corporation amended the Corporation’s Restated Certificate of Incorporation to increase the number of authorized shares of the Corporation’s common stock from 20,000,000 to 200,000,000.
 
During the third quarter of 2009 the Corporation sold 1,491,618 shares of its common stock at prices ranging from $2.21 to $2.71 per share to approximately 20 accredited investors in a series of transactions exempt from the registration requirements of the Securities Act of 1933 pursuant to Securities and Exchange Commission Regulation D. Of the shares issued approximately 321,000 had been held as treasury stock. The Corporation received total cash consideration of approximately $3,299,000 in connection with these transactions.
 
If the Corporation defers payments of interest on its outstanding junior subordinated debentures or if certain defaults relating to those debentures occur, the Corporation will be prohibited from declaring or paying dividends or distributions on, and from making liquidation payments with respect to, its common stock (See Note 11 for additional details).
 
1-for-4 Reverse Stock Split
 
On April 28, 2008, the Corporation completed a 1-for-4 reverse split of its common stock, reducing the number of authorized shares of common stock from 60,000,000 to 15,000,000 and the number of common shares outstanding from 40,211,230 to 10,052,808. This action brought the Corporation’s authorized common shares and common shares outstanding more nearly in line with peer community banks. All disclosures in this annual report regarding common stock and related per share information have been retroactively restated for all periods presented to reflect the reverse stock split. The 1-for-4 reverse stock split was effective in the market as of the opening of trading on April 28, 2008.
 
Stock Repurchase Plan
 
The Corporation announced in June 2007 that the Board of Directors had approved the repurchase of up to 250,000 shares of the Corporation’s outstanding common stock. During the quarter ended September 30, 2007, the Corporation purchased 250,000 shares of then outstanding stock at an average price of $36.88 per share, which have been recorded, at cost, as treasury stock in the consolidated statement of financial condition. The shares were purchased in the open market through negotiated or block transactions and were not repurchased from the Corporations management team or other insiders.
 
The Corporation announced in October 2007 that the Board of Directors approved the purchase of an additional 250,000 shares of its outstanding common stock beginning on or after November 2, 2007. During the quarter ended December 31, 2007, the Corporation purchased 45,500 shares of then outstanding stock at an average price of $26.44, which have been recorded, at cost, as treasury stock in the consolidated statement of financial condition. The shares were purchased in the open market through negotiated or block transactions. The Corporation did not repurchase any shares from its management team or other insiders. This stock repurchase program does not obligate the Corporation to acquire any specific number of shares and may be suspended or discontinued at any time.
 
Issuance of Preferred Stock and Related Warrant
 
On December 5, 2008, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Corporation issued and sold, and the United States Department of the Treasury (the “Treasury Department”) purchased, (i) 69,000 shares (the “Preferred Stock”) of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and (ii) a ten-year warrant (the “Warrant”) to purchase up to 1,923,792 shares of the Corporation’s voting common stock, par value $0.001 per share (“Common Stock”), at an exercise price of $5.38 per share, for an aggregate purchase price of $69,000,000 in


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
27.   Stockholders’ Equity — (Continued)
 
cash. The issuance and sale of these securities was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. On December 11, 2009, Superior Bancorp and the Treasury Department entered into an exchange agreement pursuant to which the Preferred Stock held by the Treasury Department were exchanged for the trust preferred securities issued by Superior Capital Trust II.
 
Cumulative dividends on the Preferred Shares accrued on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, but would be paid only if, as and when declared by the Corporation’s Board of Directors. The Preferred Stock had no maturity date and rank senior to the Common Stock (and pari passu with the Corporation’s other authorized series of preferred stock, of which no shares are currently outstanding) with respect to the payment of dividends and distributions and amounts payable upon any liquidation, dissolution and winding up of the Corporation. Subject to the approval of the Office of Thrift Supervision, the Preferred Stock was redeemable at the option of the Corporation at 100% of their liquidation preference, provided that the Preferred Shares were redeemed prior to the first dividend payment date falling after the third anniversary of the Closing Date (December 5, 2011) only if (i) the Corporation had raised aggregate gross proceeds in one or more Qualified Equity Offerings (as defined in the letter agreement, dated December 5, 2008 between the Corporation and the Treasury Department (including the Securities Purchase Agreement — Standard Terms incorporated by reference therein) (the “Purchase Agreement”) and set forth below) in excess of $17,250,000 and (ii) the aggregate redemption price did not exceed the aggregate net proceeds from such Qualified Equity Offerings. Notwithstanding the foregoing provisions of the TARP agreements, the American Recovery and Reinvestment Act (“ARRA”) eliminated most of the restrictions on redemption of the Preferred Stock. Subject to consultation with the Office of Thrift Supervision, the Corporation could have redeemed the Preferred Stock without regard to any waiting period or whether the Corporation has participated in a Qualified Equity Offering.
 
The Treasury Department could not transfer a portion or portions of the Warrant with respect to, and/or exercise the Warrant for more than one-half of, the 1,923,792 shares of Common Stock issuable upon exercise of the Warrant, in the aggregate, until the earlier of (i) the date on which the Corporation had received aggregate gross proceeds of not less than $69,000,000 from one or more Qualified Equity Offerings (as defined in the Purchase Agreement and set forth below) and (ii) December 31, 2009. In the event the Corporation completed one or more Qualified Equity Offerings (as defined in the Purchase Agreement and set forth below) on or prior to December 31, 2009 that result in the Corporation receiving aggregate gross proceeds of not less than $69,000,000, the number of the shares of Common Stock underlying the portion of the Warrant then held by the Treasury will be reduced by one-half of the shares of Common Stock originally covered by the Warrant. For the purposes of the foregoing, “Qualified Equity Offering” is defined as the sale and issuance for cash by the Corporation to persons other than the Corporation or any Corporation subsidiary after the Closing Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier I capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s federal banking agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).
 
As a result of the issuance of 1,491,618 additional shares in July 2009, the Treasury Department adjusted the warrant share position to 1,975,688 shares with a strike price of $5.239.
 
The fair value of the Warrant of $6,093,000 was determined using the Black-Scholes option-pricing model and the value allocated using the proportional method. The assumptions used in the model were; risk-free rate of 3.52%, volatility factor of 59.00% and a dividend yield of 0.00% . The value of the Warrant was being amortized against retained earnings as part of the preferred stock dividend until December 11, 2009, which was the exchange date (see below); it is currently being amortized as interest expense on subordinated debentures. The amortization of the warrant increased the effective yield on the preferred stock to 7.11%.


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
27.   Stockholders’ Equity — (Continued)
 
The Corporation accrued cash dividends on the Series A preferred stock during the years ended December 31, 2009 and 2008 amounting to $4,193,000 and $311,000, respectively.
 
Exchange of Preferred Stock
 
Refer to Note 29 to the consolidated financial statements for information on the exchange agreement dated December 11, 2009 related to these shares of preferred stock.
 
Exchange of non-pooled trust preferred securities for newly issued common stock
 
Refer to Note 30 to the consolidated financial statements for information on the exchange agreements dated January 10, 2010 and January 15, 2010 related to these trust preferred securities.
 
28.   Other Comprehensive (Loss) Income
 
The components of other comprehensive (loss) income for the years ended December 31, 2009, 2008, and 2007 are as follows:
 
                         
    Pre-Tax
    Income Tax
    Net of
 
    Amount     Expense     Income Tax  
    (Dollars in thousands)  
 
2009
                       
Unrealized loss on available for sale securities
  $ (10,748 )   $ 3,977     $ (6,771 )
Reclassification adjustment for losses realized in net loss
    10,102       (3,738 )     6,364  
Unrealized gain on derivatives
    189       (71 )     118  
Defined benefit pension plan — net gain arising during the period
    617       (228 )     389  
                         
Net unrealized gain
  $ 160     $ (60 )   $ 100  
                         
2008
                       
Unrealized loss on available for sale securities
  $ (16,885 )   $ 6,203     $ (10,682 )
Reclassification adjustment for losses realized in net loss
    8,453       (3,128 )     5,325  
Unrealized loss on derivatives
    (955 )     354       (601 )
Defined benefit pension plan — net loss arising during the period
    (3,398 )     1,257       (2,141 )
                         
Net unrealized loss
  $ (12,785 )   $ 4,686     $ (8,099 )
                         
2007
                       
Unrealized gain on available for sale securities
  $ 2,344     $ (918 )   $ 1,426  
Reclassification adjustment for gains realized in net income
    (308 )     120       (188 )
Defined benefit pension plan — net gain arising during the period
    615       (227 )     388  
                         
Net unrealized gain
  $ 2,651     $ (1,025 )   $ 1,626  
                         


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
29.   Exchange Offer
 
Exchange of preferred stock held by the Treasury Department for trust preferred securities
 
On December 11, 2009, the Corporation entered into an exchange agreement with the Treasury Department pursuant to which the Treasury Department agreed that it would exchange all 69,000 shares of the Corporation’s outstanding Preferred Stock, owned by the Treasury Department for 69,000 newly issued trust preferred securities, $1,000 liquidation amount per capital security, issued by Superior Capital Trust II, a wholly-owned, unconsolidated subsidiary of Superior Bancorp. The trust preferred securities were issued to the Treasury Department on December 11, 2009. In connection with this exchange, the trust used the Preferred Stock, together with the proceeds of the issuance and sale by the trust to the Corporation of $100,000 aggregate liquidation amount of its fixed rate common securities, to purchase $69,100,000 aggregate principal amount of the junior subordinated debentures issued by the Corporation.
 
The trust preferred securities issued to the Treasury Department have a distribution rate of 5% until, but excluding February 15, 2014 and 9% thereafter (which is the same as the dividend rate on the Preferred Stock). The common securities of the trust, in the amount of $100,000, are held by the Corporation. The sole asset and only source of funds to make payments on the trust preferred securities and the common securities of the trust is $69,100,000 of the Corporation’s Fixed Rate Perpetual Junior Subordinated Debentures, issued by the Corporation to the trust. The debentures are perpetual and may be redeemed by the Corporation at any time by the Corporation on 30 days’ notice.
 
Under the guarantee agreement dated as of December 11, 2009, the Corporation irrevocably and unconditionally agrees to pay in full to the Treasury Department of the trust preferred securities the guaranteed payments, as and when due. The Corporation’s obligation to make the guaranteed payment may be satisfied by direct payment of the required amounts to the Treasury Department of the trust preferred securities or by causing the issuer trust to pay such amounts to the Treasury Department. The obligations of the Corporation under the guarantee agreement constitute unsecured obligations and rank subordinate and junior in right of payment to all senior debt. The obligations of the Corporation under the guarantee agreement rank pari passu with the obligations of Corporation under any similar guarantee agreements issued by the Corporation on behalf of the holders of preferred or capital securities issued by any statutory trust, among others stated in the guarantee agreement. Under the guarantee agreement, the Corporation has guaranteed the payment of the liquidation amount of the trust preferred securities upon liquidation of the trust, but only to the extent that the trust has funds available to make such payments.
 
Under the exchange agreement, the Corporation’s agreement that, without the consent of the Treasury Department, it would not increase its dividend rate per share of common stock above that in effect as of October 13, 2008 or repurchase shares of its common stock until, in each case, the earlier of December 5, 2011 or such time as all of the new trust preferred securities have been redeemed or transferred by the Treasury Department, remains in effect.
 
Initially, in connection with the issuance of the Preferred Stock on December 5, 2008, the Treasury Department was issued a warrant to purchase 1,923,392 shares of the Corporation’s common stock at an exercise price of $5.38 per share. However, as a result of the issuance of 1,491,618 additional shares in July 2009, the Corporation adjusted the warrant share position to 1,975,688 shares with a strike price of $5.239.
 
The trust preferred securities issued to the Treasury Department continue to qualify as Tier 1 regulatory capital as of December 31, 2009. The trust preferred securities are subject to the 25% limitation on Tier 1 capital.
 
This transaction with the Treasury Department was accounted for as an extinguishment of previously issued Preferred Stock. The accounting impact of this transaction included (1) recognition of junior subordinated debentures and derecognition of the Preferred Stock; (2) recognition of a favorable impact to accumulated deficit resulting from the excess of (a) the carrying amount of the securities exchanged (the Preferred Stock) over (b) the


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
29.   Exchange Offer — (Continued)
 
fair value of the consideration exchanged (the trust preferred securities); (3) the reversal of any unamortized discount outstanding on the Preferred Stock and (4) issuance costs.
 
At the date of the exchange agreement, the fair value of the trust preferred securities (junior subordinated debentures for purposes of the Corporation’s financial statements) was determined internally using a discounted cash flow model. The main considerations were (1) quarterly interest payment of 5% until, but excluding February 15, 2014 and 9%, thereafter; (2) assumed maturity date of 30 years; and (3) assumed discount rate of 19.63%. The assumed discount rate used for estimating the fair value was estimated by obtaining the yields at which comparable issuers were trading as assets in the market and computing a implied credit spread. The discount rate used is the amount of the implied credit spread of 14.69% plus the 30-year swap rate of 4.94%.
 
The discount as well as the debt issuance costs will be amortized through interest expense using the interest yield method over the estimated life of the junior subordinated debentures. The effective yield of the issue will be 20.22%.
 
This particular exchange resulted in a gain on retirement of preferred stock favorably impacting accumulated deficit by $23,097,000 (net of deferred taxes), which is also considered as part of earnings (losses) applicable to common stockholders in the earnings (losses) per common share (“EPS”) computations. See Note 23 to the consolidated financial statements for a reconciliation of EPS. A summary of this transaction and the increases (decreases) in the related asset, liability and stockholders’ equity accounts is as follows (Dollars in thousands):
 
         
Assets
       
Other assets — investment in common stock of trust
  $ 100  
— deferred income taxes (see Note 14)
    (16,544 )
         
Total assets
  $ (16,444 )
         
Liabilities
       
Subordinated debentures, net (see Note 11):
       
Issuance
  $ 69,100  
Discount
    (44,714 )
         
Total liabilities
    24,386  
         
Stockholders’ equity (see Note 27)
       
Preferred stock, par value $.001 per share
  $  
Surplus — preferred ($69,000 less discount of $5,073)
    (63,927 )
Accumulated deficit (net of $16,544 deferred taxes)
    23,097  
         
Total stockholders’ equity
    (40,830 )
         
Total liabilities and stockholders’ equity
  $ (16,444 )
         
 
30.   Subsequent Events
 
Exchange of non-pooled trust preferred securities for newly issued common stock
 
On January 15, 2010, the Corporation entered into an agreement with Cambridge Savings Bank (“Cambridge”) pursuant to which Cambridge will exchange $3,500,000 of trust preferred securities issued by the Corporation’s wholly owned unconsolidated subsidiary, Superior Capital Trust I, for shares of the Corporation’s common stock. The number of shares of common stock to be issued to Cambridge will equal 77% of the face value of the trust preferred securities divided by a weighted average of the sales prices of newly issued shares of the Corporation’s common stock sold between the date of the agreement and the closing of the exchange or, if lower, the


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SUPERIOR BANCORP AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
30.   Subsequent Events — (Continued)
 
weighted average of the sales prices of such stock within forty-eight hours prior to the closing of the exchange. The consummation of the transaction is conditioned upon selling at least $75 million of the Corporation’s common stock either for cash or in exchange for trust preferred securities or debt, obtaining consent of the Corporation’s stockholders if required by NASDAQ, and other customary closing conditions.
 
On January 20, 2010, the Corporation entered into an agreement with KBW, Inc. (“KBW”) pursuant to which KBW will exchange $4,000,000 of trust preferred securities issued by the Corporation’s wholly owned unconsolidated subsidiary, Superior Capital Trust I, for shares of the Corporation’s common stock. The number of shares of common stock to be issued to KBW will equal 50% of the face value of the trust preferred securities divided by the greater of the following prices of the Corporation’s common stock during the ten trading days prior to the closing of the exchange: (1) the average of the closing prices or (2) 90% of the volume weighted average price. The consummation of the transaction is conditioned upon obtaining consent of the Corporation’s stockholders if required by NASDAQ, and other customary closing conditions.
 
Neither the Corporation nor its affiliates have any material relationship with Cambridge other than in respect of the exchange agreement. Neither the Corporation nor its affiliates have any material relationship with KBW except that the Corporation has engaged an affiliate of KBW to assist it in formulating and implementing strategies to strengthen its capital position.
 
The Corporation expects to record a net after-tax gain of $1,800,000 upon exchange of the trust preferred securities. The ultimate effect of the transactions will be to increase stockholders’ equity by approximately $6,500,000, consisting of both the increase in equity upon recording gains on retirement of the securities, and the value of the newly issued shares. See Note 27 to the consolidated financial statements.


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Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 9A.   Controls And Procedures
 
Officer Certifications
 
Appearing immediately following the Signatures section of this report are Certifications of our Chief Executive Officer (“CEO”) and our Chief Financial Officer, who is our principal financial officer (“PFO”). The Certifications are required to be made by Rule 13a-14 of the Securities Exchange Act of 1934, as amended. This Item contains the information about the evaluation that is referred to in the Certifications, and the information set forth below in this Item should be read in conjunction with the Certifications for a more complete understanding of the Certifications.
 
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures to ensure that material information required to be disclosed in our Exchange Act reports is made known to the officers who certify our financial reports and to other members of our senior management and our Board of Directors.
 
Based on their evaluation as of December 31, 2009, our CEO and our CFO have concluded that our disclosure controls and procedures (as defined in Rule 13a-l5(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosures.
 
All internal controls systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements in our financial statements, including the possibility of circumvention or overriding of controls. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our CEO and our PFO, our management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, as of December 31, 2009. Based on this evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009. Grant Thornton LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has issued an audit report on the effectiveness of Superior Bancorp’s internal control over financial reporting as of December 31, 2009. The report is included in this item under the heading “Report of Independent Registered Public Accounting Firm.”


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Report of Independent Registered Public Accounting Firm
 
Board of Directors and Shareholders
Superior Bancorp
 
We have audited Superior Bancorp’s (a Delaware corporation) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Superior Bancorp’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Superior Bancorp’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Superior Bancorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by COSO.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Superior Bancorp and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years ended December 31, 2009, and our report dated March 11, 2010, expressed an unqualified opinion.
 
/s/  GRANT THORNTON LLP
 
Raleigh, North Carolina
March 11, 2010


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Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Item 9B.   Other Information.
 
None.
 
PART III
 
Items 10, 11, 12, 13 and 14.   Directors, Executive Officers and Corporate Governance; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and Related Transactions, and Director Independence; and Principal Accountant Fees and Services.
 
The information set forth under the captions “Security Ownership of Certain Beneficial Owners and Management,” “Nominees for Director,” “Executive Officers,” “Certain Information Concerning the Board of Directors and Its Committees,” “Stockholder Communications with the Board,” “Director Compensation,” “Code of Ethics,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Compensation and Other Information,” “Ratification of Selection of Independent Public Accounting Firm” included in our definitive proxy statement to be filed no later than April 30, 2010, in connection with our 2010 Annual Meeting of Stockholders is incorporated herein by reference.
 
PART IV
 
Item 15.   Exhibits and Financial Statement Schedules.
 
(a) Financial Statements and Financial Schedules.
 
  (l)  The consolidated financial statements of Superior Bancorp and its subsidiaries filed as a part of this Annual Report on Form 10-K are listed in Item 8 of this Annual Report on Form 10-K, which is hereby incorporated by reference herein.
 
  (2)  All schedules to the consolidated financial statements of Superior Bancorp and its subsidiaries have been omitted because they are not required under the related instructions or are inapplicable, or because the required information has been provided in the consolidated financial statements or the notes thereto.
 
(b) Exhibits.
 
The exhibits required by Regulation S-K are set forth in the following list and are filed either by incorporation by reference from previous filings with the Securities and Exchange Commission or by attachment to this Annual Report on Form 10-K as indicated below. Prior to May 2006, Superior Bancorp was named “The Banc Corporation”. Many of the following exhibits accordingly reference “The Banc Corporation”.
 
     
(3)-1
  Restated Certificate of Incorporation of Superior Bancorp, filed as Exhibit 3 to Superior Bancorp’s Current Report on Form 8-K dated November 19, 2009, is hereby incorporated herein by reference.
(3)-2
  Bylaws of Superior Bancorp, filed as Exhibit 3 to Superior Bancorp’s Current Report on Form 8-K dated October 22, 2009, is hereby incorporated herein by reference.
(3)-3
  Certificate of Designations of Superior Bancorp Fixed Rate Cumulative Perpetual Preferred Stock, Series A, filed as Exhibit 3 to Superior Bancorp’s Current Report on Form 8-K dated November 26, 2008, is hereby incorporated herein by reference.


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(4)-1
  Amended and Restated Declaration of Trust, dated as of September 7, 2000, by and among State Street Bank and Trust Company of Connecticut, National Association, as Institutional Trustee, The Banc Corporation, as Sponsor, David R. Carter and James A. Taylor, Jr., as Administrators, filed as Exhibit(4)-1 to The Banc Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, is hereby incorporated herein by reference.
(4)-2
  Guarantee Agreement, dated as of September 7, 2000, by and between The Banc Corporation and State Street Bank and Trust Company of Connecticut, National Association, filed as Exhibit(4)-2 to The Banc Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, is hereby incorporated herein by reference.
(4)-3
  Indenture, dated as of September 7, 2000, by and among The Banc Corporation as issuer and State Street Bank and Trust Company of Connecticut, National Association, as Trustee, filed as Exhibit(4)-3 to The Banc Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, is hereby incorporated herein by reference.
(4)-4
  Placement Agreement, dated as of August 31, 2000, by and among The Banc Corporation, TBC Capital Statutory Trust II, Keefe Bruyette & Woods, Inc., and First Tennessee Capital Markets, filed as Exhibit(4)-4 to The Banc Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, is hereby incorporated herein by reference.
(4)-5
  Amended and Restated Declaration of Trust, dated as of July 16, 2001, by and among The Banc Corporation, The Bank of New York, David R. Carter, and James A. Taylor, Jr. filed as Exhibit(4)-5 to The Banc Corporation’s Registration Statement on Form S-4 (Registration No. 333-69734) is hereby incorporated herein by reference.
(4)-6
  Guarantee Agreement, dated as of July 16, 2001, by The Banc Corporation and The Bank of New York filed as Exhibit(4)-6 to The Banc Corporation’s Registration Statement on Form S-4 (Registration No. 333-69734) is hereby incorporated herein by reference.
(4)-7
  Indenture, dated as of July 16, 2001, by The Banc Corporation and The Bank of New York filed as Exhibit #(4)-7 to The Banc Corporation’s Registration Statement on Form S-4 (Registration No. 333-69734) is hereby incorporated herein by reference.
(4)-8
  Placement Agreement, dated as of June 28, 2001, among TBC Capital Statutory Trust III, and The Banc Corporation and Sandler O’Neill & Partners, L.P. filed as Exhibit #(4)-8 to The Banc Corporation’s Registration Statement on Form S-4 (Registration No. 333-69734) is hereby incorporated herein by reference.
(4)-9
  Indenture, dated March 23, 2000, by and between Community Bancshares, Inc. and The Bank of New York filed as Exhibit 4.4 to Community Bancshares’ Form 10-Q for the quarter ended March 31, 2000, is hereby incorporated herein by reference.
(4)-10
  Amended and Restated Declaration of Trust, dated March 23, 2000, by and among The Bank of New York (Delaware), The Bank of New York, Community Bancshares, Inc. and Community (AL) Capital Trust I filed as Exhibit 10.1 to Community Bancshares’ Form 10-Q for the quarter ended March 31, 2000, is hereby incorporated herein by reference.
(4)-11
  Guarantee Agreement, dated March 23, 2000, by and between Community Bancshares, Inc. and The Bank of New York filed as Exhibit 10.2 to Community Bancshares’ Form 10-Q for the quarter ended March 31, 2000, is hereby incorporated herein by reference.
(4)-12
  Stock Purchase Agreement, dated January 24, 2005, between The Banc Corporation and the investors named therein, filed as Exhibit 4-1 to The Banc Corporation’s Current Report on Form 8-K dated January 24, 2005, is hereby incorporated herein by reference.
(4)-13
  Registration Rights Agreement, dated January 24, 2005, between The Banc Corporation and the investors named therein, filed as Exhibit 4-2 to The Banc Corporation’s Current Report on Form 8-K dated January 24, 2005, is hereby incorporated herein by reference.
(4)-14
  Indenture, dated as of December 15, 2005, by and between Peoples Community Bancshares, Inc. and Wilmington Trust Company, filed as Exhibit 4.14 to Superior Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, is hereby incorporated herein by reference.

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(4)-15
  Placement Agreement, dated as of December 7, 2005, by and among Peoples Community Bancshares, Inc., Peoples Community Statutory Trust I, FTN Financial Capital Markets and Keefe, Bruyette & Woods, Inc, filed as Exhibit 4.15 to Superior Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, is hereby incorporated herein by reference.
(4)-16
  Guarantee Agreement, dated as of December 15, 2005, by and between Peoples Community Bancshares, Inc. and Wilmington Trust Company, filed as Exhibit 4.16 to Superior Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, is hereby incorporated herein by reference.
(4)-17
  Amended and Restated Declaration of Trust, dated as of December 15, 2005, by and among Wilmington Trust Company, Peoples Community Bancshares, Inc., Neil D. McCurry, Jr. and Dorothy S. Barth, filed as Exhibit 4.17 to Superior Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, is hereby incorporated herein by reference.
(4)-18
  Declaration of Trust, dated July 10, 2007, by and among Superior Bancorp, Wilmington Trust Company, Mark A. Tarnakow, William H. Caughran and Rick D. Gardner filed as Exhibit 4.01 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated herein by reference.
(4)-19
  Indenture, dated as of July 19, 2007, between Superior Bancorp and Wilmington Trust Company filed as Exhibit 4.02 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated herein by reference.
(4)-20
  Guarantee Agreement, dated as of July 19, 2007, between Superior Bancorp and Wilmington Trust Company filed as Exhibit 4.03 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated herein by reference.
(4)-21
  Placement Agreement, dated July 18, 2007, by and among Superior Bancorp, FTN Capital Markets and Keefe, Bruyette & Woods, Inc. filed as Exhibit 4.04 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated herein by reference.
(4)-22
  Summary Description of Non-Employee Directors Stock Plan., filed as Exhibit 4 to Superior Bancorp’s Registration Statement on Form S-8, dated May 30, 2006 (Registration No. 333-134561), and is hereby incorporated herein by reference.
(4)-23
  Amended and Restated Declaration of Trust and Trust Agreement, dated as of December 11, 2009, by and among Superior Bancorp, The Bank of New York Mellon Trust Company, N.A., BNY Mellon Trust of Delaware, James A. White, and William H. Caughran.
(4)-24
  Indentures, dated as of December 11, 2009, by Superior Bancorp and The Bank of New York Mellon Trust Company, N.A.
(4)-25
  First Supplemental Indenture, dated as of December 11, 2009, between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A.
(4)-26
  Guarantee Agreement, dated as of December 11, 2009, between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A.
(10)-1*
  Third Amended and Restated 1998 Stock Incentive Plan of The Banc Corporation, filed as Exhibit (10)-1 to The Banc Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, is hereby incorporated herein by reference.
(10)-2*
  Commerce Bank of Alabama Incentive Stock Compensation Plan, filed as Exhibit(4)-3 to The Banc Corporation’s Registration Statement on Form S-8, dated February 22, 1999 (Registration No. 333-72747), is hereby incorporated herein by reference.
(10)-3*
  Employment Agreement, dated January 24, 2005, by and between The Banc Corporation, The Bank and C. Stanley Bailey, filed as Exhibit 10-5 to The Banc Corporation’s Current Report on Form 8-K dated January 24, 2005, is hereby incorporated herein by reference.
(10)-4*
  Employment Agreement, dated January 24, 2005, by and between The Banc Corporation, The Bank and C. Marvin Scott, filed as Exhibit 10-6 to The Banc Corporation’s Current Report on Form 8-K dated January 24, 2005, is hereby incorporated herein by reference.
(10)-5*
  Employment Agreement, dated January 24, 2005, by and between The Banc Corporation, The Bank and Rick D. Gardner, filed as Exhibit 10-7 to The Banc Corporation’s Current Report on Form 8-K dated January 24, 2005, is hereby incorporated herein by reference.

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(10)-6*
  Agreement between Superior Bank and William H. Caughran, dated August 31, 2006, filed as Exhibit 10.4 to Amendment No. 1 to Superior Bancorp’s Registration Statement on Form S-4 (Registration No. 333-136419) is hereby incorporated herein by reference.
(10)-7*
  Management Incentive Compensation Plan, filed as Exhibit 10.1 to The Banc Corporation’s Current Report on Form 8-K, dated April 26, 2005, is hereby incorporated herein by reference.
(10)-8*
  Change in Control Agreement, dated March 10, 2008, by and among Superior Bancorp, Superior Bank and William H. Caughran, filed as Exhibit 10.22 to Superior Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, is hereby incorporated herein by reference.
(10)-9
  Loan Agreement, dated as of September 4, 2008, between Superior Bancorp and Colonial Bank, filed as Exhibit 10.1 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-10
  Revolving Credit Note, dated September 4, 2008, between Superior Bancorp and Colonial Bank,, filed as Exhibit 10.2 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-11
  Stock Pledge Agreement, dated as of September 4, 2008, given by Superior Bancorp, filed as Exhibit 10.3 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-12
  Agreement to Purchase Subordinated Notes, dated as of September 17, 2008, by and among Superior Bank, Superior Bancorp and Durden Enterprises, LLC, filed as Exhibit 10.4 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-13
  Letter to Durden Enterprises, LLC, dated as of September 17, 2008, filed as Exhibit 10.5 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-14
  9.5% Subordinated Note Due September 15, 2018 given by Superior Bank, filed as Exhibit 10.6 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-15
  Warrant to Purchase Common Stock of Superior Bancorp dated as of September 17, 2008, filed as Exhibit 10.7 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-16*
  Agreement, dated as of September 8, 2008, between Superior Bancorp and James A. White, filed as Exhibit 10.8 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-17*
  Change in Control Agreement, dated as of September 8, 2008, by and among Superior Bancorp, Superior Bank and James A. White, filed as Exhibit 10.8 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, is hereby incorporated herein by reference.
(10)-18
  Warrant, dated December 5, 2008, to purchase up to 1,923,792 shares of common stock of Superior Bancorp, filed as Exhibit 3 to Superior Bancorp’s Current Report on Form 8-K dated December 5, 2008, is hereby incorporated herein by reference.
(10)-19
  Letter Agreement, dated December 5, 2008, including Securities Purchase Agreement — Standard Terms incorporated by reference therein, between the Company and the United States Department of the Treasury, filed as Exhibit 10.1 to Superior Bancorp’s Current Report on Form 8-K dated December 5, 2008, is hereby incorporated herein by reference.
(10)-20
  Form of Waiver, executed as of December 5, 2008, by each of the Senior Executive Officers of Superior Bancorp, filed as Exhibit 10.2 to Superior Bancorp’s Current Report on Form 8-K dated December 5, 2008, is hereby incorporated herein by reference.
(10)-21
  Form of Letter Agreement, executed as of December 5, 2008, by each of the Senior Executive Officers of Superior Bancorp, filed as Exhibit 10.3 to Superior Bancorp’s Current Report on Form 8-K dated December 5, 2008, is hereby incorporated herein by reference.
(10)-22*
  Superior Bancorp 2008 Incentive Compensation Plan, filed as Exhibit 10.1 to Superior Bancorp’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, is hereby incorporated herein by reference.

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(10)-23*
  Amended and Restated Employment Agreement, dated December 29, 2008, between Superior Bancorp and C. Stanley Bailey, filed as Exhibit 10.23 to Superior Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2008, is hereby incorporated herein by reference.
(10)-24*
  Amended and Restated Employment Agreement, dated December 29, 2008, between Superior Bancorp and C. Marvin Scott, filed as Exhibit 10.24 to Superior Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2008, is hereby incorporated herein by reference.
(10)-25*
  Amended and Restated Employment Agreement, dated December 29, 2008, between Superior Bancorp and Rick D. Gardner, filed as Exhibit 10.25 to Superior Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2008, is hereby incorporated herein by reference.
(10)-26*
  Amendment to Third Amended and Restated 1998 Stock Incentive Plan of The Banc Corporation, filed as Exhibit 10.26 to Superior Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2008, is hereby incorporated herein by reference.
(10)-27*
  Agreement, dated as of January 1, 2006, between The Banc Corporation and James Mailon Kent, Jr., field as Exhibit 10.27 to Superior Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2008, is hereby incorporated herein by reference.
(10)-28*
  Amendment to Agreement, dated as of November 3, 2008, between Superior Bancorp and James Mailon Kent, Jr., filed as Exhibit 10.28 to Superior Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2008, is hereby incorporated herein by reference.
(10)-29
  Exchange Agreement, dated as of December 11, 2009, by and among Superior Bancorp, Superior Capital Trust II and The United States Department of the Treasury.
(10)-30
  Exchange Agreement and Plan of Reorganization, dated as of January 15, 2010, by and among Superior Bancorp, Superior Holdings, LLC, and Cambridge Savings bank.
(10)-31
  Exchange Agreement and Plan of Reorganization, dated as of January 15, 2010, by and among Superior Bancorp, Superior Holdings, LLC, and KBW, Inc.
(21)
  Subsidiaries of Superior Bancorp.
(23)
  Consent of Grant Thornton, LLP.
(31)
  Certifications of Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a).
(32)
  Certifications of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
(99)
  Certifications of Chief Executive Officer and Principal Financial Officer pursuant to 12 U.S.C. Section 5221
 
 
Compensatory plan or arrangement
 
(c) Financial Statement Schedules.
 
The Financial Statement Schedules required to be filed with this Annual Report on Form 10-K are listed under “Financial Statement Schedules” in Part IV, Item 15(a)(2) of this Annual Report on Form 10-K, and are incorporated herein by reference.

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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.
 
SUPERIOR BANCORP
 
  By 
/s/  C. Stanley Bailey
C. Stanley Bailey
Chief Executive Officer
 
March 11, 2010
 
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints C. Stanley Bailey and James A. White, and each of them, the true and lawful agents and his attorneys-in-fact with full power and authority in either of said agents and attorneys-in-fact, acting singly, to sign for the undersigned as Director or an officer of the Corporation, or as both, the Corporation’s 2009 Annual Report on Form 10-K to be filed with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and to sign any amendment or amendments to such Annual Report, including an Annual Report pursuant to 11-K to be filed as an amendment to the Form 10-K; hereby ratifying and confirming all acts taken by such agents and attorneys-in-fact as herein authorized.
 
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 date indicated.
 
         
Signature
 
Title
 
Date
 
         
/s/  C. Stanley Bailey
C. Stanley Bailey
 
Chairman of the Board and Chief
Executive Officer (Principal Executive Officer) and Director
  March 11, 2010
         
/s/  James A. White
James A. White
 
Chief Financial Officer (Principal
Financial Officer)
  March 11, 2010
         
/s/  James C. Gossett

James C. Gossett
 
Chief Accounting Officer (Principal
Accounting Officer)
  March 11, 2010
         
/s/  Roger Barker

Roger Barker
 
Director
  March 11, 2010
         
/s/  Thomas E. Dobbs, Jr.

Thomas E. Dobbs, Jr.
 
Director
  March 11, 2010
         
/s/  K. Earl Durden

K. Earl Durden
 
Director
  March 11, 2010
         
/s/  Rick D. Gardner

Rick D. Gardner
 
Director and Vice Chairman
  March 11, 2010
         
/s/  Thomas E. Jernigan, Jr.

Thomas E. Jernigan, Jr.
 
Director
  March 11, 2010
         
/s/  James Mailon Kent, Jr.

James Mailon Kent, Jr.
 
Director
  March 11, 2010


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Signature
 
Title
 
Date
 
         
/s/  Mark A. Lee

Mark A. Lee
 
Director
  March 11, 2010
         
/s/  Peter L. Lowe

Peter L. Lowe
 
Director
  March 11, 2010
         
/s/  John C. Metz

John C. Metz
 
Director
  March 11, 2010
         
/s/  D. Dewey Mitchell

D. Dewey Mitchell
 
Director
  March 11, 2010
         
/s/  Robert R. Parrish, Jr.

Robert R. Parrish, Jr.
 
Director
  March 11, 2010
         
/s/  Charles W. Roberts, III

Charles W. Roberts, III
 
Director
  March 11, 2010
         
/s/  C. Marvin Scott

C. Marvin Scott
 
Director and Vice Chairman
  March 11, 2010
         
/s/  James C. White, Sr.

James C. White, Sr.
 
Director
  March 11, 2010


165

EX-4.23 2 g22315exv4w23.htm EX-(4)-23 exv4w23
Exhibit (4) -23
AMENDED AND RESTATED DECLARATION OF TRUST
AND TRUST AGREEMENT
Among
SUPERIOR BANCORP,
As Depositor
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
As Property Trustee
BNY MELLON TRUST OF DELAWARE,
As Delaware Trustee
And
THE SEVERAL HOLDERS OF THE TRUST SECURITIES
Dated as of December 11, 2009
SUPERIOR CAPITAL TRUST II

 


 

Superior Capital Trust II
     Certain Sections of this Trust Agreement relating to Sections 3.10 through 3.18 of the Trust Indenture Act of 1939:
     
Trust Indenture   Trust Agreement
(Section) 310 (a)(1)
  8.7
(a)(2)
  8.7
(a)(3)
  8.7
(a)(4)
  2.7(a)(ii)
(b)
  8.8
(Section) 311 (a)
  8.13
(b)
  8.13
(Section) 312 (a)
  5.7
(b)
  5.7
(Section) 313 (a)
  5.7
(b)
  8.15(a)
(a)(4)
  8.15(b)
(b)
  8.15(b)
(c)
  10.8
(d)
  8.15(c)
(Section) 314 (a)
  8.16
(b)
  Not Applicable
(c)(1)
  8.17
(c)(2)
  8.17
(c)(3)
  Not Applicable
(d)
  Not Applicable
(e)
  1.1, 8.17
(Section) 315 (a)
  8.1(a), 8.3(a)
(b)
  8.2, 10.8
(c)
  8.1(a)
(d)
  8.1, 8.3
(e)
  Not Applicable
(Section) 316 (a)
  Not Applicable
(a)(1)(A)
  Not Applicable
(a)(1)(B)
  Not Applicable
(a)(2)
  Not Applicable
(b)
  5.14
(c)
  6.7
(Section) 317 (a)(2)
  Not Applicable
(a)(2)
  Not Applicable
(b)
  5.9
(Section) 318 (a)
  10.10
     Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Trust Agreement.

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TABLE OF CONTENTS
         
    Page
ARTICLE I
 
       
DEFINED TERMS
 
       
Section 1.1 Definitions
    1  
 
       
ARTICLE II
 
       
CONTINUATION OF THE ISSUER TRUST
 
       
Section 2.1 Name
    8  
Section 2.2 Office of the Delaware Trustee; Principal Place of Business
    8  
Section 2.3 Initial Contribution of Trust Property; Organizational Expenses
    8  
Section 2.4 Issuance of the Capital Securities
    8  
Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Debentures
    9  
Section 2.6 Declaration of Trust
    9  
Section 2.7 Authorization to Enter into Certain Transactions
    9  
Section 2.8 Assets of Trust
    12  
Section 2.9 Title to Trust Property
    12  
 
       
ARTICLE III
 
       
PAYMENT ACCOUNT
 
       
Section 3.1 Payment Account
    12  
 
       
ARTICLE IV
 
       
DISTRIBUTIONS; REDEMPTION
 
       
Section 4.1 Distributions
    12  
Section 4.2 Redemption
    13  
Section 4.3 Ranking of Trust Securities
    15  
Section 4.4 Payment Procedures
    15  
Section 4.5 Tax Returns and Reports
    15  
Section 4.6 Payment of Expenses of the Issuer Trust
    16  
Section 4.7 Payment of Taxes, Duties, Etc. of the Trust
    16  
Section 4.8 Payments under Indenture or Pursuant to Direct Actions
    16  
Section 4.9 Exchanges
    16  
 
       
ARTICLE V
 
       
TRUST SECURITIES CERTIFICATES
 
       
Section 5.1 Initial Ownership
    17  
Section 5.2 The Trust Securities Certificates
    17  

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    Page
Section 5.3 Execution and Delivery of Trust Securities Certificates
    17  
Section 5.4 Registration of Transfer and Exchange of Capital Securities Certificates
    17  
Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates
    19  
Section 5.6 Persons Deemed Holders
    19  
Section 5.7 Access to List of Holders’ Names and Addresses
    19  
Section 5.8 Maintenance of Office or Agency
    19  
Section 5.9 Appointment of Paying Agent
    19  
Section 5.10 Ownership of Common Securities by Depositor
    20  
Section 5.11 Book-Entry Capital Securities Certificates; Common Securities Certificate
    20  
Section 5.12 Notices to Clearing Agency
    21  
Section 5.13 Definitive Capital Securities Certificates
    21  
Section 5.14 Rights of Holders; Waivers of Past Defaults
    21  
Section 5.15 CUSIP Numbers
    23  
 
       
ARTICLE VI
 
       
ACTS OF HOLDERS; MEETINGS; VOTING
 
       
Section 6.1 Limitations on Voting Rights
    23  
Section 6.2 Notice of Meetings
    24  
Section 6.3 Meetings of Holders of the Capital Securities
    24  
Section 6.4 Voting Rights
    24  
Section 6.5 Proxies, etc
    24  
Section 6.6 Holder Action by Written Consent
    24  
Section 6.7 Record Date for Voting and Other Purposes
    25  
Section 6.8 Acts of Holders
    25  
Section 6.9 Inspection of Records
    25  
 
       
ARTICLE VII
 
       
REPRESENTATIONS AND WARRANTIES
 
       
Section 7.1 Representations and Warranties of the Property Trustee and the Delaware Trustee
    26  
Section 7.2 Representations and Warranties of Depositor
    27  
 
       
ARTICLE VIII
 
       
THE ISSUER TRUSTEES
 
       
Section 8.1 Certain Duties and Responsibilities
    27  
Section 8.2 Certain Notices
    29  
Section 8.3 Certain Rights of Property Trustee
    29  
Section 8.4 Issuer Trustees Not Responsible for Recitals or Issuance of Securities
    31  
Section 8.5 Issuer Trustees May Hold Securities
    31  
Section 8.6 Compensation; Indemnity; Fees
    31  
Section 8.7 Corporate Property Trustee Required; Eligibility of Issuer Trustees
    32  
Section 8.8 Conflicting Interests
    32  
Section 8.9 Co-Trustees and Separate Trustee
    32  
Section 8.10 Resignation and Removal; Appointment of Successor
    33  
Section 8.11 Acceptance of Appointment by Successor
    34  
Section 8.12 Merger, Conversion, Consolidation or Succession to Business
    35  
Section 8.13 Preferential Collection of Claims Against Depositor or Issuer Trust
    35  

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    Page
Section 8.14 Trustee May File Proofs of Claim
    35  
Section 8.15 Reports by Property Trustee
    36  
Section 8.16 Reports to the Property Trustee
    36  
Section 8.17 Evidence of Compliance with Conditions Precedent
    36  
Section 8.18 Number of Issuer Trustees
    36  
Section 8.19 Delegation of Power
    36  
 
       
ARTICLE IX
 
       
DISSOLUTION, LIQUIDATION AND MERGER
 
       
Section 9.1 Dissolution Events
    37  
Section 9.2 Dissolution
    37  
Section 9.3 Liquidation
    37  
Section 9.4 Mergers, Consolidations, Amalgamations or Replacements of Issuer Trust
    38  
 
       
ARTICLE X
 
       
MISCELLANEOUS PROVISIONS
 
       
Section 10.1 Limitation of Rights of Holders
    39  
Section 10.2 Amendment
    39  
Section 10.3 Separability
    40  
Section 10.4 Governing Law
    40  
Section 10.5 Payments Due on Non-Business Day
    40  
Section 10.6 Successors
    41  
Section 10.7 Headings
    41  
Section 10.8 Reports, Notices and Demands
    41  
Section 10.9 Agreement Not to Petition
    42  
Section 10.10 Trust Indenture Act; Conflict with Trust Indenture Act
    42  
Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee Agreement and Indenture
    42  
Section 10.12 Counterparts
    42  
Section 10.13 Waiver of Jury Trial
    42  
Section 10.14 Force Majeure
    43  
Exhibit A — Certificate of Trust
Exhibit B — Form of Common Securities Certificate
Exhibit C — Form of Capital Securities Certificate

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     AMENDED AND RESTATED DECLARATION OF TRUST AND TRUST AGREEMENT, dated as of December 11, 2009 among (i) SUPERIOR BANCORP, a Delaware corporation (including any successors or assigns, the “Depositor”), (ii) THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association organized and existing under the laws of the United States of America, as property trustee (in such capacity, the “Property Trustee”), (iii) BNY MELLON TRUST OF DELAWARE, a Delaware banking corporation, as Delaware trustee (in such capacity, the “Delaware Trustee”), (iv) JAMES A. WHITE, an individual, and WILLIAM H. CAUGHRAN, an individual, each of whose address is c/o Superior Bancorp, 17 North Twentieth Street, Birmingham, Alabama 35243 (each, an “Administrative Trustee,” and collectively, the “Administrative Trustees”) (the Property Trustee, the Delaware Trustee, and the Administrative Trustees being referred to collectively as the “Issuer Trustees”), and (v) the several Holders, as hereinafter defined.
WITNESSETH
     WHEREAS, the Depositor and certain of the Issuer Trustees have heretofore duly declared and established a statutory trust (the “Issuer Trust”) pursuant to the Delaware Statutory Trust Act (as hereinafter defined) by entering into that certain Declaration of Trust, dated as of December 9, 2009 (the “Original Trust Agreement”), and by the execution and filing with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on December 9, 2009, attached as Exhibit A (the “Certificate of Trust”); and
     WHEREAS, the parties hereto desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities by the Issuer Trust to the Depositor, (ii) the issuance of the Capital Securities by the Issuer Trust pursuant to the Exchange Agreement, and (iii) the acquisition by the Issuer Trust from the Depositor of all of the right, title and interest in the Debentures;
     NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Holders, hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows:
ARTICLE I
DEFINED TERMS
     Section 1.1 Definitions.
     For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires:
     (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
     (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
     (c) the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation”;
     (d) all accounting terms used but not defined herein have the meanings assigned to them in accordance with United States generally accepted accounting principles;
     (e) unless the context otherwise requires, any reference to an “Article,” a “Section” or an “Exhibit” refers to an Article, a Section or an Exhibit, as the case may be, of or to this Trust Agreement; and

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     (f) the words “hereby,” “herein,” “hereof and “hereunder” and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision.
     “Act” has the meaning specified in Section 6.8.
     “Additional Amount” means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of Additional Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of Debentures for such period.
     “Additional Sums” has the meaning specified in Section 10.07 of the Indenture.
     “Administrative Trustee” means each of the individuals identified as an “Administrative Trustee” in the preamble to this Trust Agreement solely in such individual’s capacity as Administrative Trustee of the Trust and not in such individual’s individual capacity, or such Administrative Trustee’s successor in interest in such capacity, or any successor trustee appointed as herein provided.
     “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing
     “Bankruptcy Event” means, with respect to any Person:
     (a) the entry of a decree or order by a court having jurisdiction in the premises judging such Person bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjudication or composition of or in respect of such Person under any applicable Federal bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or
     (b) the institution by such Person of proceedings to be adjudicated bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of such Person or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated bankrupt, or the taking of corporate action by such Person in furtherance of any such action.
     “Bankruptcy Laws” has the meaning specified in Section 10.9.
     “Board of Directors” means the board of directors of the Depositor or a committee designated by the board of directors of the Depositor (or any such committee), comprised of one or more members of the board of directors of the Depositor or officers of the Depositor, or both.
     “Book-Entry Capital Securities Certificate” means a Capital Securities Certificate evidencing ownership of Book-Entry Capital Securities.
     “Book-Entry Capital Security” means a Capital Security, the ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.11.
     “Business Day” means a day other than a Saturday, a Sunday, or any other day on which banking institutions in New York, New York, Birmingham, Alabama, or Wilmington, Delaware are authorized or required by law, regulation or executive order to remain closed or are customarily closed.

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     “Capital Securities Certificate” means a certificate evidencing ownership of Capital Securities, substantially in the form attached as Exhibit C.
     “Capital Security” means an undivided beneficial interest in the assets of the Issuer Trust, having a Liquidation Amount of $1,000 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein.
     “Certificate Depository Agreement” means the agreement among the Issuer Trust, the Paying Agent and DTC, as the initial Clearing Agency, dated as of the Closing Date.
     “Certificate of Trust” has the meaning specified in the recitals hereof, as amended from time to time.
     “Clearing Agency” means an organization registered as a “clearing agency” pursuant to Section 17A of the Exchange Act. DTC will be the initial Clearing Agency.
     “Clearing Agency Participant” means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency.
     “Closing Date” has the meaning specified in the Exchange Agreement.
     “Code” means the Internal Revenue Code of 1986, as amended.
     “Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
     “Common Securities Certificate” means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit B.
     “Common Security” means an undivided beneficial interest in the assets of the Issuer Trust, having a Liquidation Amount of $1,000 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein.
     “Corporate Trust Office” means (i) when used with respect to the Property Trustee, the designated office of the Property Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 505 North 20th Street, Suite 950, Birmingham, Alabama 35203, Attention: Corporate Trust Administration, or such other address as the Property Trustee may designate from time to time by notice to the Holders and the Depositor, or the principal corporate trust office of any successor Property Trustee (or such other address as such successor Property Trustee may designate from time to time by notice to the Holders and the Depositor), and (ii) when used with respect to the Debenture Trustee, the designated office of the Debenture Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 505 North 20th Street, Suite 950, Birmingham, Alabama 35203, Attention: Corporate Trust Administration, or such other address as the Debenture Trustee may designate from time to time by notice to the holders of the Debentures and the Depositor, or the principal corporate trust office of any successor Debenture Trustee (or such other address as such successor Debenture Trustee may designate from time to time by notice to the holders of the Debentures and the Depositor).
     “Debenture Event of Default” means any “Event of Default” specified in Section 5.01 of the Indenture.
     “Debenture Redemption Date” means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption of such Debentures under the Indenture.

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     “Debenture Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association, solely in its capacity as trustee pursuant to the Indenture and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as provided in the Indenture.
     “Debentures” means the Depositor’s Fixed Rate Perpetual Junior Subordinated Debentures, Series A, issued pursuant to the Indenture.
     “Definitive Capital Securities Certificates” means either or both (as the context requires) of (i) Capital Securities Certificates issued as Book-Entry Capital Securities Certificates as provided in Section 5.11, and (ii) Capital Securities Certificates issued in certificated, fully registered form as provided in Section 5.13.
     “Delaware Statutory Trust Act” means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801 et seq., as it may be amended from time to time.
     “Delaware Trustee” means the Person identified as the “Delaware Trustee” in the preamble to this Trust Agreement, solely in its capacity as Delaware Trustee of the trust heretofore formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor Delaware trustee appointed as herein provided.
     “Depositor” has the meaning specified in the preamble to this Trust Agreement.
     “Depositor Affiliated Owner” has the meaning specified in Section 4.9.
     “Depositor Bankruptcy Event” means (i) the entry of a decree or order for relief in respect of the Depositor by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days or (ii) the commencement by the Depositor of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or the consent by the Depositor to the entry of a decree or order for relief in an involuntary case under any such law.
     “Dissolution Event” has the meaning specified in Section 9.1.
     “Distribution Date” has the meaning specified in Section 4.1(a)(i).
     “Distribution Period” means the period of time beginning on any Distribution Date and ending on the day immediately preceding the next succeeding Distribution Date.
     “Distributions” means amounts payable in respect of the Trust Securities as provided in Section 4.1.
     “DTC” means The Depository Trust Company.
     “Event of Default” means any one of the following events (whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
     (a) the occurrence of a Debenture Event of Default; or
     (b) default by the Issuer Trust in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or
     (c) default by the Issuer Trust in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or
     (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Issuer Trustees in this Trust Agreement (other than those specified in clause (b) or (c) above) and continuation of

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such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Issuer Trustees and to the Depositor by the Holders of at least 25% in aggregate Liquidation Amount of the Outstanding Capital Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or
     (e) the occurrence of a Bankruptcy Event with respect to the Property Trustee if a successor Property Trustee has not been appointed within 90 days thereof.
     “Exchange Act” means the Securities Exchange Act of 1934, and any successor statute thereto, in each case as amended from time to time.
     “Exchange Agreement” means the Exchange Agreement, dated as of December 11, 2009, among the Trust, the Depositor and the United States Department of the Treasury.
     “Federal Reserve” means the Federal Reserve or its district reserve banks, as from time to time constituted, or if at any time after the execution of this Trust Agreement the Federal Reserve is not existing and performing the duties now assigned to it, then the body performing such duties at such time.
     “Guarantee” means the Guarantee Agreement executed and delivered by the Depositor and The Bank of New York Mellon Trust Company, N.A., as trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the holders of the Capital Securities, as amended from time to time.
     “Holder” means a Person in whose name a Trust Security or Trust Securities are registered in the Securities Register; any such Person shall be a beneficial owner within the meaning of the Delaware Statutory Trust Act.
     “Indenture” means the Junior Subordinated Indenture, dated as of December 11, 2009, between the Depositor and the Debenture Trustee, as trustee, as supplemented by the First Supplemental Indenture, dated as of December 11, 2009, between the Depositor and the Debenture Trustee, as amended or supplemented from time to time.
     “Investment Company Act” means the Investment Company Act of 1940, or any successor statute thereto, in each case as amended from time to time.
     “Issuer Trust” means the Delaware statutory trust known as “Superior Capital Trust II” which was created on December _, 2009 under the Delaware Statutory Trust Act pursuant to the Original Trust Agreement and the filing of the Certificate of Trust, and continued pursuant to this Trust Agreement.
     “Issuer Trustees” means, collectively, the Property Trustee, the Delaware Trustee, and the Administrative Trustees.
     “Lien” means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever.
     “Like Amount” means (a) with respect to a redemption of any Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture, the proceeds of which will be used to pay the Redemption Price of such Trust Securities, (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Issuer Trust or an exchange of Debentures for Capital Securities pursuant to Section 4.9, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed, and (c) with respect to any distribution of Additional Amounts to Holders of Trust Securities, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities in respect of which such distribution is made.
     “Liquidation Amount” means the stated amount of $1,000 per Trust Security.

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     “Liquidation Date” means the date of the liquidation of the Issuer Trust following the dissolution of the Issuer Trust pursuant to Section 9.3.
     “Liquidation Distribution” has the meaning specified in Section 9.3(d).
     “Majority in Liquidation Amount of the Capital Securities” or “Majority in Liquidation Amount of the Common Securities” means, except as provided by the Trust Indenture Act, Capital Securities or Common Securities, as the case may be, representing more than 50% of the aggregate Liquidation Amount of all then Outstanding Capital Securities or Common Securities, as the case may be.
     “Officers’ Certificate” means, with respect to any Person, a certificate signed by the Chairman of the Board of Directors of such Person, a Vice Chairman of the Board of Directors of such Person, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of such Person. Any Officers’ Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include:
     (a) a statement by each officer signing the Officers’ Certificate that such officer has read the covenant or condition and the definitions relating thereto;
     (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officers’ Certificate;
     (c) a statement that such officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and
     (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with.
     “Opinion of Counsel” means a written opinion of counsel, who may be counsel for or an employee of the Depositor or any Affiliate of the Depositor.
     “Original Trust Agreement” has the meaning specified in the recitals to this Trust Agreement.
     “Outstanding,” when used with respect to Trust Securities, means, as of the date of determination, all Trust Securities theretofore executed and delivered under this Trust Agreement, except:
     (a) Trust Securities theretofore canceled by the Property Trustee or delivered to the Property Trustee for cancellation;
     (b) Trust Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent; provided that, if such Trust Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and
     (c) Trust Securities that have been paid or in exchange for or in lieu of which other Capital Securities have been executed and delivered pursuant to Sections 5.4, 5.5, 5.11 and 5.13;
     provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Capital Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Capital Securities owned by the Depositor, any Issuer Trustee, or any Affiliate of the Depositor or any Issuer Trustee shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Issuer Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Capital Securities that such Issuer Trustee actually knows (or, in the case of the Property Trustee or the Delaware Trustee, that a Responsible Officer of such Issuer Trustee actually knows) to be so owned shall be so disregarded, and (b) the foregoing shall not apply at any time when all of the outstanding Capital Securities are

6


 

owned by the Depositor, one or more of the Issuer Trustees, and/or any such Affiliate. Capital Securities so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustees the pledgee’s right so to act with respect to such Capital Securities and that the pledgee is not the Depositor or any Affiliate of the Depositor.
     “Owner” means each Person who is the beneficial owner of Book-Entry Capital Securities as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing Agency).
     “Paying Agent” means any paying agent or co-paying agent appointed pursuant to Section 5.9 and shall initially be the Property Trustee.
     “Payment Account” means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with Paying Agent in its trust department for the benefit of the Holders in which all amounts paid in respect of the Debentures will be held and from which the Property Trustee, through the Paying Agent, shall make payments to the Holders in accordance with Sections 4.1 and 4.2.
     “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature.
     “Property Trustee” means the Person identified as the “Property Trustee” in the preamble to this Trust Agreement, solely in its capacity as Property Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided.
     “Redemption Date” means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date shall be a Redemption Date for a Like Amount of Trust Securities.
     “Redemption Price” means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, plus the related amount of the premium, if any, calculated and paid by the Depositor upon the concurrent redemption of a Like Amount of Debentures.
     “Relevant Trustee” shall have the meaning specified in Section 8.10.
     “Responsible Officer” means, with respect to the Property Trustee and the Delaware Trustee, any officer within the corporate trust department of such Issuer Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of such Issuer Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Trust Agreement.
     “Securities Act” means the Securities Act of 1933, and any successor statute thereto, in each case as amended from time to time.
     “Securities Register” and “Securities Registrar” have the respective meanings specified in Section 5.4.
     “Series A Preferred Stock” means the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference per share, of the Depositor.
     “Transfer” has the meaning specified in Section 5.4.

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     “Trust Agreement” means this Amended and Restated Declaration of Trust and Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including (i) all exhibits, and (ii) for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively.
     “Trust Indenture Act” means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “Trust Indenture Act” means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
     “Trust Property” means (a) the Debentures, (b) any cash on deposit in, or owing to, the Payment Account, and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to this Trust Agreement.
     “Trust Security” means any one of the Common Securities or the Capital Securities.
     “Trust Securities Certificate” means any one of the Common Securities Certificates or the Capital Securities Certificates.
     “Vice President,” when used with respect to the Depositor, means any duly appointed vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
     Section 2.1 Name.
     The trust continued hereby shall be known as “Superior Capital Trust II,” as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders and the other Issuer Trustees, in which name the Administrative Trustees and the other Issuer Trustees may conduct the business of the Issuer Trust, make and execute contracts and other instruments on behalf of the Issuer Trust and sue and be sued on behalf of the Trust.
     Section 2.2 Office of the Delaware Trustee; Principal Place of Business.
     The address of the Delaware Trustee in the State of Delaware is White Clay Center, Route 273, Newark, Delaware 19711, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Depositor, the Property Trustee and the Administrative Trustees. The principal executive office of the Issuer Trust is c/o Superior Bancorp, 17 North Twentieth Street, Birmingham, Alabama 35203, Attention: Superior Capital Trust II.
     Section 2.3 Initial Contribution of Trust Property; Organizational Expenses.
     The Issuer Trustees acknowledge receipt from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Issuer Trust as they arise or shall, upon request of any Issuer Trustee, promptly reimburse such Issuer Trustee for any such expenses paid by such Issuer Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses.
     Section 2.4 Issuance of the Capital Securities.
     On December 11, 2009, the Depositor, both on its own behalf and on behalf of the Issuer Trust pursuant to the Original Trust Agreement, executed and delivered the Exchange Agreement (such action being hereby approved

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and ratified in all respects). Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.3 and deliver to the Investor named in the Exchange Agreement a Capital Securities Certificate, registered in the name of the Investor or its nominee, in an aggregate amount of 69,000 Capital Securities having an aggregate Liquidation Amount of $69,000,000, against delivery of 69,000 shares of Series A Preferred Stock, having an aggregate liquidation preference of $69,000,000, which such Administrative Trustee shall promptly deliver to the Property Trustee.
     Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Debentures.
     Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Issuer Trust, shall execute in accordance with Section 5.3 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount Common Securities having an aggregate Liquidation Amount of $100,000 against payment by the Depositor of the purchase price therefor in immediately available funds, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. Contemporaneously therewith, an Administrative Trustee, on behalf the Issuer Trust, shall subscribe to and purchase from the Depositor Debentures registered in the name of the Issuer Trust and having an aggregate principal amount equal to $69,100,000 and shall deliver or cause to be delivered to the Depositor the purchase price therefor (being (i) the Series A Preferred Stock delivered to the Property Trustee pursuant to the second sentence of Section 2.4 and (ii) the amount delivered to the Property Trustee pursuant to the first sentence of this Section 2.5).
     Section 2.6 Declaration of Trust.
     The exclusive purposes and functions of the Issuer Trust are (a) to issue and sell the Common Securities and to issue the Capital Securities in exchange for the Series A Preferred Stock, (b) to use the proceeds from such sale and exchange to acquire the Debentures, and (c) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Issuer Trustees as trustees of the Issuer Trust, to have all the rights, powers and duties to the extent set forth herein, and the Issuer Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property upon and subject to the conditions set forth herein for the benefit of the Issuer Trust and the Holders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Issuer Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Property Trustee or the Administrative Trustees, or any of the duties and responsibilities of the Issuer Trustees generally, set forth herein. The Delaware Trustee shall be one of the trustees of the Issuer Trust for the sole and limited purpose of fulfilling the requirements of Section 3807(a) of the Delaware Statutory Trust Act and for taking such actions as are required to be taken by a Delaware trustee under the Delaware Statutory Trust Act.
     Section 2.7 Authorization to Enter into Certain Transactions.
     (a) The Issuer Trustees shall conduct the affairs of the Issuer Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Issuer Trustees shall have the authority to enter into all transactions and agreements determined by the Issuer Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Issuer Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including the following:
          (i) As among the Issuer Trustees, the Administrative Trustees, and each of them, shall have the power and authority to act on behalf of the Issuer Trust with respect to the following matters:
          (A) the issuance and sale of the Trust Securities;
          (B) to cause the Issuer Trust to perform on behalf of the Issuer Trust the Exchange Agreement and to cause the Issuer Trust to enter into, and to execute, deliver and perform on behalf of the Issuer Trust the Certificate Depository Agreement, if applicable, and such other agreements as may be necessary or desirable in connection with the purposes and function of the Issuer Trust;

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          (C) to the extent required under the Exchange Agreement, assisting in the registration of the Capital Securities under the Securities Act and under state securities or blue sky laws, and the qualification of this Trust Agreement under the Trust Indenture Act;
          (D) to the extent required under the Exchange Agreement, assisting in the listing of the Capital Securities upon such securities exchange or exchanges as shall be determined by the Depositor, with the registration of the Capital Securities under the Exchange Act, if required, and with the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing;
          (E) assisting in the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Holders in accordance with this Trust Agreement;
          (F) the appointment of a Paying Agent and Securities Registrar in accordance with this Trust Agreement;
          (G) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Issuer Trust and the execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware;
          (H) execution of the Trust Securities on behalf of the Trust in accordance with this Trust Agreement;
          (I) execution and delivery of closing certificates, if any, pursuant to the Exchange Agreement and application for a taxpayer identification number for the Issuer Trust;
          (J) unless otherwise determined by the Depositor, the Property Trustee, or the Administrative Trustees or as otherwise required by the Delaware Statutory Trust Act or the Trust Indenture Act, to execute on behalf of the Issuer Trust (either acting alone or together with any or all of the Administrative Trustees) any documents that the Administrative Trustees have the power to execute pursuant to this Trust Agreement; and
          (K) the taking of any action incidental to the foregoing as the Issuer Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement.
          (ii) As among the Issuer Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Issuer Trust with respect to the following matters:
          (A) the establishment of the Payment Account;
          (B) the receipt of the Debentures;
          (C) the collection of interest, principal and any other payments made in respect of the Debentures and the holding of such amounts in the Payment Account;
          (D) the distribution through the Paying Agent of amounts distributable to the Holders in respect of the Trust Securities;
          (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures;
          (F) the sending of notices of default and other information regarding the Trust Securities and the Debentures to the Holders in accordance with this Trust Agreement;
          (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement;

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          (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Issuer Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware;
          (I) after an Event of Default (other than under paragraph (b), (c), (d) or (e) of the definition of such term if such Event of Default is by or with respect to the Property Trustee) the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); and
          (J) except as otherwise provided in this Section 2.7(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.7(a)(i).
     (b) So long as this Trust Agreement remains in effect, the Issuer Trust (or the Issuer Trustees acting on behalf of the Issuer Trust) shall not undertake any business, activities or transactions except as expressly provided herein or contemplated hereby. In particular, the Issuer Trustees (acting on behalf of the Issuer Trust) shall not cause the Trust to (i) acquire any investments or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Holders, except as expressly provided herein, (iii) take any action that would reasonably be expected to cause the Issuer Trust to become taxable as a corporation or classified as other than a grantor trust for United States Federal or State income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt, (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property, (vi) invest any proceeds received by the Issuer Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Trust Securities pursuant to the terms of this Trust Agreement and of the Trust Securities, (vii) acquire any assets other than the Trust Property, (viii) possess any power or otherwise act in such a way as to vary the Trust Property, (ix) possess any power or otherwise act in such a way as to vary the terms of the Trust Securities in any way whatsoever (except to the extent expressly authorized in this Trust Agreement or by the terms of the Trust Securities) or (x) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Issuer Trust other than the Trust Securities. The Property Trustee shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Issuer Trust or the Holders in their capacity as Holders.
     (c) In connection with the issuance of the Capital Securities in exchange for the Series A Preferred Stock, the Depositor shall have the right and responsibility to assist the Issuer Trust with respect to, or effect on behalf of the Issuer Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects):
          (i) if appropriate, the preparation and filing by the Issuer Trust with the Commission of and the execution on behalf of the Issuer Trust of a registration statement on the appropriate form in relation to the Capital Securities, including any amendments thereto;
          (ii) the determination of the states in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and the determination of any and all such acts, other than actions that must be taken by or on behalf of the Issuer Trust, and the advice to the Issuer Trust of actions they must take on behalf of the Issuer Trust, and the preparation for execution and filing of any documents to be executed and filed by the Issuer Trust or on behalf of the Issuer Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such states;
          (iii) if appropriate, the preparation for filing by the Issuer Trust and execution on behalf of the Issuer Trust of an application to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market or any other automated quotation system for listing upon notice of issuance of any Capital Securities and filing with such exchange or self-regulatory organization such notification and documents as may be necessary from time to time to maintain such listing;

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          (iv) the negotiation of the terms of, and the execution and delivery of, the Exchange Agreement providing for the issuance of the Capital Securities; and
          (v) the taking of any other actions necessary or desirable to carry out any of the foregoing activities.
     (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Issuer Trust and to operate the Issuer Trust so that the Issuer Trust will not be deemed to be an “investment company” required to be registered under the Investment Company Act, and will not be taxable as a corporation or classified as other than a grantor trust for United States Federal or State income tax purposes and so that the Debentures will be treated as indebtedness of the Depositor for tax purposes. In this connection, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Trust Agreement, that they determine in their discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect in any material respect the interests of the Holders of the Outstanding Capital Securities. In no event shall the Depositor or the Issuer Trustees be liable to the Issuer Trust or the Holders for any failure to comply with this section that results from a change in law or regulation or in the interpretation thereof.
     Section 2.8 Assets of Trust.
     The assets of the Issuer Trust shall consist solely of the Trust Property.
     Section 2.9 Title to Trust Property.
     Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee in trust for the benefit of the Issuer Trust and the Holders in accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
     Section 3.1 Payment Account.
     (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and its agents shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Holders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein.
     (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
     Section 4.1 Distributions.
     (a) The Trust Securities represent undivided beneficial interests in the Trust Property, and Distributions (including of Additional Amounts) will be made on the Trust Securities at the rate and on the dates that

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payments of interest (including Additional Interest, as defined in the Indenture) are made on the Debentures. Accordingly:
          (i) Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accrue from February 15, 2010 and, except in the event (and to the extent) that the Depositor exercises its right to defer the payment of interest on the Debentures pursuant to the Indenture, shall be payable quarterly in arrears on each February 15, May 15, August 15 and November 15 of each year, commencing on February 15, 2010. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date on which such payment was originally payable (each date on which distributions are payable in accordance with this Section 4.1(a), a “Distribution Date”).
          (ii) In the event (and to the extent) that the Depositor exercises its right under the Indenture to defer the payment of interest on the Debentures, Distributions on the Trust Securities shall be deferred but shall continue to accumulate. Distributions on the Trust Securities shall be payable at a rate of (A) 5.00% per annum of the Liquidation Amount of the Trust Securities for the period from and including December 11, 2009 to but excluding February 15, 2014 and (B) 9.00% per annum of the Liquidation Amount of the Trust Securities thereafter. The amount of Distributions payable for any full quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in a partial month in that period. The amount of Distributions payable for any period shall include the Additional Amounts, if any.
          (iii) Distributions on the Trust Securities shall be made by the Property Trustee from the Payment Account and shall be payable on each Distribution Date only to the extent that the Issuer Trust has funds then on hand and available in the Payment Account for the payment of such Distributions.
     (b) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities at the close of business on the relevant record date for such Distribution Date, which shall be the last day, whether or not a Business Day, of the month immediately preceding the Distribution Date. Distributions payable on any Trust Securities that are not punctually paid on any Distribution Date will cease to be payable to the Person in whose name such Trust Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Trust Securities are registered on the special record date or other specified date for determining Holders entitled to such defaulted interest established in accordance with the Indenture.
     Section 4.2 Redemption.
     (a) On each Debenture Redemption Date, the Issuer Trust will be required to redeem a Like Amount of Trust Securities at the Redemption Price.
     (b) Notice of redemption shall be given at the written direction of the Depositor or an Adminstrative Trustee by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder’s address appearing in the Security Register. All notices of redemption shall be prepared by the Depositor or the Adminstrative Trustees and state:
          (i) the Redemption Date;
          (ii) the Redemption Price or if the Redemption Price cannot be calculated prior to the time the notice is required to be sent, the estimate of the Redemption Price together with a statement that it is an estimate and that the actual Redemption Price will be calculated on the third Business Day prior to the

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Redemption Date (and if an estimate is provided, a further notice shall be sent of the actual Redemption Price on the date that such Redemption Price is calculated);
          (iii) the CUSIP number or CUSIP numbers of the Capital Securities affected;
          (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the aggregate Liquidation Amount of the particular Trust Securities to be redeemed;
          (v) that on the Redemption Date the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that Distributions thereon will cease to accrue on and after said date, except as provided in Section 4.2(d) below; and
          (vi) if the Capital Securities are not in book-entry-only form, the place or places where the Capital Securities Certificates are to be surrendered for the payment of the Redemption Price.
     (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of the Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Issuer Trust has funds then on hand and available in the Payment Account for the payment of such Redemption Price.
     (d) If the Property Trustee gives a notice of redemption in respect of any Capital Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 4.2(c), the Property Trustee will, with respect to Book-Entry Capital Securities, irrevocably deposit with the Clearing Agency for such Book-Entry Capital Securities, to the extent available therefor in the Payment Account, funds sufficient to pay the applicable Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the Holders of the Capital Securities. With respect to Capital Securities that are not Book-Entry Capital Securities, the Property Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying Agent, to the extent available therefor in the Payment Account, funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders of the Capital Securities upon surrender of their Capital Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Securities Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Holders holding Trust Securities so called for redemption will cease, except the right of such Holders to receive the Redemption Price and any Distribution payable in respect of the Trust Securities on or prior to the Redemption Date, but without interest, and such Trust Securities will cease to be outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Issuer Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities will continue to accumulate, as set forth in Section 4.1, from the Redemption Date originally established by the Issuer Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price.
     (e) Subject to Section 4.3(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, the Property Trustee shall select the particular Capital Securities to be redeemed not more than 60 days prior to the Redemption Date from the Outstanding Capital Securities not previously called for redemption by any method the Property Trustee deems appropriate, provided that so long as the Capital Securities are in book-entry-only form, such selection shall be made in accordance with the customary procedures for the Clearing Agency for the Capital Securities. The Property Trustee shall promptly notify the Securities Registrar in writing of the Capital Securities selected for redemption and, in the case of any Capital Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Capital Securities shall relate, in the case of any

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Capital Securities redeemed or to be redeemed only in part, to the portion of the aggregate Liquidation Amount of Capital Securities that has been or is to be redeemed.
     Section 4.3 Ranking of Trust Securities.
     (a) Payment of Distributions (including any Additional Amounts) on, the Redemption Price of, and the Liquidation Distribution in respect of, the Trust Securities, as applicable, shall be made, subject to Section 4.2(e), pro rata among the Common Securities and the Capital Securities based on the Liquidation Amount; provided, however, that if on any Distribution Date, Redemption Date or Liquidation Date any Event of Default resulting from a Debenture Event of Default specified in Section 5.01(1) or 5.01(2) of the Indenture shall have occurred and be continuing, no payment of any Distribution (including any Additional Amounts) on, Redemption Price of, or Liquidation Distribution in respect of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including any Additional Amounts) on all Outstanding Capital Securities for all Distribution Periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Capital Securities then called for redemption, or in the case of payment of the Liquidation Distribution the full amount of such Liquidation Distribution on all Outstanding Capital Securities, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including any Additional Amounts) on, or the Redemption Price of, the Capital Securities then due and payable.
     (b) In the case of the occurrence of any Event of Default resulting from any Debenture Event of Default, the Holders of the Common Securities shall have no right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Capital Securities have been cured, waived or otherwise eliminated. Until all such Events of Default under this Trust Agreement with respect to the Capital Securities have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Capital Securities and not on behalf of the Holders of the Common Securities, and only the Holders of the Capital Securities will have the right to direct the Property Trustee to act on their behalf.
     Section 4.4 Payment Procedures.
     Payments of Distributions (including any Additional Amounts) in respect of the Capital Securities shall, subject to the next succeeding sentence, be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Capital Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds. A Holder of $1,000,000 or more in aggregate Liquidation Amount of Capital Securities may receive payments of Distributions (including any Additional Amounts) by wire transfer of immediately available funds upon written request to the Property Trustee not later than the last day, whether or not a Business Day, of the month immediately preceding the relevant Distribution Date. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Holders of the Common Securities.
     Section 4.5 Tax Returns and Reports.
     The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor’s expense, and file all United States Federal and any other state and local tax and information returns and reports required to be filed by or in respect of the Issuer Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) all Internal Revenue Service and state tax forms required to be filed in respect of the Issuer Trust in each taxable year of the Issuer Trust, and (b) prepare and furnish (or cause to be prepared and furnished) to each Holder all Internal Revenue Service or state tax forms required to be provided by the Issuer Trust. The Administrative Trustees shall provide the Depositor and the Property Trustee with a copy of all such returns and reports promptly after such filing or furnishing. The Issuer Trustees shall comply with United States Federal and State withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Holders under the Trust Securities.

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     Section 4.6 Payment of Expenses of the Issuer Trust.
     The Depositor shall pay to the Issuer Trust, and reimburse the Issuer Trust for, the full amount of any costs, expenses or liabilities of the Issuer Trust (other than obligations of the Issuer Trust to pay the Holders of any Capital Securities or other similar interests in the Issuer Trust the amounts due such Holders pursuant to the terms of the Capital Securities or such other similar interests, as the case may be), including, without limitation, any taxes, duties or other governmental charges of whatever nature (other than withholding taxes) imposed on the Issuer Trust by the United States or any other taxing authority. Such payment obligation includes any such costs, expenses or liabilities of the Issuer Trust that are required by applicable law to be satisfied in connection with a dissolution of the Issuer Trust.
     Section 4.7 Payment of Taxes, Duties, Etc. of the Trust.
     Upon receipt under the Debentures of Additional Sums, the Property Trustee shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust; provided, however, that under no circumstances shall the Property Trustee have any liability for such sums, including non-receipt of any Additional Sums under the Debentures.
     Section 4.8 Payments under Indenture or Pursuant to Direct Actions.
     Any amount payable hereunder to any Holder of Capital Securities (or any Owner with respect thereto) shall be reduced by the amount of any corresponding payment such Holder (or Owner) has directly received pursuant to Section 5.08 of the Indenture or Section 5.14 of this Trust Agreement.
     Section 4.9 Exchanges.
     (a) If at any time the Depositor or any of its Affiliates (in either case, a “Depositor Affiliated Owner”) is the Owner or owner of any Capital Securities, such Depositor Affiliated Owner shall have the right to deliver to the Property Trustee all or such portion of its Capital Securities as it elects and receive, in exchange therefor, a Like Amount of Debentures. Such election (i) shall be exercisable by such Depositor Affiliated Owner delivering to the Property Trustee a written notice of such election specifying the Liquidation Amount of the Capital Securities with respect to which such election is being made and the date on which such exchange shall occur, which shall not be a date following the record date for any Distribution and prior to the Distribution Date for such Distribution and (ii) shall be conditioned upon such Depositor Affiliated Owner having delivered or caused to be delivered to the Property Trustee or its designee the Capital Securities which are the subject of such election by 10:00 A.M. New York time, on the date on which such exchange is to occur. After the exchange, such Capital Securities will be cancelled and will no longer be deemed to be Outstanding and all rights of the Depositor or its Affiliate(s) with respect to such Capital Securities, including accumulated but unpaid Distributions thereon, will cease. In the event such Capital Securities are Book-Entry Capital Securities, upon such exchange the Property Trustee, in its capacity as Securities Registrar, shall cause an annotation to be made on the Book-Entry Capital Securities Certificate or Certificates evidencing such Book-Entry Capital Securities to evidence the reduction in the liquidation amount thereof resulting from such cancellation.
     (b) Notwithstanding anything else in this Trust Agreement to the contrary, in order to effectuate the exchanges contemplated by this Section 4.9, the Issuer Trust is hereby authorized to execute, deliver and perform, and the Depositor or any Administrative Trustee on behalf of the Issuer Trust, acting singly or collectively, is hereby authorized to execute and deliver on behalf of the Issuer Trust, an exchange agreement, cancellation letter, and any and all other documents, agreements, or certificates contemplated by or related to the exchanges made pursuant to this Section 4.9, in each case without further vote or approval of any other Person.

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ARTICLE V
TRUST SECURITIES CERTIFICATES
     Section 5.1 Initial Ownership.
     Upon the formation of the Issuer Trust and the contribution by the Depositor pursuant to Section 2.3 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Issuer Trust.
     Section 5.2 The Trust Securities Certificates.
     The Capital Securities Certificates shall be issued in minimum denominations of $1,000 Liquidation Amount and integral multiples of $1,000 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $1,000 Liquidation Amount and integral multiples thereof. The Trust Securities Certificates shall be (i) executed on behalf of the Issuer Trust by manual or facsimile signature of at least one Administrative Trustee and, if executed on behalf of the Issuer Trust by facsimile, countersigned by the Securities Registrar or its agent and (ii) authenticated by the Property Trustee by manual or facsimile signature of an authorized signatory thereof and, if executed by such authorized signatory of the Property Trustee by facsimile, countersigned by the Securities Registrar or its agent. Trust Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Issuer Trust or the Property Trustee or, if executed on behalf of the Issuer Trust or the Property Trustee by facsimile, countersigned by the Securities Registrar or its agent, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Holder, and shall be entitled to the rights and subject to the obligations of a Holder hereunder, upon due registration of such Trust Securities Certificate in such transferee’s name pursuant to Sections 5.4, 5.11 and 5.13.
     Section 5.3 Execution and Delivery of Trust Securities Certificates.
     At the Closing Date, the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 2.4 and 2.5, to be executed on behalf of the Issuer Trust and delivered to or upon the written order of the Depositor, such written order executed by one authorized officer thereof, without further corporate action by the Depositor, in authorized denominations.
     Section 5.4 Registration of Transfer and Exchange of Capital Securities Certificates.
     The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.8, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Capital Securities Certificates (the “Securities Register”) in which the transfer agent and registrar designated by the Depositor (the “Securities Registrar”), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Capital Securities Certificates and Common Securities Certificates (subject to Section 5.10 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Capital Securities Certificates as herein provided. The Property Trustee shall be the initial Securities Registrar. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Property Trustee in its role as Securities Registrar, for so long as the Property Trustee shall act as Securities Registrar.
     Upon surrender for registration of transfer of any Capital Securities Certificate at the office or agency maintained pursuant to Section 5.8, the Administrative Trustees or any one of them shall execute on behalf of the Issuer Trust (and if executed on behalf of the Issuer Trust by a facsimile signature, such certificate shall be countersigned by the Securities Registrar or its agent) and deliver, in the name of the designated transferee or transferees, one or more new Capital Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities

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Registrar shall not be required to register the transfer of any Capital Securities that have been called for redemption during a period beginning at the opening of business 15 days before the day of selection for such redemption.
     At the option of a Holder, Capital Securities Certificates may be exchanged for other Capital Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Capital Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 5.8.
     Every Capital Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to an Administrative Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Capital Securities Certificate surrendered for registration of transfer or exchange shall be canceled and subsequently disposed of by an Administrative Trustee or the Securities Registrar in accordance with such Person’s customary practice.
     No service charge shall be made for any registration of transfer or exchange of Capital Securities Certificates, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Capital Securities Certificates.
     The Capital Securities will initially bear a legend to the following effect:
     “THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
     THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. ANY TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.”
     In the event that any Capital Securities (i) become registered under the Securities Act or (ii) are eligible to be transferred without restriction in accordance with Rule 144 or another exemption from registration under the Securities Act (other than Rule 144A), the Administrative Trustees, or any one of them, on behalf of the Issuer Trust, shall execute and make available for delivery, in exchange for the Capital Securities Certificate evidencing such Capital Securities and bearing such legend, Capital Securities Certificate which shall not contain such legend, and the Property Trustee shall authenticate such Capital Securities Certificate; provided that that Holder surrenders to the Issuer Trustee the previously issued certificates. Subject to compliance with applicable securities laws, the initial Holder shall be permitted to transfer, sell, assign or otherwise dispose of (“Transfer”) all or a portion of the

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Capital Securities at any time, and the Depositor and the Administrative Trustees, on behalf of the Issuer Trust, shall take all steps as may reasonably be requested by the initial Holder to facilitate the Transfer of the Capital Securities.
     Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates.
     If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate, and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a protected purchaser, the Administrative Trustees, or any one of them, on behalf of the Issuer Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section 5.5, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Issuer Trust corresponding to that evidenced by the lost, stolen or destroyed Trust Securities Certificate, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time.
     Section 5.6 Persons Deemed Holders.
     The Issuer Trustees and the Securities Registrar shall each treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and none of the Issuer Trustees, the Administrative Trustees and the Securities Registrar shall be bound by any notice to the contrary.
     Section 5.7 Access to List of Holders’ Names and Addresses.
     Each Holder and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee, the Delaware Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived.
     Section 5.8 Maintenance of Office or Agency.
     The Administrative Trustees shall designate an office or offices or agency or agencies where Capital Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuer Trustees in respect of the Trust Securities Certificates may be served. The Administrative Trustees initially designate The Bank of New York Mellon Trust Company, N.A., 505 North 20th Street, Suite 950, Birmingham, Alabama 35203, Attention: Corporate Trust Administration, as its office and agency for such purposes. The Administrative Trustee shall give prompt written notice to the Depositor, the Property Trustees and to the Holders of any change in the location of the Securities Register or any such office or agency.
     Section 5.9 Appointment of Paying Agent.
     The Paying Agent shall make Distributions to Holders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account solely for the purpose of making the Distributions referred to above. The Property Trustee may revoke such power and remove the Paying Agent in its sole discretion. The Paying Agent shall initially be the Property Trustee. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days’ written notice to the Administrative Trustees and the Property Trustee. If the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company) that is reasonably acceptable to the Property Trustee and the Depositor to act as Paying Agent. Such successor Paying Agent or any additional Paying Agent shall execute and deliver to the Issuer Trustees an

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instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Issuer Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Holders in trust for the benefit of the Holders entitled thereto until such sums shall be paid to such Holders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Property Trustee in its role as Paying Agent, for so long as the Property Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise.
     Section 5.10 Ownership of Common Securities by Depositor.
     At the Closing Date, the Depositor shall acquire, and thereafter shall retain, beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Depositor into another Person, or any conveyance, transfer or lease by the Depositor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.01 of the Indenture, any attempted transfer of the Common Securities shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend consistent with this Section 5.10.
     Section 5.11 Book-Entry Capital Securities Certificates; Common Securities Certificate.
     (a) The Capital Securities Certificates, when exchanged for new Capital Securities Certificates pursuant to the last paragraph of Section 5.4 not bearing the legend required by such Section, may be issued in the form of a typewritten Capital Securities Certificate or Certificates representing Book-Entry Capital Securities Certificates, to be delivered to, or on behalf of, DTC, the initial Clearing Agency, by, or on behalf of, the Issuer Trust. Such Capital Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Owner will receive a Definitive Capital Securities Certificate representing such Owner’s interest in such Capital Securities, except as provided in Section 5.13. Unless and until Definitive Capital Securities Certificates have been issued to Owners pursuant to Section 5.13:
          (i) the provisions of this Section 5.11(a) shall be in full force and effect;
          (ii) the Securities Registrar and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book-Entry Capital Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Capital Securities evidenced by Book-Entry Capital Securities Certificates and. the giving of instructions or directions to Owners of Capital Securities evidenced by Book-Entry Capital Securities Certificates) as the sole Holder of Capital Securities evidenced by Book-Entry Capital Securities Certificates and shall have no obligations to the Owners thereof;
          (iii) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Trust Agreement, the provisions of this Section 5.11 shall control; and
          (iv) the rights of the Owners of the Book-Entry Capital Securities Certificate shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Certificate Depository Agreement, unless and until Definitive Capital Securities Certificates are issued pursuant to Section 5.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments on the Capital Securities to such Clearing Agency Participants.
     (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate.

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     Section 5.12 Notices to Clearing Agency.
     To the extent that a notice or other communication to the Holders is required under this Trust Agreement, for so long as Capital Securities are represented by a Book-Entry Capital Securities Certificates, the Administrative Trustees and the Issuer Trustee shall give all such notices and communications specified herein to be given to the Clearing Agency, and shall have no obligations to the Owners.
     Section 5.13 Definitive Capital Securities Certificates.
     The Capital Securities Certificates will initially be issued in the form of Definitive Capital Securities Certificates. If, after the exchange of Definitive Capital Securities Certificates for Book-Entry Capital Securities Certificates as contemplated by the first paragraph of Section 5.11(a), (a) the Depositor advises the Issuer Trustees in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Capital Securities Certificates, and the Depositor is unable to locate a qualified successor, (b) the Depositor at its option advises the Issuer Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Debenture Event of Default, Owners of Capital Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount advise the Administrative Trustees in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interest of the Owners of Capital Securities Certificates, then the Administrative Trustees shall notify the other Issuer Trustees and the Clearing Agency, and the Clearing Agency, in accordance with its customary rules and procedures, shall notify all Clearing Agency Participants for whom it holds Capital Securities of the occurrence of any such event and of the availability of the Definitive Capital Securities Certificates to Owners of such class or classes, as applicable, requesting the same. Upon surrender to the Administrative Trustees of the typewritten Capital Securities Certificate or Certificates representing the Book-Entry Capital Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Capital Securities Certificates in accordance with the instructions of the Clearing Agency, if executed on behalf of the Issuer Trust by facsimile, countersigned by the Securities Registrar or its agent. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Capital Securities Certificates, the Issuer Trustees shall recognize the Holders of the Definitive Capital Securities Certificates as holders of Trust Securities. The Definitive Capital Securities Certificates shall be typewritten, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees that meets the requirements of any stock exchange or automated quotation system on which the Capital Securities are then listed or approved for trading, as evidenced by the execution thereof by the Administrative Trustees or any one of them.
     Section 5.14 Rights of Holders; Waivers of Past Defaults.
     (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 2.9, and the Holders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Issuer Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Issuer Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Holders against payment of the purchase price therefor will be fully paid and, to the fullest extent permitted by applicable law, nonassessable by the Issuer Trust. The Holders of the Trust Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware.
     (b) For so long as any Capital Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable as set forth in the Indenture, the Property Trustee or the Holders of at least 25% in Liquidation Amount of the Capital Securities then Outstanding shall have the right to make such declaration by a notice in writing to the Depositor, the Debenture Trustee and the Property Trustee, in the case of notice by the Holders of the Capital Securities, or to the Depositor, the Debenture Trustee and the Holders of the Capital Securities, in the case of notice by the Property Trustee; and

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upon any such declaration such principal amount and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal, interest and premium, if any, on such Debentures shall remain subordinated to the extent provided in the Indenture.
     At any time after a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as in the Indenture provided, the Holders of at least a Majority in Liquidation Amount of the Capital Securities, by written notice to the Property Trustee, the Depositor and the Debenture Trustee, may rescind and annul such declaration and its consequences if:
          (i) the Depositor has paid or deposited with the Debenture Trustee a sum sufficient to pay
          (A) all overdue installments of interest on all of the Debentures,
          (B) any accrued Additional Interest (as defined in the Indenture) on all of the Debentures,
          (C) the principal of (an premium, if any, on) any Debentures that have become due otherwise then by such declaration of acceleration and interest and Additional Interest as defined in the Indenture) thereon at the rate borne by the Debentures, and
          (D) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Debenture Trustee and the Property Trustee, their agents and counsel; and
          (ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures that has become due solely by such acceleration, have been cured or waived as provided in Section 5.13 of the Indenture.
     The Holders of at least a Majority in Liquidation Amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default under the Indenture, except a default in the payment of principal or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default in respect of a covenant or provision that under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon.
     Upon receipt by the Property Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of any part of the Capital Securities a record date shall be established for determining Holders of Outstanding Capital Securities entitled to join in such notice, which record date shall be at the close of business on the day the Property Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day that is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice that has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.14(b).
     (c) For so long as any Capital Securities remain Outstanding, to the fullest extent permitted by law and subject to the terms of this Trust Agreement and the Indenture, upon a Debenture Event of Default specified in Section 5.01(1) or 5.01(2) of the Indenture, any Holder of Capital Securities shall have the right to institute a proceeding directly against the Depositor, pursuant to Section 5.08 of the Indenture, for enforcement of payment to such Holder of any amounts payable in respect of Debentures having an aggregate principal amount equal to the

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aggregate Liquidation Amount of the Capital Securities of such Holder (a “Direct Action”). Except as set forth in Section 5.14(b) and this Section 5.14(c), the Holders of Capital Securities shall have no right to exercise directly any right or remedy available to the holders of, or in respect of, the Debentures.
     (d) Except as otherwise provided in paragraphs (a), (b) and (c) of this Section 5.14, the Holders of at least a Majority in Liquidation Amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default and its consequences. Upon such waiver, any such default or Event of Default shall cease to exist, and any default or Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Trust Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
     Section 5.15 CUSIP Numbers.
     The Administrative Trustees in issuing the Capital Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Property Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Capital Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Capital Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Administrative Trustees will promptly notify the Property Trustee of any change in the CUSIP numbers.
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING
     Section 6.1 Limitations on Voting Rights.
     (a) Except as expressly provided in this Trust Agreement and in the Indenture and as otherwise required by law, no Holder of Capital Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Issuer Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Holders from time to time as partners or members of an association.
     (b) So long as any Debentures are held by the Property Trustee on behalf of the Issuer Trust, the Issuer Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or execute any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default that may be waived under Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a Majority in Liquidation Amount of the Capital Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Capital Securities. The Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Capital Securities, except by a subsequent vote of the Holders of the Capital Securities. The Property Trustee shall notify all Holders of the Capital Securities of any notice of default received with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Capital Securities, prior to taking any of the foregoing actions, the Issuer Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that such action shall not cause the Issuer Trust to be taxable as a corporation or classified as other than a grantor trust for United States Federal or State income tax purposes.
     (c) If any proposed amendment to the Trust Agreement provides for, or the Issuer Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Capital Securities, whether by way of amendment to the Trust Agreement or otherwise, or (ii) the dissolution and winding-up of the Issuer Trust, other than pursuant to the terms of this Trust Agreement, then

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the Holders of Outstanding Capital Securities as a class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a Majority in Liquidation Amount of the Capital Securities. Notwithstanding any other provision of this Trust Agreement, no amendment to this Trust Agreement may be made if, as a result of such amendment, it would cause the Issuer Trust to be taxable as a corporation or classified as other than a grantor trust for United States Federal or State income tax purposes.
     Section 6.2 Notice of Meetings.
     Notice of all meetings of the Holders of the Capital Securities, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.8 to each Holder of Capital Securities, at such Holder’s registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice.
     Section 6.3 Meetings of Holders of the Capital Securities.
     No annual meeting of Holders is required to be held. The Property Trustee, however, shall call a meeting of the Holders of the Capital Securities to vote on any matter upon the written request of the Holders of at least 25% in aggregate Liquidation Amount of the Outstanding Capital Securities and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of the Holders of the Capital Securities to vote on any matters as to which such Holders are entitled to vote.
     The Holders of at least a Majority in Liquidation Amount of the Capital Securities, present in person or by proxy, shall constitute a quorum at any meeting of the Holders of the Capital Securities.
     If a quorum is present at a meeting, an affirmative vote by the Holders present, in person or by proxy, holding Capital Securities representing at least a Majority in Liquidation Amount of the Capital Securities held by the Holders present, either in person or by proxy, at such meeting shall constitute the action of the Holders of the Capital Securities, unless this Trust Agreement requires a greater number of affirmative votes.
     Section 6.4 Voting Rights.
     Holders shall be entitled to one vote for each $1,000 of Liquidation Amount represented by their Outstanding Trust Securities in respect of any matter as to which such Holders are entitled to vote.
     Section 6.5 Proxies, etc.
     At any meeting of Holders, any Holder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Property Trustee, or with such other officer or agent of the Issuer Trust as the Property Trustee may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Property Trustee, proxies may be solicited in the name of the Property Trustee or one or more officers of the Property Trustee. Only Holders of record shall be entitled to vote. When Trust Securities are held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Holder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution.
     Section 6.6 Holder Action by Written Consent.
     Any action that may be taken by Holders at a meeting may be taken without a meeting if Holders holding at least a Majority in Liquidation Amount of all Capital Securities entitled to vote in respect of such action (or such

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larger proportion thereof as shall be required by any other provision of this Trust Agreement) shall consent to the action in writing.
     Section 6.7 Record Date for Voting and Other Purposes.
     For the purposes of determining the Holders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Holders or the payment of a Distribution or other action, as the case may be, as a record date for the determination of the identity of the Holders of record for such purposes.
     Section 6.8 Acts of Holders.
     Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to the Property Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor of the Issuer Trustees, if made in the manner provided in this Section.
     The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that any Issuer Trustee receiving the same deems sufficient.
     The ownership of Trust Securities shall be proved by the Securities Register.
     Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Trust Security shall bind every future Holder of the same Trust Security and the Holder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Issuer Trustees, or the Issuer Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security.
     Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount.
     If any dispute shall arise between the Holders and the Issuer Trustees or among the Holders or the Issuer Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Holder or Issuer Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter.
     Section 6.9 Inspection of Records.
     Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Issuer Trust shall be open to inspection by Holders during normal business hours for any purpose reasonably related to such Holder’s interest as a Holder.

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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
     Section 7.1 Representations and Warranties of the Property Trustee and the Delaware Trustee.
     The Property Trustee and the Delaware Trustee, each severally on behalf of and as to itself, hereby represents and warrants for the benefit of the Depositor and the Holders that:
     (a) the Property Trustee is a national banking association vadily existing under the laws of the United States of America;
     (b) the Property Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance of its duties under this Trust Agreement;
     (c) the Delaware Trustee is a Delaware banking corporation;
     (d) the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement;
     (e) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and the Delaware Trustee and constitutes the valid and legally binding agreement of each of the Property Trustee and the Delaware Trustee enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles;
     (f) the execution, delivery and performance of this Trust Agreement have been duly authorized by all necessary corporate or other action on the part of the Property Trustee and the Delaware Trustee and do not require any approval of stockholders of the Property Trustee and the Delaware Trustee and such execution, delivery and performance will not (i) violate the charter or by-laws of the Property Trustee or the Delaware Trustee, (ii) to each of their knowledge without independent investigation, violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Delaware Trustee is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking, trust or general powers of the Property Trustee or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Delaware Trustee;
     (g) neither the authorization, execution or delivery by the Property Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee or the Delaware Trustee (as the case may be) contemplated herein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing law of the United States or the State of Delaware governing the banking, trust or general powers of the Property Trustee or the Delaware Trustee (as appropriate in context), other than the filing of the Certificate of Trust with the Delaware Secretary of State; and
     (h) there are no proceedings pending or, to each of the Property Trustee’s and the Delaware Trustee’s knowledge, threatened against or affecting the Property Trustee or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal that, individually or in the aggregate, would materially and adversely affect the Issuer Trust or would question the right, power and authority of the Property Trustee or the Delaware Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Trust Agreement.

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     Section 7.2 Representations and Warranties of Depositor.
     The Depositor hereby represents and warrants for the benefit of the Holders that:
     (a) the Trust Securities Certificates issued at the Closing Date on behalf of the Issuer Trust have been duly authorized and will have been duly and validly executed, issued and delivered by the Issuer Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement, and the Holders will be, as of such date, entitled to the benefits of this Trust Agreement; and
     (b) there are no taxes, fees or other governmental charges payable by the Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by any Issuer Trustee of this Trust Agreement.
ARTICLE VIII
THE ISSUER TRUSTEES
     Section 8.1 Certain Duties and Responsibilities.
     (a) The duties and responsibilities of the Issuer Trustees shall be as provided by this Trust Agreement, subject to Section 10.10 hereof. Notwithstanding the foregoing, but subject to Section 8.1(c), no provision of this Trust Agreement shall require any of the Issuer Trustees to expend or risk its or their own funds or otherwise incur any financial liability in the performance of any of its or their duties hereunder, or in the exercise of any of its or their rights or powers, if it or they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Issuer Trustees shall be subject to the provisions of this Section 8.1. To the extent that, at law or in equity, an Administrative Trustee has duties and liabilities relating to the Issuer Trust or to the Holders, such Administrative Trustee shall not be liable to the Issuer Trust or to any Holder for such Administrative Trustee’s good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Holders to replace such other duties and liabilities of the Administrative Trustees.
     (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Holder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Issuer Trustees are not personally liable to such Holder for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) does not limit the liability of the Issuer Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
     (c) If an Event of Default has occurred and is continuing, the Property Trustee shall enforce this Trust Agreement for the benefit of the Holders.
     (d) The Property Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Trust Agreement (including pursuant to Section 10.10), and no implied covenants shall be read into this Trust Agreement against the Property Trustee. If an Event of Default has occurred (that has not been cured or waived pursuant to Section 5.14), the Property Trustee shall exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

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     (e) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
          (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
          (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Trust Agreement (including pursuant to Section 10.10), and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Trust Agreement (including pursuant to Section 10.10); and
          (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Trust Agreement; but in the case of any such certificates or opinions that by any provision hereof or of the Trust Indenture Act are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Trust Agreement (but need not confirm or investigate the accuracy of any mathematical calculation or other facts stated therein);
          (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of at least a Majority in Liquidation Amount of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement;
          (iii) the Property Trustee’s sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act;
          (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Depositor; and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 3.1 and except to the extent otherwise required by law;
          (v) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the default or misconduct of any other Issuer Trustee, the Administrative Trustees or the Depositor; and
          (vi) subject to Section 8.1(c), no provision of this Trust Agreement shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Property Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Trust Agreement or adequate indemnity against such risk or liability is not reasonably assured to it.
     (f) The Administrative Trustees shall not be responsible for monitoring the compliance by the other Issuer Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall either Administrative Trustee be liable for the default or misconduct of any other Issuer Trustee or the Depositor.

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     Section 8.2 Certain Notices.
     Within ten days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.8, notice of such Event of Default to the Holders and the Administrative Trustees, unless such Event of Default shall have been cured or waived.
     Within five Business Days after the receipt of notice of the Depositor’s exercise of its right to defer the payment of interest on the Debentures pursuant to the Indenture, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.8, notice of such exercise to the Holders and the Administrative Trustees, unless such exercise shall have been revoked.
     The Property Trustee shall not be deemed to have knowledge of any Event of Default unless the Property Trustee shall have received written notice or a Responsible Officer of the Property Trustee charged with the administration of this Trust Agreement shall have obtained actual knowledge of such Event of Default.
     Section 8.3 Certain Rights of Property Trustee.
     Subject to the provisions of Section 8.1:
     (a) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
     (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action, (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with any other provisions contained herein, or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Holders of the Capital Securities are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting the Depositor’s opinion as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed to take, or refrain from taking, by the Depositor; provided, however, that if the Depositor fails to deliver such opinion within ten Business Days after the Property Trustee has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two Business Days), the Property Trustee shall take such action, or refrain from taking such action, not inconsistent with this Trust Agreement, as the Property Trustee may deem advisable and in the best interests of the Holders, in which event the Property Trustee shall have no liability except for its own negligence or willful misconduct;
     (c) any direction or act of the Depositor contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers’ Certificate;
     (d) any direction or act of an Administrative Trustee contemplated by this Trust Agreement shall be sufficiently evidenced by a certificate executed by such Administrative Trustee and setting forth such direction or act;
     (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or re-registration thereof;
     (f) the Property Trustee may consult with counsel of its selection (which counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Property Trustee shall have the right at

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any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction;
     (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Holders pursuant to this Trust Agreement, unless such Holders shall have offered to the Property Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction; provided that nothing contained in this Section 8.3(g) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Trust Agreement;
     (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Holders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit at the expense of the Depositor and shall incur no liability of any kind by reason of such inquiry or investigation;
     (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall not be responsible for the negligence of any such agent or attorney appointed with due care by it hereunder;
     (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders (which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action), (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and
     (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement.
     (l) The Property Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement.
     (m) The Property Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Property Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Property Trustee at the Corporate Trust Office of the Property Trustee, and such notice references the Securities and this Agreement.
     (n) The rights, privileges, protections, immunities and benefits given to the Property Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Property Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
     (o) In no event shall the Property Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Property Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
     No provision of this Trust Agreement shall be deemed to impose any duty or obligation on any Issuer Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which such Person shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to any Issuer Trustee shall be construed to be a duty.

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     Section 8.4 Issuer Trustees Not Responsible for Recitals or Issuance of Securities.
     The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Issuer Trust and the Depositor, and the Issuer Trustees do not assume any responsibility for their correctness. The Issuer Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures.
     Section 8.5 Issuer Trustees May Hold Securities.
     Any Issuer Trustee or any other agent of any Issuer Trustee or the Issuer Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 8.8 and 8.13, and except as provided in the definition of the term “Outstanding” in Article I, may otherwise deal with the Issuer Trust with the same rights it would have if it were not Issuer Trustee or such other agent.
     Section 8.6 Compensation; Indemnity; Fees.
     The Depositor agrees:
     (a) to pay to the Issuer Trustees from time to time such compensation for all services rendered by them hereunder as may be separately agreed in writing by the Depositor and the Issuer Trustees from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
     (b) except as otherwise expressly provided herein, to reimburse the Issuer Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Issuer Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of their agents and counsel), except any such expense, disbursement or advance as shall be determined to have been caused by their own negligence or willful misconduct; and
     (c) to the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Issuer Trustee, (ii) any Affiliate of any Issuer Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Issuer Trustee, and (iv) any employee or agent of the Issuer Trust (referred to herein as an “Indemnified Person”) from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or dissolution of the Issuer Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Issuer Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Trust Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of its own negligence or willful misconduct with respect to such acts or omissions.
     The provisions of this Section 8.6 shall survive the termination of this Trust Agreement and the removal or resignation of any Issuer Trustee.
     When the Property Trustee incurs expenses or renders services in connection with an Event of Default under this Trust Agreement, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law.
     No Issuer Trustee may claim any Lien on any Trust Property as a result of any amount due pursuant to this Section 8.6.
     The Depositor and any Issuer Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Issuer Trust, and the Issuer Trust and the Holders of Trust Securities shall have no rights by virtue of this Trust Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if

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competitive with the business of the Issuer Trust, shall not be deemed wrongful or improper. Neither the Depositor nor any Issuer Trustee shall be obligated to present any particular investment or other opportunity to the Issuer Trust even if such opportunity is of a character that, if presented to the Issuer Trust, could be taken by the Issuer Trust, and the Depositor and any Issuer Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Issuer Trustee may engage or be interested in any financial or other transaction with the Depositor or any Affiliate of the Depositor, or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Depositor or its Affiliates.
     Section 8.7 Corporate Property Trustee Required; Eligibility of Issuer Trustees.
     (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is a national or state chartered bank and eligible pursuant to the Trust Indenture Act to act as such and that has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section 8.7 and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section 8.7, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VIII. At the time of appointment, the Property Trustee must have securities rated in one of the three highest rating categories by a nationally recognized statistical rating organization.
     (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity.
     (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware, or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law and that shall act through one or more persons authorized to bind such entity. In the event the Delaware Trustee shall at any time be required to take any action or perform any duty hereunder with respect to the Issuer Trust, the Delaware Trustee shall be entitled to all benefits, protections and rights of the Property Trustee under Section 8.3.
     Section 8.8 Conflicting Interests.
     (a) If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement.
     (b) The Guarantee Agreement and the Indenture shall be deemed to be specifically described in this Trust Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
     Section 8.9 Co-Trustees and Separate Trustee.
     Unless and until a Debenture Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Holder of Common Securities and the Administrative Trustees shall have the power to appoint one or more Persons either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee shall have the sole power to so appoint such a co-trustee or separate trustee, and upon the written request of

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the Property Trustee, the Depositor and the Administrative Trustees shall for such purpose join with the Property Trustee in the execution, delivery, and performance of all instruments and agreements necessary or proper to appoint, such co-trustee or separate trustee. Any co-trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity.
     Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Depositor.
     Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely:
     (a) The Trust Securities shall be executed by one or more Administrative Trustees, and the Trust Securities shall be delivered by the Property Trustee, and all rights, powers, duties, and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Property Trustee specified hereunder shall be exercised solely by the Property Trustee and not by such co-trustee or separate trustee.
     (b) The rights, powers, duties, and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee.
     (c) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 8.9, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigning or removed may be appointed in the manner provided in this Section 8.9.
     (d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder.
     (e) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee.
     (f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee.
     Section 8.10 Resignation and Removal; Appointment of Successor.
     No resignation or removal of any Issuer Trustee (the “Relevant Trustee”) and no appointment of a successor Issuer Trustee pursuant to this Article VIII shall become effective until the acceptance of appointment by the successor Issuer Trustee in accordance with the applicable requirements of Section 8.11.
     Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time by giving written notice thereof to the Holders. If the instrument of acceptance by the successor Issuer Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 60 days after the giving of such notice of

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resignation, the Relevant Trustee may petition, at the expense of the Depositor, in the case of the Property Trustee, any court of competent jurisdiction for the appointment of a successor Relevant Trustee.
     The Administrative Trustees, or any of them, may be removed at any time by Act of the Holders of Common Securities delivered to the Relevant Trustee.
     The Property Trustee or the Delaware Trustee, or both of them, may be removed by Act of the Holders of at least a Majority in Liquidation Amount of the Capital Securities, delivered to the Relevant Trustee (in its individual capacity and, in the case of the Property Trustee, on behalf of the Issuer Trust) (i) for cause (including upon the occurrence of an Event of Default described in subparagraph (d) of the definition thereof with respect to the Relevant Trustee), or (ii) at any time if a Debenture Event of Default shall have occurred and be continuing. Unless and until a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at any time by Act of the Holders of the Common Securities.
     If any Issuer Trustee shall resign, be removed or become incapable of acting as an Issuer Trustee, or if a vacancy shall occur in the office of any Issuer Trustee for any cause, at any time when no Debenture Event of Default shall have occurred and be continuing, the Holders of the Common Securities, by Act of such Holders delivered to the Relevant Trustee, shall promptly appoint such successor Issuer Trustee or Trustees, and the Relevant Trustee shall comply with the applicable requirements of Section 8.11. If the Property Trustee or Delaware Trustee shall resign, be removed or become incapable of acting as Issuer Trustee, as the case may be and a Debenture Event of Default shall have occurred and be continuing, the Holders of the Capital Securities, by Act of the Holders of not less than 25% in aggregate Liquidation Amount of the Capital Securities then Outstanding delivered to such Relevant Trustee, may appoint a successor Relevant Trustee or Trustees, and such successor Issuer Trustee shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee shall have been so appointed by the Holders of the Common Securities or Capital Securities, as the case may be, and accepted appointment in the manner required by Section 8.11, any Holder, on behalf of such Holder and all others similarly situated, or any other Issuer Trustee, may, at the expense of the Depositor, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee.
     The Property Trustee shall give notice of each resignation and each removal of an Issuer Trustee and each appointment of a successor Issuer Trustee to all Holders in the manner provided in Section 10.8 and shall give notice to the Depositor and to the Administrative Trustees. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee.
     Notwithstanding the foregoing or any other provision of this Trust Agreement, if any Delaware Trustee who is a natural person dies or becomes, in the opinion of the Holders of the Common Securities, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by the Property Trustee following the procedures regarding expenses and charges set forth above (with the successor being a Person who satisfies the eligibility requirement for the Delaware Trustee set forth in Section 8.7).
     Section 8.11 Acceptance of Appointment by Successor.
     In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee (if requested by the Depositor) and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Issuer Trust, and (b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the Issuer Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, other than the filing of an amendment to the Certificate of Trust to the extent required under the Delaware Statutory Trust Act, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Issuer Trust or any successor Relevant Trustee such retiring Relevant Trustee shall upon payment of its charges hereunder duly assign, transfer and deliver

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to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Issuer Trust.
     Upon request of any such successor Relevant Trustee, the Issuer Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the preceding paragraph.
     No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article VIII.
     Section 8.12 Merger, Conversion, Consolidation or Succession to Business.
     Any Person into which the Property Trustee or the Delaware Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any Person, succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided that such Person shall be otherwise qualified and eligible under this Article VIII, without the execution or filing of any paper or any further act on the part of any of the parties hereto, other than the filing of an amendment to the Certificate of Trust to the extent required under the Delaware Statutory Trust Act.
     Section 8.13 Preferential Collection of Claims Against Depositor or Issuer Trust.
     If and when the Property Trustee shall be or become a creditor of the Depositor or the Issuer Trust (or any other obligor upon the Capital Securities), the Property Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor or the Issuer Trust (or any such other obligor).
     Section 8.14 Trustee May File Proofs of Claim.
     In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Issuer Trust or any other obligor upon the Trust Securities or the property of the Issuer Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions on the Trust Securities shall then be due and payable and irrespective of whether the Property Trustee shall have made any demand on the Issuer Trust for the payment of any past due Distributions) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise:
     (a) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Trust Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Property Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
     (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Property Trustee and, in the event the Property Trustee shall consent to the making of such payments directly to the Holders, to pay to the Property Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel, and any other amounts due the Property Trustee.
     Nothing herein contained shall be deemed to authorize the Property Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement adjustment or compensation affecting the Trust Securities or the rights of any Holder thereof or to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding.

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     Section 8.15 Reports by Property Trustee.
     (a) The Property Trustee shall transmit to Holders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.
     (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each national stock exchange, the Nasdaq National Market or such other exchange, interdealer quotation system or self-regulatory organization upon which the Trust Securities are listed or traded, with the Commission and with the Depositor. The Depositor will notify the Property Trustee when the Trust Securities are listed or delisted on any stock exchange.
     Section 8.16 Reports to the Property Trustee.
     Each of the Depositor and the Administrative Trustees shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. The Depositor and the Administrative Trustees shall annually file with the Property Trustee a certificate specifying whether such Person is in compliance with all of the terms and covenants applicable to such Person hereunder.
     Delivery of such reports, information and documents to the Property Trustee is for informational purposes only and the Property Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Depositor’s compliance with any of its covenants hereunder (as to which the Property Trustee is entitled to rely exclusively on Officers’ Certificates).
     Section 8.17 Evidence of Compliance with Conditions Precedent.
     Each of the Depositor and the Administrative Trustees shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers’ Certificate.
     Section 8.18 Number of Issuer Trustees.
     (a) The number of Issuer Trustees shall be five, unless the Property Trustee also acts as the Delaware Trustee, in which case the number of Issuer Trustees may be three.
     (b) If an Issuer Trustee ceases to hold office for any reason, a vacancy shall occur. The vacancy shall be filled with an Issuer Trustee appointed in accordance with Section 8.10.
     (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of an Issuer Trustee shall not operate to annul or dissolve the Issuer Trust.
     Section 8.19 Delegation of Power.
     (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 2.7(a) or making any governmental filing; and
     (b) The Administrative Trustees shall have power to delegate from time to time to such of their number the doing of such things and the execution of such instruments either in the name of the

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     Issuer Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Trust Agreement.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
     Section 9.1 Dissolution Events.
     The first to occur of any of the following events is a “Dissolution Event”:
     (a) the occurrence of a Depositor Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor, in its capacity as the Holder of the Common Securities, unless the Depositor shall transfer the Common Securities as provided by Section 5.10, in which case this provision shall refer instead to any such successor Holder of the Common Securities;
     (b) the written direction to the Property Trustee from all of the Holders of the Common Securities at any time to dissolve the Issuer Trust and to distribute the Debentures to Holders in exchange for the Capital Securities (which direction is optional and wholly within the discretion of the Holders of the Common Securities);
     (c) the redemption of all of the Capital Securities in connection with the redemption or repayment of all the Debentures; and
     (d) the entry of an order for dissolution of the Issuer Trust by a court of competent jurisdiction.
     Section 9.2 Dissolution.
     The respective obligations and responsibilities of the Issuer Trustees and the Issuer Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Holders of all amounts required to be distributed hereunder upon the liquidation of the Issuer Trust pursuant to Section 9.3, or upon the redemption of all of the Trust Securities pursuant to Section 4.2; (b) the payment of any expenses owed by the Issuer Trust; and (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Issuer Trust or the Holders.
     Section 9.3 Liquidation.
     (a) If a Dissolution Event specified in clause (a), (b) or (d) of Section 9.1 occurs, the Issuer Trust shall be liquidated by the Issuer Trustees as expeditiously as the Issuer Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Issuer Trust as provided by applicable law, to each Holder a Like Amount of Debentures, subject to Section 9.3(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder’s address appearing in the Securities Register. All such notices of liquidation shall:
          (i) state the CUSIP Number of the Trust Securities;
          (ii) state the Liquidation Date;
          (iii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Debentures, or if Section 9.3(d) applies, a right to receive a Liquidating Distribution; and

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          (iv) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or if Section 9.3(d) applies, receive a Liquidation Distribution, as the Property Trustee (after consultation with the Administrative Trustees) shall deem appropriate.
     (b) Except where Section 9.1(c) or 9.3(d) applies, in order to effect the liquidation of the Issuer Trust and distribution of the Debentures to Holders, the Property Trustee, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish a record date for such distribution (which shall be not more than 30 days prior to the Liquidation Date) and, establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates.
     (c) Except where Section 9.1(c) or 9.3(d) applies, after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Debentures will be issued to Holders of Trust Securities Certificates, upon surrender of such Certificates to the exchange agent for exchange, (iii) the Depositor shall use its best efforts to have the Debentures listed on a national stock exchange, the Nasdaq National Market or such other exchange, interdealer quotation system or self-regulatory organization as the Capital Securities are then listed, (iv) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Debentures bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Trust Securities Certificates with respect to such Debentures) and (v) all rights of Holders holding Trust Securities will cease, except the right of such Holders to receive Debentures upon surrender of Trust Securities Certificates.
     (d) If, notwithstanding the other provisions of this Section 9.3, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, or if a Dissolution Event specified in Section 9.1(c) occurs, the Trust Property shall be liquidated, and its affairs wound-up, by the Property Trustee in such manner as the Property Trustee (after consultation with the Administrative Trustees) determines. In such event, Holders will be entitled to receive out of the assets of the Issuer Trust available for distribution to Holders, after satisfaction of liabilities to creditors of the Issuer Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the “Liquidation Distribution”). If, upon any such winding up, the Liquidation Distribution can be paid only in part because the Issuer Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Issuer Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holders of the Common Securities will be entitled to receive Liquidation Distributions upon any such winding-up pro rata (determined as aforesaid) with Holders of Capital Securities, except that, if a Debenture Event of Default specified in Section 5.01(1) or 5.01(2) of the Indenture has occurred and is continuing, the Capital Securities shall have a priority over the Common Securities as provided in Section 4.3.
     Section 9.4 Mergers, Consolidations, Amalgamations or Replacements of Issuer Trust.
     The Issuer Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except pursuant to this Section 9.4 or Section 9.3. At the request of the Holders of the Common Securities, with the consent of the Administrative Trustees, but without the consent of the Holders of the Capital Securities, the Property Trustee or the Delaware Trustee, the Issuer Trust may merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any state; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Issuer Trust with respect to the Capital Securities, or (b) substitutes for the Capital Securities other securities having substantially the same terms as the Capital Securities (the “Successor Securities”) so long as the Successor Securities have the same priority as the Capital Securities with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) a trustee of such successor entity possessing substantially the same powers and duties as the Property Trustee is appointed to hold the Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notice of issuance, on a national securities exchange, the Nasdaq National Market or such other exchange, interdealer quotation system of self-regulatory organization as the Capital Securities are then listed, if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not

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cause the Capital Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Capital Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Issuer Trust, (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Capital Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Issuer Trust nor such successor entity will be required to register as an “investment company” under the Investment Company Act, and (viii) the Depositor or its permitted transferee owns all of the Common Securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee Agreement. Notwithstanding the foregoing, the Issuer Trust shall not, except with the consent of Holders of all of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Issuer Trust or the successor entity to be taxable as a corporation or classified as other than a grantor trust for United States Federal or State income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
     Section 10.1 Limitation of Rights of Holders.
     Except as set forth in Section 9.1, the death or incapacity of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor dissolve or terminate the Trust, nor entitle the legal representatives or heirs of such Person or any Holder for such person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them.
     Section 10.2 Amendment.
     (a) This Trust Agreement may be amended from time to time by the Administrative Trustees and the Holders of all of the Common Securities, without the consent of any Holder of the Capital Securities or any other Issuer Trustees, (i) to cure any ambiguity, correct or supplement any provision herein that may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, which shall not be inconsistent with the other provisions of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Issuer Trust will not be taxable as a corporation or classified as other than a grantor trust for United States Federal or State income tax purposes at all times that any Trust Securities are outstanding or to ensure that the Issuer Trust will not be required to register as an “investment company” under the Investment Company Act; provided, however, that in the case of either clause (i) or (ii), such action shall not adversely affect in any material respect the interests of any Holder.
     (b) Except as provided in Section 10.2(c), any provision of this Trust Agreement may be amended by the Administrative Trustees, the Property Trustee, and the Holders of all of the Common Securities and with (i) the consent of Holders of at least a Majority in Liquidation Amount of the Capital Securities, and (ii) receipt by the Issuer Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Issuer Trustees in accordance with such amendment will not affect the Trust’s status as a grantor trust or cause the Issuer Trust to be taxable as a corporation or as other than a grantor trust for United States Federal or State income tax purposes or affect the Issuer Trust’s exemption from status as an “investment company” under the Investment Company Act.

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     (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Holder, this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date, or (ii) restrict the right of a Holder to institute suit for the enforcement of any such payment on or after such date; and notwithstanding any other provision herein, without the unanimous consent of the Holders, this Section 10.2(c) may not be amended.
     (d) Notwithstanding any other provisions of this Trust Agreement, no Issuer Trustee shall enter into or consent to any amendment to this Trust Agreement that would cause the Issuer Trust to fail or cease to qualify for the exemption from status as an “investment company” under the Investment Company Act or to be taxable as a corporation or to be classified as other than a grantor trust for United States Federal or State income tax purposes.
     (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor and the Administrative Trustees, this Trust Agreement may not be amended in a manner that imposes any additional obligation on the Depositor or the Administrative Trustees.
     (f) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Property Trustee, this Trust Agreement may not be amended in a manner that imposes any additional obligation on the Property Trustee.
     (g) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Delaware Trustee, this Trust Agreement may not be amended in a manner that imposes any additional obligation on the Delaware Trustee.
     (h) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees or the Property Trustee shall promptly provide to the Depositor a copy of such amendment.
     (i) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement that affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers’ Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement.
     Section 10.3 Separability.
     In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
     Section 10.4 Governing Law.
     THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE HOLDERS, THE ISSUER TRUST, THE DEPOSITOR, AND THE ISSUER TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICTS OF LAWS PROVISIONS.
     Section 10.5 Payments Due on Non-Business Day.
     If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day that is a Business Day, with the same force and effect as though made on the date fixed for such payment, and no Distributions shall accumulate on such unpaid amount for the period after such date.

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     Section 10.6 Successors.
     This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Issuer Trust, and any Issuer Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Eight of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor’s obligations hereunder, the Depositor shall not assign its obligations hereunder.
     Section 10.7 Headings.
     The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement.
     Section 10.8 Reports, Notices and Demands.
     Any report, notice, demand or other communication that by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Holder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Holder of Capital Securities, to such Holder as such Holder’s name and address may appear on the Securities Register; and (b) in the case of the Holder of the Common Securities or the Depositor, Superior Bancorp, 17 North Twentieth Street, Birmingham, Alabama 35203, Attention: Chief Financial Officer, or to such other address as may be specified in a written notice by the Holder of the Common Securities or the Depositor, as the case may be, to the Property Trustee. Such notice, demand or other communication to or upon a Holder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Such notice, demand or other communication to or upon the Depositor shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Depositor.
     Any notice, demand or other communication that by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Issuer Trust, the Property Trustee, the Delaware Trustee, the Administrative Trustees or the Issuer Trust shall be given in writing addressed to such Person as follows: (a) with respect to the Property Trustee, to The Bank of New York Mellon Trust Company, N.A., 505 North 20th Street, Suite 950, Birmnigham, Alabama 35203, Attention: Corporate Trust Administration; (b) with respect to the Delaware Trustee, to BNY Mellon Trust of Delaware, White Clay Center, Route 273, Newark, Delaware 19711, Attention: Corporate Trust Administration; (c) with respect to the Administrative Trustees, to them at c/o Superior Bancorp, 17 North Twentieth Street, Birmingham, Alabama 35203, marked “Attention: Administrative Trustees of Superior Capital Trust II”; and (d) with respect to the Issuer Trust, to its principal office specified in Section 2.2, with a copy to the Property Trustee. Such notice, demand or other communication to or upon the Issuer Trust, the Property Trustee or the Administrative Trustees shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Issuer Trust, the Property Trustee or such Administrative Trustee.
     The Property Trustee agrees to accept and act upon instructions or directions pursuant to this Trust Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods; provided, however, that (a) the party providing such written instructions, subsequent to such transmission of written instructions, shall provide the originally executed instructions or directions to the Property Trustee in a timely manner, and (b) such originally executed instructions or directions shall be signed by an authorized representative of the party providing such instructions or directions. If the party elects to give the Property Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Property Trustee in its discretion elects to act upon such instructions, the Property Trustee’s understanding of such instructions shall be deemed controlling. The Property Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Property Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The party providing electronic instructions agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Property Trustee, including without limitation the risk of the Property Trustee acting on unauthorized instructions, and the risk or interception and misuse by third parties.

41


 

     Section 10.9 Agreement Not to Petition.
     Each of the Issuer Trustees and the Depositor agree for the benefit of the Holders that, until at least one year and one day after the Issuer Trust has been dissolved in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Issuer Trust under any bankruptcy, insolvency, reorganization or other similar law (including the United States Bankruptcy Code) (collectively, “Bankruptcy Laws”) or otherwise join in the commencement of any proceeding against the Issuer Trust under any Bankruptcy Law. If the Depositor takes action in violation of this Section 10.9, the Property Trustee agrees, for the benefit of Holders, that at the expense of the Depositor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Issuer Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom and such other defenses, if any, as counsel for the Issuer Trustee or the Issuer Trust may assert.
     Section 10.10 Trust Indenture Act; Conflict with Trust Indenture Act.
     (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. Except as otherwise expressly provided herein, if and to the extent that any provision of this Trust Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control.
     (b) The Property Trustee shall be the only Issuer Trustee that is a trustee for the purposes of the Trust Indenture Act.
     (c) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Issuer Trust.
     Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee Agreement and Indenture.
     THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT, THE GUARANTEE AGREEMENT AND THE INDENTURE, AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AGREEMENT AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE ISSUER TRUST, SUCH HOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE ISSUER TRUST AND SUCH HOLDER AND SUCH OTHERS.
     Section 10.12 Counterparts.
     This Trust Agreement may contain more than one counterpart of the signature page and this Trust Agreement may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page.
     Section 10.13 Waiver of Jury Trial.
     EACH OF THE DEPOSITOR AND THE PROPERTY TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SECURITIES OR THE TRANSACTION CONTEMPLATED HEREBY.

42


 

     Section 10.14 Force Majeure.
     In no event shall the Property Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or third-party computer (software and hardware) services; it being understood that the Property Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

43


 

     IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Trust Agreement.
             
    SUPERIOR BANCORP,    
    as Depositor    
 
           
 
  By:   /s/ James A. White
 
   
 
  Name:   James A. White    
 
  Title:   Chief Financial Officer    
 
           
    THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,    
    as Property Trustee    
 
           
 
  By:   /s/ Charles S. Northen IV    
 
           
 
  Name:   Charles S. Northen IV    
 
  Title:   Authorized Signatory    
 
           
    BNY MELLON TRUST OF DELAWARE,    
    as Delaware Trustee    
 
           
 
  By:   /s/ Kristine K. Gullo    
 
           
 
  Name:   Kristine K. Gullo    
 
           
 
  Title:   Vice President    
 
           
         
  /s/ James A. White    
  James A. White,   
  as Administrative Trustee   
     
  /s/ William H. Caughran    
  William H. Caughran,   
  as Administrative Trustee   
 

44


 

EXHIBIT A

 


 

CERTIFICATE OF TRUST
OF
SUPERIOR CAPITAL TRUST II
     THIS CERTIFICATE OF TRUST of Superior Capital Trust II (the “Trust”), is being duly executed and filed by the undersigned, as trustees, to form a statutory trust under the Delaware Statutory Trust Act (12 Del. C. Section 3801, et seq.) (the “Act”).
     1. Name. The name of the trust formed hereby is Superior Capital Trust II.
     2. Delaware Trustee. The name and the business address of the trustee of the Trust in the State of Delaware are BNY Mellon Trust of Delaware, White Clay Center, Route 273, Newark, Delaware 19711.
     3. Effective Date. This Certificate of Trust shall be effective upon filing.
     4. Counterparts. This Certificate of Trust may be executed in counterparts.
     IN WITNESS WHEREOF, the undersigned have duly executed this Certificate of Trust in accordance with Section 3811(a)(1) of the Act.
         
  BNY MELLON TRUST OF DELAWARE,
As Delaware Trustee
not in its individual capacity but solely as trustee
of the trust
 
 
  By:      
  Name:      
  Title:      
 
  THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
As Property Trustee
not in its individual capacity but solely as trustee
of the trust
 
 
  By:      
  Name:      
  Title:      
         
     
  JAMES A. WHITE, as Administrative Trustee   
     
     
  WILLIAM H. CAUGHRAN, as Administrative Trustee   
 

 


 

EXHIBIT B
FORM OF COMMON SECURITIES CERTIFICATE
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.10 OF THE TRUST AGREEMENT
     
Certificate Number                                            Number of Common Securities                                         
Certificate Evidencing Common Securities
of Superior Capital Trust II
Fixed Rate Common Securities
(liquidation amount $1,000 per Common Security)
     Superior Capital Trust II, a statutory trust created under the laws of the State of Delaware (the “Issuer Trust”), hereby certifies that Superior Bancorp (the “Holder”) is the registered owner of                                                              (                                        ) Common Securities of the Issuer Trust representing undivided common beneficial interests in the assets of the Issuer Trust and designated the Fixed Rate Common Securities (liquidation amount $1,000 per Common Security) (the “Common Securities”). Except in accordance with the Trust Agreement (as defined below), the Common Securities are not transferable and, to the fullest extent permitted by law, any attempted transfer hereof other than in accordance therewith shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust and Trust Agreement of the Issuer Trust, dated as of December ___, 2009, as the same may be amended from time to time (the “Trust Agreement”), among Superior Bancorp, as Depositor, The Bank of New York Mellon Trust Company, N.A., as Property Trustee, BNY Mellon Trust of Delaware, as Delaware Trustee, and the Holders of Trust Securities, including the designation of the terms of the Common Securities as set forth therein. The Issuer Trust will furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Issuer Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder.
     Terms used but not defined herein have the meanings set forth in the Trust Agreement.
     IN WITNESS WHEREOF, one of the Administrative Trustees of the Issuer Trust has executed this certificate this ___day of                                         .
         
  SUPERIOR CAPITAL TRUST II
 
 
  By:      
  Name:      
  Title:   Administrative Trustee   

 


 

PROPERTY TRUSTEE’S CERTIFICATE OF AUTHENTICATION
This is one of the Common Securities referred to in the above mentioned Trust Agreement.
Dated:                                         
         
  THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Property Trustee
 
 
  By:      
    Authorized Signatory   
       
 

 


 

EXHIBIT C
FORM OF CAPITAL SECURITIES CERTIFICATE
     [Include if required by Section 5.4 — THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
     THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. ANY TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.]
     [Include if this is a Book-Entry Capital Securities Certificate — This Capital Securities Certificate is a Book-Entry Capital Securities Certificate within the meaning of the Trust Agreement hereinafter referred to and is registered in the name of a Clearing Agency or a nominee of a Clearing Agency. This Capital Securities Certificate is exchangeable for Capital Securities Certificates registered in the name of a person other than the Clearing Agency or its nominee only in the limited circumstances described in the Trust Agreement and may not be transferred except as a whole by the Clearing Agency to a nominee of the Clearing Agency or by a nominee of the Clearing Agency to the Clearing Agency or another nominee of the Clearing Agency, except in the limited circumstances described in the Trust Agreement.
     Unless this Capital Security Certificate is presented by an authorized representative of The Depository Trust Company, a New York Corporation (“DTC”), to Superior Capital Trust II or its agent for registration of transfer, exchange or payment, and any Capital Security Certificate issued is registered in the name of Cede & Co. or such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]
     NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH, A “PLAN”), NO ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY (A “PLAN ASSET ENTITY”), AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN, MAY ACQUIRE OR HOLD THIS CAPITAL SECURITIES CERTIFICATE OR ANY INTEREST

 


 

HEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION (“PTCE”) 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR HOLDING OR THE REQUIREMENTS OF U.S. DEPARTMENT OF LABOR REGULATION SECTION 2550.401c-l ARE SATISFIED SUCH THAT THE CAPITAL SECURITIES CERTIFICATE HELD BY THE PURCHASER OR HOLDER DOES NOT CONSTITUTE “PLAN ASSETS” AND, IN THE CASE OF ANY PURCHASER OR HOLDER RELYING ON ANY EXEMPTION OTHER THAN PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 OR U.S. DEPARTMENT OF LABOR REGULATION SECTION 2550.40lc-1, HAS COMPLIED WITH ANY REQUEST BY THE DEPOSITOR OR THE ISSUER TRUST FOR AN OPINION OF COUNSEL OR OTHER EVIDENCE WITH RESPECT TO THE AVAILABILITY OF SUCH EXEMPTION. ANY PURCHASER OR HOLDER OF THIS CAPITAL SECURITIES CERTIFICATE OR ANY INTEREST HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING HEREOF THAT IT EITHER (A) IS NOT A PLAN OR A PLAN ASSET ENTITY AND IS NOT PURCHASING SUCH SECURITIES ON BEHALF OF OR WITH “PLAN ASSETS” OF ANY PLAN, OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR HOLDING OR U.S. DEPARTMENT OF LABOR REGULATION SECTION 2550.40lc-1.
     
          Certificate Number                                            Number of Capital Securities                                         
          CUSIP NO.    
Certificate Evidencing Capital Securities
of
Superior Capital Trust II
Fixed Rate Capital Securities
(liquidation amount $1,000 per Capital Security)
     Superior Capital Trust II, a statutory trust created under the laws of the State of Delaware (the “Issuer Trust”), hereby certifies that           (the “Holder”) is the registered owner of            (     ) Capital Securities of the Trust representing an undivided preferred beneficial interest in the assets of the Trust and designated the Superior Capital Trust II Fixed Rate Capital Securities (liquidation amount $1,000 per Capital Security) (the “Capital Securities”). Subject to the terms of the Trust Agreement (as defined below), the Capital Securities are transferable on the books and records of the Issuer Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities are set forth in, and this certificate and the Capital Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust and Trust Agreement of the Issuer Trust, dated as of December        , 2009, as the same may be amended from time to time (the “Trust Agreement”), among Superior Bancorp, as Depositor, The Bank of New York Mellon Trust Company, N.A., as Property Trustee, BNY Mellon Trust of Delaware, as Delaware Trustee, and the Holders of Trust Securities. The Holder is entitled to the benefits of the Guarantee Agreement, dated as of December        , 2009, as the same may be amended from time to time (the “Guarantee Agreement”), by and between Superior Bancorp, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Guarantee Trustee, to the extent provided therein. The Issuer Trust will furnish a copy of the Issuer Trust Agreement and the Guarantee Agreement to the Holder without charge upon written request to the Issuer Trust at its principal place of business or registered office.
     Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder.

 


 

     IN WITNESS WHEREOF, one of the Administrative Trustees of the Issuer Trust has executed this certificate this ___day of                                         .
         
  SUPERIOR CAPITAL TRUST II
 
 
  By:      
  Name:      
  Title:   Administrative Trustee   
 

 


 

PROPERTY TRUSTEE’S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the above mentioned Trust Agreement.
Dated:                                         
         
  THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Property Trustee
 
 
  By:      
    Authorized Signatory   
       
 

 


 

ASSIGNMENT
     FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security to:                                                                            (Insert assignee’s social security or tax identification number)                                           (Insert address and zip code of assignee) and irrevocably appoints                                                                                     agent to transfer this Capital Security Certificate on the books of the Issuer Trust. The agent may substitute another to act for him or her.
                 
Date:
          Signature:    
 
               
 
               
            (Sign exactly as your name appears on the other side of this Capital Security Certificate) 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.

 

EX-4.24 3 g22315exv4w24.htm EX-(4)-24 exv4w24
Exhibit (4) - 24
SUPERIOR BANCORP
TO
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
TRUSTEE

INDENTURE
DATED AS OF DECEMBER 11, 2009
JUNIOR SUBORDINATED DEBT SECURITIES


 

TABLE OF CONTENTS
                 
            Page
ARTICLE I
       
 
       
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
       
 
       
Section 1.1  
Definitions
    1  
Section 1.2  
Compliance Certificates and Opinions
    13  
Section 1.3  
Form of Documents Delivered to Trustee
    14  
Section 1.4  
Acts of Holders
    14  
Section 1.5  
Notices, etc., to Trustee and Company
    16  
Section 1.6  
Notice to Holders; Waiver
    17  
Section 1.7  
Conflict with Trust Indenture Act
    18  
Section 1.8  
Effect of Headings and Table of Contents
    18  
Section 1.9  
Successors and Assigns
    18  
Section 1.10  
Separability Clause
    18  
Section 1.11  
Benefits of Indenture
    18  
Section 1.12  
Governing Law
    18  
Section 1.13  
Legal Holidays
    19  
Section 1.14  
Counterparts
    19  
Section 1.15  
Waiver of Jury Trial
    19  
Section 1.16  
Force Majeure
    19  
       
 
       
ARTICLE II
       
 
       
DEBT SECURITY FORMS
       
 
       
Section 2.1  
Forms Generally
    20  
Section 2.2  
Form of Trustee’s Certificate of Authentication
    20  
Section 2.3  
Debt Securities in Global Form
    20  
       
 
       
       
ARTICLE III
       
       
 
       
       
THE DEBT SECURITIES
       
       
 
       
Section 3.1  
Amount Unlimited; Issuance in Series
    21  
Section 3.2  
Denominations
    25  
Section 3.3  
Execution, Authentication, Delivery and Dating
    25  
Section 3.4  
Temporary Debt Securities
    28  
Section 3.5  
Registration; Registration of Transfer and Exchange
    30  
Section 3.6  
Mutilated, Destroyed, Lost and Stolen Debt Securities
    34  
Section 3.7  
Payment of Interest and Additional Interest; Interest Rights Preserved
    35  
Section 3.8  
Persons Deemed Owners
    37  

i


 

                 
            Page
Section 3.9  
Cancellation
    38  
Section 3.10  
Computation of Interest
    38  
Section 3.11  
Certification by a Person Entitled to Delivery of a Bearer Security
    38  
Section 3.12  
Judgments
    38  
Section 3.13  
Deferrals of Interest Payment Dates
    39  
Section 3.14  
Right of Set-Off
    40  
Section 3.15  
Agreed Tax Treatment
    40  
Section 3.16  
CUSIP Numbers
    41  
       
 
       
ARTICLE IV
       
 
       
SATISFACTION AND DISCHARGE
       
 
       
Section 4.1  
Satisfaction and Discharge of Indenture
    41  
Section 4.2  
Application of Trust Money and Eligible Instruments
    42  
Section 4.3  
Satisfaction, Discharge and Defeasance of Debt Securities of any Series
    43  
       
 
       
ARTICLE V
       
 
       
REMEDIES
       
 
       
Section 5.1  
Events of Default
    46  
Section 5.2  
Acceleration of Maturity; Rescission and Annulment
    47  
Section 5.3  
Collection of Indebtedness and Suits for Enforcement by Trustee
    48  
Section 5.4  
Trustee May File Proofs of Claim
    49  
Section 5.5  
Trustee May Enforce Claims without Possession of Debt Securities or Coupons
    50  
Section 5.6  
Application of Money Collected
    50  
Section 5.7  
Limitation on Suits
    51  
Section 5.8  
Unconditional Right of Holders to Receive Principal, Premium and Interest and to Exchange Debt Securities for Capital Securities; Direct Action by Holders of Capital Trust Securities
    51  
Section 5.9  
Restoration of Rights and Remedies
    52  
Section 5.10  
Rights and Remedies Cumulative
    52  
Section 5.11  
Delay or Omission Not Waiver
    52  
Section 5.12  
Control by Holders of Debt Securities
    52  
Section 5.13  
Waiver of Past Defaults
    53  
Section 5.14  
Undertaking for Costs
    53  
Section 5.15  
Waiver of Stay or Extension Laws
    54  

ii


 

                 
            Page
ARTICLE VI
       
 
       
        THE TRUSTEE        
       
 
       
Section 6.1  
Certain Duties and Responsibilities
    54  
Section 6.2  
Notice of Default
    55  
Section 6.3  
Certain Rights of Trustee
    56  
Section 6.4  
Not Responsible for Recitals or Issuance of Debt Securities
    57  
Section 6.5  
May Hold Debt Securities or Coupons
    58  
Section 6.6  
Money Held in Trust
    58  
Section 6.7  
Compensation and Reimbursement
    58  
Section 6.8  
Disqualification; Conflicting Interests
    59  
Section 6.9  
Corporate Trustee Required; Eligibility
    59  
Section 6.10  
Resignation and Removal; Appointment of Successor
    60  
Section 6.11  
Acceptance of Appointment by Successor
    61  
Section 6.12  
Merger, Conversion, Consolidation or Succession to Business
    62  
Section 6.13  
Preferential Collection of Claims Against Company
    63  
Section 6.14  
Authenticating Agent
    63  
       
 
       
ARTICLE VII
       
 
       
HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY
       
 
       
Section 7.1  
Company to Furnish Trustee Names and Addresses of Holders
    64  
Section 7.2  
Preservation of Information; Communications to Holders
    65  
Section 7.3  
Reports by Trustee
    65  
Section 7.4  
Reports by Company
    65  
       
 
       
ARTICLE VIII
       
 
       
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
       
 
       
Section 8.1  
Company May Consolidate, etc. only on Certain Terms
    66  
Section 8.2  
Successor Corporation Substituted
    66  
       
 
       
ARTICLE IX
       
 
       
SUPPLEMENTAL INDENTURES
       
 
       
Section 9.1  
Supplemental Indentures without Consent of Holders
    67  
Section 9.2  
Supplemental Indentures with Consent of Holders
    68  
Section 9.3  
Execution of Supplemental Indentures
    70  
Section 9.4  
Effect of Supplemental Indentures
    70  
Section 9.5  
Conformity with Trust Indenture Act
    70  
Section 9.6  
Reference in Debt Securities to Supplemental Indentures
    71  

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            Page
       
 
       
ARTICLE X
       
 
       
COVENANTS
       
 
       
Section 10.1  
Payment of Principal, Premium and Interest
    71  
Section 10.2  
Maintenance of Office or Agency
    71  
Section 10.3  
Money for Debt Securities Payments to Be Held in Trust
    72  
Section 10.4  
Officers’ Certificate as to Default
    74  
Section 10.5  
Waiver of Certain Covenants
    74  
Section 10.6  
Payment of Additional Amounts
    74  
Section 10.7  
Additional Sums
    75  
Section 10.8  
Additional Covenants
    76  
       
 
       
ARTICLE XI
       
 
       
REDEMPTION OF DEBT SECURITIES
       
 
       
Section 11.1  
Applicability of Article
    77  
Section 11.2  
Election to Redeem; Notice to Trustee
    77  
Section 11.3  
Selection by Trustee of Debt Securities to be Redeemed
    77  
Section 11.4  
Notice of Redemption
    78  
Section 11.5  
Deposit of Redemption Price
    79  
Section 11.6  
Debt Securities Payable on Redemption Date
    79  
Section 11.7  
Debt Securities Redeemed in Part
    80  
Section 11.8  
Right of Redemption of Debt Securities Initially Issued to an Issuer Trust
    80  
       
 
       
ARTICLE XII
       
 
       
SINKING FUNDS
       
 
       
Section 12.1  
Applicability of Article
    81  
Section 12.2  
Satisfaction of Sinking Fund Payments with Debt Securities
    81  
Section 12.3  
Redemption of Debt Securities for Sinking Fund
    82  
       
 
       
ARTICLE XIII
       
 
       
REPAYMENT AT THE OPTION OF HOLDERS
       
 
       
Section 13.1  
Applicability of Article
    82  
Section 13.2  
Repayment of Debt Securities
    82  
Section 13.3  
Exercise of Option; Notice
    82  
Section 13.4  
Election of Repayment by Remarketing Entities
    84  
Section 13.5  
Securities Payable on the Repayment Date
    84  

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            Page
ARTICLE XIV
       
 
       
EXCHANGE OF CAPITAL SECURITIES FOR DEBT SECURITIES
       
 
       
Section 14.1  
Applicability of Article
    84  
Section 14.2  
Exchange of Capital Securities for Debt Securities at Stated Maturity
    84  
Section 14.3  
Right of Early Exchange of Capital Securities for Debt Securities
    85  
Section 14.4  
Notices of Exchange
    86  
Section 14.5  
Rights and Duties of Holders of Debt Securities to be Exchanged for Capital Securities
    88  
Section 14.6  
Election to Exchange
    89  
Section 14.7  
Deposit of Capital Exchange Price
    89  
Section 14.8  
Debt Securities Due on Capital Exchange Date; Debt Securities Exchanged in Part
    90  
Section 14.9  
Form of Capital Security Election Form
    91  
Section 14.10  
Fractional Capital Securities
    92  
Section 14.11  
Company to Obtain Governmental and Regulatory Approvals
    92  
Section 14.12  
Taxes on Exchange
    92  
Section 14.13  
Covenants as to Capital Securities and Secondary Offering
    92  
Section 14.14  
Provision in Case of Consolidation, Merger or Transfer of Assets
    93  
Section 14.15  
Trustee Not Responsible
    93  
Section 14.16  
Revocation of Obligation to Exchange Capital Securities for Debt Securities
    94  
Section 14.17  
Optional Securities Funds
    94  
       
 
       
ARTICLE XV
       
 
       
SECURITIES FUNDS
       
 
       
Section 15.1  
Creation of Securities Funds
    95  
Section 15.2  
Designations of Securities Funds
    96  
Section 15.3  
Covenant of the Company to Obtain Securities Funds
    96  
       
 
       
ARTICLE XVI
       
 
       
MEETINGS OF HOLDERS OF DEBT SECURITIES
       
 
       
Section 16.1  
Purposes for Which Meetings May Be Called
    97  
Section 16.2  
Call, Notice and Place of Meetings
    97  
Section 16.3  
Persons Entitled to Vote at Meetings
    98  
Section 16.4  
Quorum; Action
    98  
Section 16.5  
Determination of Voting Rights; Conduct and Adjournment of Meetings
    99  
Section 16.6  
Counting Votes and Recording Action of Meetings
    99  

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            Page
ARTICLE XVII
       
 
       
DEFEASANCE
       
 
       
Section 17.1  
Termination of Company’s Obligations
    100  
Section 17.2  
Repayment to Company
    101  
Section 17.3  
Indemnity for Eligible Instruments
    101  
       
 
       
ARTICLE XVIII
       
 
       
SUBORDINATION OF DEBT SECURITIES
       
 
       
Section 18.1  
Debt Securities Subordinate to Senior Debt
    102  
Section 18.2  
Trustee and Holders of Debt Securities May Rely on Certificate of Liquidating Agent; Trustee May Require Further Evidence as to Ownership of Senior Debt; Trustee Not Fiduciary to Holders of Senior Debt
    104  
Section 18.3  
Payment Permitted If No Default
    105  
Section 18.4  
Trustee Not Charged with Knowledge of Prohibition
    105  
Section 18.5  
Trustee to Effectuate Subordination
    105  
Section 18.6  
Rights of Trustee as Holder of Senior Debt
    105  
Section 18.7  
Article Applicable to Paying Agents
    106  
Section 18.8  
Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt
    106  
       
 
       
ARTICLE XIX
       
 
       
CONVERSION OF CONVERTIBLE SECURITIES
       
 
       
Section 19.1  
Applicability of Article
    106  
Section 19.2  
Right to Convert
    106  
Section 19.3  
Exercise of Conversion Privilege; Delivery of Common Stock on Conversion; No Adjustment for Interest or Dividends
    107  
Section 19.4  
Cash Payments in Lieu of Fractional Shares
    108  
Section 19.5  
Conversion Price
    108  
Section 19.6  
Adjustment to Conversion Price
    109  
Section 19.7  
Effect of Reclassification, Consolidation, Merger or Sale
    112  
Section 19.8  
Taxes on Shares Issued
    113  
Section 19.9  
Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock
    113  
Section 19.10  
Trustee Not Responsible
    113  
Section 19.11  
Notice to Holders Prior to Certain Actions
    114  
Section 19.12  
Covenant to Reserve Shares
    114  

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EXHIBIT A- 1
  Form of Certificate of Beneficial Ownership by a Non-United States Person or by Certain Other Persons
 
   
EXHIBIT A-2
  Form of Certificate of Status as a Foreign Branch of a United States Financial Institution
 
   
EXHIBIT B
  Form of Certificate to be Given by Euroclear and Clearstream S.A. in Connection with the Exchange of All or a Portion of a Temporary Global Security or to Obtain Interest Prior to Exchange

vii


 

     Indenture (the “Indenture”) dated as of December 11, 2009 between Superior Bancorp, a Delaware corporation (hereinafter called the “Company”), having its principal place of business at 17 North Twentieth Street, Birmingham, Alabama 35203, and The Bank of New York Mellon Trust Company, N.A., as trustee under this Indenture, a national banking association organized and existing under the laws of the United States of America (hereinafter called the “Trustee”), having its Corporate Trust Office at 505 North 20th Street, Suite 950, Birmingham, Alabama 35203.
RECITALS OF THE COMPANY
     The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured junior subordinated debentures (herein called the “Debt Securities”), including Debt Securities issued to evidence loans made to the Company of the proceeds from the issuance from time to time by one or more statutory business trusts (each an “Issuer Trust”) of undivided preferred beneficial interests in the assets of such Issuer Trusts (the “Capital Trust Securities”) and undivided common beneficial interests in the assets of such Issuer Trusts (the “Common Trust Securities” and, together with the Capital Trust Securities, the “Trust Securities”).
     All things necessary have been done to make this Indenture a legally valid and binding agreement of the Company, in accordance with its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
     For and in consideration of the premises and the purchase of the Debt Securities of any series created and issued on or after the date hereof by the Holders thereof, it is mutually covenanted and agreed for the equal and proportionate benefit of all Holders of such Debt Securities or of any such series, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
     Section 1.1 Definitions.
     For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
     (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
     (b) all other terms used herein which are defined in the Trust Indenture Act or by Commission rule or regulation under the Trust Indenture Act, either directly or by reference therein, as in force at the date as of which this instrument was executed, except as provided in Section 9.5, have the meanings assigned to them therein;

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     (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States at the date of such computation; and
     (d) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
     “Act” when used with respect to any Holder has the meaning specified in Section 1.4.
     “Additional Interest” means the interest, if any, that shall accrue on any interest on the Debt Securities of any series the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Debt Security.
     “Additional Sums” has the meaning specified in Section 10.7.
     “Additional Taxes” means any additional taxes, duties and other governmental charges to which an Issuer Trust has become subject from time to time as a result of a Tax Event.
     “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
     “Authorized Agent” has the meaning specified in Section 1.15.
     “Authorized Newspaper” means a newspaper in an official language of the country of publication or in the English language customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in the place in connection with which the term is used or in the financial community of such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day.
     “Bearer Security” means any Debt Security established pursuant to Section 2.1 which is payable to bearer including, without limitation, unless the context otherwise indicates, a Debt Security in global bearer form.
     “Board of Directors” means either the board of directors of the Company, or the executive or any other committee of that board duly authorized to act in respect hereof.

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     “Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. Where any provision of this Indenture refers to action to be taken pursuant to a Board Resolution (including the establishment of any series of the Debt Securities and the forms and terms thereof), such action may be taken by any committee of the Board of Directors or any officer or employee of the Company authorized to take such action by a Board Resolution.
     “Business Day”, when used with respect to any Place of Payment or Place of Capital Exchange, means any day which is not a Saturday or Sunday and which is not a legal holiday or a day on which banking institutions or trust companies in that Place of Payment or Place of Capital Exchange are authorized or obligated by law, regulation or executive order to remain closed or are customarily closed.
     “Capital Exchange Agent” means the Person or Persons appointed by the Company to give notices and to exchange Debt Securities of any series for Capital Securities as specified in Article XIV.
     “Capital Exchange Date”, when used with respect to the Debt Securities of any series, means any date on which such Debt Securities are to be exchanged for Capital Securities pursuant to this Indenture.
     “Capital Exchange Price”, when used with respect to any Debt Security of any series to be exchanged for Capital Securities, means the amount of Capital Securities for which such Debt Security is to be exchanged pursuant to this Indenture or the aggregate sale price of such Capital Securities in the Secondary Offering for such Debt Security, as the case may be.
     “Capital Securities” means any securities issued by the Company which consist of any of the following: (i) Common Stock, (ii) Perpetual Preferred Stock or (iii) securities which at the date of issuance may be issued in exchange for, or the proceeds from the sale of which may be designated as Securities Funds or Optional Securities Funds for the payment of the principal of, “mandatory convertible securities” under applicable regulations of the Primary Federal Regulator. Capital Securities may have such terms, rights and preferences as may be determined by the Company.
     “Capital Security Election Form” means a form substantially in the form included in Section 14.9.
     “Capital Trust Securities” has the meaning specified in the first recital of this Indenture.
     “Capital Treatment Event” means, in respect of any Issuer Trust, the reasonable determination by the Company (as evidenced by an Officers’ Certificate delivered to the Trustee) that, as a result of the occurrence of any amendment to, or change (including any announced prospective change) in, the laws (or any rules or regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official or administrative pronouncement or action or judicial decision interpreting or applying such laws, rules or

3


 

regulations, which amendment or change is effective or such pronouncement, action or decision is announced on or after the date of the issuance of the Capital Trust Securities of such Issuer Trust, there is more than an insubstantial risk that the Company will not be entitled to treat, within 90 days of such determination, an amount equal to the aggregate Liquidation Amount (as such term is defined in the related Trust Agreement) of such Capital Trust Securities as “Tier 1 Capital” (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Board of Governors of the Federal Reserve System, as then in effect and applicable to the Company.
     “Clearstream” means Clearstream Banking S.A.
     “Closing Price” on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price of the Common Stock on the Nasdaq Global Market on that date. If the Common Stock is not listed for trading on the Nasdaq Global Market on any date of determination, the closing price of the Common Stock on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. securities exchange on which the Common Stock is listed, or if the Common Stock is not so listed on a U.S. securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by PinkSheets LLC (formerly known as the National Quotation Bureau) or similar organization, or, if that bid price is not available, the market value of the Common Stock on that date as determined by a nationally recognized independent investment banking firm retained by the Company for this purpose.
     “Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date.
     “Common Trust Securities” has the meaning specified in the first recital of this Indenture.
     “Common Stock” means, when used with reference to the capital stock of the Company, the class of stock which, at the date of execution of this Indenture, is designated as common stock of the Company and stock of any class or classes into which such common stock or any such other class may thereafter be changed or reclassified. In case by reason of the operation of Article XIX, the Convertible Securities shall be convertible into any other shares or other securities or property of the Company or any other corporation, any reference in this Indenture to the conversion of Convertible Securities pursuant to Article XIX shall be deemed to refer to and include conversion of Convertible Securities into such other shares or other securities or property.
     “Company” means the Person named as the “Company” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Person.
     “Company Request” and “Company Order” mean, respectively, except as otherwise provided in this Indenture, a written request or order signed in the name of the Company by the

4


 

Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President (any references to a Vice President of the Company herein shall be deemed to include any Vice President of the Company whether or not designated by a number or word or words added before or after the title “Vice President”), the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, Secretary or an Assistant Secretary of the Company, or by another officer of the Company duly authorized to sign by a Board Resolution, and delivered to the Trustee.
     “Conversion Price” has the meaning specified in Section 19.5.
     “Convertible Securities” means any series of Debt Securities that are designated as such pursuant to Section 3.1.
     “Corporate Trust Office” means the designated office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date hereof is located at 505 North 20th Street, Suite 950, Birmingham, Alabama 35203, Attention: Corporate Trust Administration, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company).
     The term “corporation” includes corporations, associations, companies and business trusts.
     The term “coupon” means any interest coupon appertaining to a Bearer Security.
     “Debt Securities” has the meaning stated in the first recital of this Indenture and more particularly means any Debt Securities authenticated and delivered under this Indenture.
     “Defaulted Interest” has the meaning specified in Section 3.7.
     “Delaware Trustee” means, with respect to any Issuer Trust, the Person identified as the “Delaware Trustee” in the related Trust Agreement, solely in its capacity as Delaware Trustee of such Issuer Trust under such Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor Delaware trustee appointed as therein provided.
     “Depositary” means, with respect to the Debt Securities of any series issuable or issued in the form of a Global Security, the Person designated as Depositary by the Company pursuant to Section 3.1 until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Depositary” shall mean or include each person who is then a Depositary hereunder, and if at any time there is more than one such Person, “Depositary” as used with respect to the Debt Securities of any such series shall mean the Depositary with respect to the Debt Securities of that series.
     “Designated Currency” has the meaning specified in Section 3.12.

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     “Distributions,” with respect to the Trust Securities issued by an Issuer Trust, means the amounts payable in respect of such Trust Securities as provided in the related Trust Agreement and referred to therein as “Distributions.”
     “Dollar” or “$” means the coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts.
     “Eligible Instruments” means monetary assets, money market instruments and securities that are payable in Dollars only and essentially risk free as to collection of principal and interest, including U.S. Government Obligations.
     “Euro” means the single currency of the European Monetary Union as defined under EC Regulation 1103/97 adopted under Article 235 of the EU Treaty and under EC Regulation 974/98 adopted under Article 1091(4) of the EU Treaty or under any successor European legislation from time to time.
     “Euroclear” means Euroclear Bank S.A./N.V., as operator of the Euroclear System.
     “European Communities” means the European Economic Community, the European Coal and Steel Community and the European Atomic Energy Community.
     “Event of Default” has the meaning specified in Section 5.1.
     “Exchange Rate” shall have the meaning specified as contemplated in Section 3.1.
     “Exchange Rate Agent” shall have the meaning specified as contemplated in Section 3.1.
     “Exchange Rate Officer’s Certificate”, with respect to any date for the payment of principal of (and premium, if any) and interest on any series of Debt Securities, means a certificate setting forth the applicable Exchange Rate and the amounts payable in Dollars and Foreign Currencies in respect of the principal of (and premium, if any) and interest on Debt Securities denominated in Euro, any other composite currency or Foreign Currency, and signed by the Chairman of the Board, a Vice Chairman of the Board, the President, the Treasurer or any Assistant Treasurer of the Company or the Exchange Rate Agent appointed pursuant to Section 3.1, and delivered to the Trustee.
     “Extension Period” has the meaning specified in Section 3.13.
     “Foreign Currency” means a currency issued by the government of any country other than the United States of America.
     “Global Exchange Agent” has the meaning specified in Section 3.4.
     “Global Exchange Date” has the meaning specified in Section 3.4.

6


 

     “Global Security” means a Debt Security issued to evidence all or part of a series of Debt Securities in accordance with Section 3.3.
     “Guarantee Agreement” means, with respect to any Issuer Trust, the Guarantee Agreement executed by the Company for the benefit of the holders of the Capital Trust Securities issued by such Issuer Trust, as modified, amended or supplemented from time to time.
     “Holder”, with respect to a Registered Security, means a Person in whose name such Registered Security is registered in the Security Register and, with respect to a Bearer Security or a coupon, means the bearer thereof.
     “Indenture” means this instrument as originally executed or as it may from time to time be supplemented, amended or restated by or pursuant to one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and, unless the context otherwise requires, shall include the terms of a particular series of Debt Securities established as contemplated by Section 3.1.
     The term “interest”, when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
     “Interest Payment Date”, with respect to any Debt Security, means the Stated Maturity of an installment of interest on such Debt Security.
     “Investment Company Event” means the receipt by an Issuer Trust of an Opinion of Counsel (as defined in the relevant Trust Agreement) experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a written change (including any announced prospective change) in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that such Issuer Trust is or will be considered an “investment company” that is required to be registered under the Investment Company Act, which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the issuance of the Capital Trust Securities of such Issuer Trust.
     “Issuer Trust” has the meaning specified in the first recital of this Indenture.
     “Market Value” of any Capital Securities issued on any Capital Exchange Date for Debt Securities of any series shall be the sale price of such Capital Securities which are sold in the Secondary Offering for the Debt Securities of such series. In the event no such Secondary Offering takes place, the Market Value of such Capital Securities shall be the fair value of such Capital Securities on such Capital Exchange Date for Debt Securities of such series as determined by three independent nationally recognized investment banking firms selected by the Company.
     “Maturity”, when used with respect to any Debt Security, means the date on which the principal of such Debt Security becomes due and payable as therein or herein provided, whether

7


 

at the Stated Maturity or by declaration of acceleration, call for redemption, repayment at the option of the Holder or otherwise.
     “Officers’ Certificate” means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee.
     “Opinion of Counsel” means a written opinion of counsel acceptable to the Trustee, who may (except as otherwise expressly provided in this Indenture) be an employee of or counsel for the Company, which is delivered to the Trustee.
     “Optional Securities Fund” means a fund pursuant to which the proceeds of sales of Capital Securities may be designated on the books of the Company for the payment of any of the principal of any Debt Security pursuant to Section 14.17 of this Indenture.
     “Original Issue Discount Security” means any Debt Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2.
     “Outstanding”, when used with respect to Debt Securities means, as of the date of determination, all Debt Securities theretofore authenticated and delivered under this Indenture, except:
     (a) Debt Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
     (b) Debt Securities or portions thereof for whose payment or redemption money or Eligible Instruments in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Debt Securities and any coupons appertaining thereto; provided, however, that if such Debt Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and
     (c) Debt Securities in exchange for or in lieu of which other Debt Securities have been authenticated and delivered, or which have been paid, pursuant to this Indenture;
provided, however, that in determining whether the Holders of the requisite principal amount of Debt Securities Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debt Securities owned by the Company or any other obligor upon the Debt Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon such request, demand, authorization, direction, notice, consent or waiver, only Debt Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Debt Securities so owned which have been pledged in good faith

8


 

may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Debt Securities and that the pledgee is not the Company or any other obligor upon the Debt Securities or any Affiliate of the Company or of such other obligor. Notwithstanding anything herein to the contrary, Debt Securities of any series initially issued to an Issuer Trust that are owned by such Issuer Trust shall be deemed to be Outstanding notwithstanding the ownership by the Company or an Affiliate of any beneficial interest in such Issuer Trust.
     “Paying Agent” means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Debt Securities on behalf of the Company.
     “Perpetual Preferred Stock” means any stock of any class of the Company which has a preference over Common Stock in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not mandatorily redeemable or repayable, or redeemable or repayable at the option of the Holder, otherwise than in shares of Common Stock or Perpetual Preferred Stock of another class or series or with the proceeds of the sale of Common Stock or Perpetual Preferred Stock.
     “Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
     “Place of Capital Exchange”, when used with respect to Debt Securities of any series, means any place where the Debt Securities of such series are exchangeable for Capital Securities as specified pursuant to Section 3.1.
     “Place of Payment”, when used with respect to the Debt Securities of any series means any place where the principal of (and premium, if any) and interest on the Debt Securities of that series are payable as specified as contemplated by Section 3.1.
     “Predecessor Security” of any particular Debt Security means every previous Debt Security evidencing all or a portion of the same debt as that evidenced by such particular Debt Security; and, for the purposes of this definition, any Debt Security authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or stolen Debt Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Debt Security.
     “Primary Federal Regulator” means the primary United States federal regulator of the Company (which at the date of this Indenture is the Federal Reserve or its district reserve banks), or any successor body or institution.
     “Property Trustee” means, with respect to any Issuer Trust, the Person identified as the “Property Trustee” in the related Trust Agreement, solely in its capacity as Property Trustee of such Issuer Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as therein provided.

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     “ranking junior to the Debt Securities,” when used with respect to any obligation of the Company, shall mean any obligation of the Company which (a) ranks junior to and not equally with or prior to the Debt Securities (or any other obligations of the Company ranking on a parity with the Debt Securities) in right of payment upon the happening of any event of the kind specified in the first sentence of the second paragraph in Section 18.1 or (b) is specifically designated as ranking junior to the Debt Securities by express provision in the instrument creating or evidencing such obligation. The securing of any obligations of the Company, otherwise ranking junior to the Debt Securities, shall not be deemed to prevent such obligations from constituting obligations ranking junior to the Debt Securities.
     “ranking on a parity with the Debt Securities,” when used with respect to any obligation of the Company, shall mean any obligation of the Company which (a) ranks equally with and not prior to the Debt Securities in right of payment upon the happening of any event of the kind specified in the first sentence of the second paragraph in Section 18.1 or (b) is specifically designated as ranking on a parity with the Debt Securities by express provision in the instrument creating or evidencing such obligation. The securing of any obligations of the Company, otherwise ranking on a parity with the Debt Securities, shall not be deemed to prevent such obligations from constituting obligations ranking on a parity with the Debt Securities.
     “Redemption Date”, when used with respect to any Debt Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
     “Redemption Price”, when used with respect to any Debt Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
     “Registered Security” means any Debt Security in the form of Registered Securities established pursuant to Section 2.1 which is registered in the Security Register.
     “Regular Record Date” for the interest payable on any Interest Payment Date on the Registered Securities of any series means the date specified for that purpose as contemplated by Section 3.1.
     “Remarketing Entity”, when used with respect to Debt Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity, means any person designated by the Company to purchase any such Debt Securities.
     “Repayment Date”, when used with respect to any Debt Security to be repaid upon exercise of an option for repayment by the Holder, means the date fixed for such repayment pursuant to this Indenture.
     “Repayment Price”, when used with respect to any Debt Security to be repaid upon exercise of an option for repayment by the Holder, means the price at which it is to be repaid pursuant to this Indenture.
     “Responsible Officer” when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee, including any vice president, assistant vice

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president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.
     “Rights” has the meaning specified in Section 19.6(c).
     “Rights Plan” means a plan of the Company providing for the issuance by the Company to all holders of its Common Stock of rights entitling the holders thereof to subscribe for or purchase shares of any class or series of capital stock of the Company which rights (i) are deemed to be transferred with such shares of such Common Stock, and (ii) are also issued in respect of future issuances of such Common Stock, in each case until the occurrence of a specified events or events.
     “Secondary Offering”, when used with respect to the Debt Securities of any series, means the offering and sale by the Company of Capital Securities for the account of Holders of Debt Securities of such series who elect to receive cash and not Capital Securities on the Capital Exchange Date for such series.
     “Securities Fund” means a fund pursuant to which the proceeds of sales of Capital Securities are designated on the books of the Company for the payment of any principal of any Debt Security pursuant to the provisions of Section 15.1.
     “Security Register” and “Security Registrar” have the respective meanings specified in Section 3.5.
     “Senior Debt” means
     (a) any of the Company’s indebtedness for borrowed or purchased money, whether or not evidenced by bonds, debentures, notes or other written instruments,
     (b) the Company’s obligations under letters of credit,
     (c) any of the Company’s indebtedness or other obligations with respect to commodity contracts, interest rate and currency swap agreements, cap, floor and collar agreements, currency spot and forward contracts, and other similar agreements or arrangements designed to protect against fluctuations in currency exchange or interest rates, and
     (d) any guarantees, endorsements (other than by endorsement of negotiable instruments for collection in the ordinary course of business) or other similar contingent obligations in respect of obligations of others of a type described in clauses (i), (ii) and (iii) above, whether or not such obligation is classified as a liability on a balance sheet prepared in accordance with generally accepted accounting principles, in each case whether outstanding on the date of execution of this Indenture or thereafter incurred, other than obligations ranking on

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a parity with the Debt Securities (including without limitation the Trust Related Securities) or ranking junior to the Debt Securities.
     “Special Record Date” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7.
     “Stated Maturity”, when used with respect to any Debt Security or any installment of interest (including any Additional Interest) thereon, means the date specified in such Debt Security or a coupon representing such installment of interest (including any Additional Interest) as the fixed date on which the principal of such Debt Security or such installment is due and payable, subject, in the case of any installment of interest, to the deferral of any such date in the case of an Extension Period.
     “Tax Event” means the receipt by an Issuer Trust of an Opinion of Counsel (as defined in the relevant Trust Agreement) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or any taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Capital Trust Securities of such Issuer Trust, there is more than an insubstantial risk that (i) such Issuer Trust is, or will be within 90 days of the delivery of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the series of Debt Securities issued by the Company to such Issuer Trust, (ii) interest payable by the Company on such series of Debt Securities is not, or within 90 days of the delivery of such Opinion of Counsel will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, to the extent applicable to the Company, or (iii) such Issuer Trust is, or will be within 90 days of the delivery of such Opinion of Counsel, subject to more than an immaterial amount of other taxes, duties or other governmental charges.
     “Trust Agreement” means, with respect to any Issuer Trust, the declaration of trust, trust agreement or other governing instrument of such Issuer Trust.
     “Trust Indenture Act” means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed, except as provided in Section 9.5.
     “Trustee” means the Person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, “Trustee” as used with respect to the Debt Securities of any series shall mean the Trustee with respect to Debt Securities of that series.
     “Trust Related Securities” means any obligations evidenced by debt securities (and guarantees in respect of those debt securities) initially issued to any trust, partnership or other entity affiliated with the Company that is, directly or indirectly, a financing vehicle of the

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Company in connection with the issuance by such entity of capital securities or other similar securities.
     “Trust Securities” has the meaning specified in the first recital of this Indenture.
     “United States” means the United States of America (including the District of Columbia) and its possessions.
     “United States Alien” means any Person who, for United States Federal income tax purposes, is a foreign corporation, a non-resident alien individual, a non-resident alien fiduciary of a foreign estate or trust, or a foreign partnership one or more of the members of which is, for United States Federal income tax purposes, a foreign corporation, a non-resident alien individual or a non-resident alien fiduciary of a foreign estate or trust.
     “U.S. Government Obligations” means direct obligations of the United States for the payment of which its full faith and credit is pledged, or obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt.
     Section 1.2 Compliance Certificates and Opinions.
     Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture (other than the delivery of any Debt Security to the Trustee for authentication pursuant to Section 3.3), the Company shall furnish to the Trustee, if so requested by the Trustee, an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
     Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:
     (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

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     (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
     (c) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and
     (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
     Section 1.3 Form of Documents Delivered to Trustee.
     In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
     Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion is based is erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinions or representations with respect to such matters is erroneous.
     Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
     Section 1.4 Acts of Holders.
     (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. If Debt Securities of a series are issuable in whole or in part as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may, alternatively, be embodied in and evidenced by the record of Holders of Debt Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Debt Securities duly called and held in accordance with the provisions of Article XVI, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or

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both are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments and so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or the holding by any Person of a Debt Security, shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Debt Securities shall be proved in the manner provided in Section 16.6.
     (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient.
     (c) The ownership of Registered Securities shall be proved by the Security Register.
     (d) The principal amount and serial numbers of Bearer Securities held by any Person, and the date of holding the same, may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities in the amount and with the serial numbers therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (2) such Bearer Security is produced to the Trustee by some other person, or (3) such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer Security is no longer Outstanding.
     (e) The fact and date of execution of any such instrument or writing, the authority of the Person executing the same and the principal amount and serial numbers of Bearer Securities held by the Person so executing such instrument or writing and the date of holding the same may also be proved in any other manner which the Trustee deems sufficient; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section.
     (f) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debt Security shall bind every future holder of the same Debt Security and the Holder of every Debt Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, suffered or omitted by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debt Security.
     (g) For purposes of determining the principal amount of Outstanding Debt Securities of any series, the Holders of which are required, requested or permitted to give any request, demand, authorization, direction, notice, consent, waiver or take any other Act under this Indenture, (i) each Original Issue Discount Security shall be deemed to have the principal

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amount determined by the Trustee that could be declared to be due and payable pursuant to the terms of such Original Issue Discount Security as of the date there is delivered to the Trustee and, where it is hereby expressly required, to the Company, such Act by Holders of the required aggregate principal amount of the Outstanding Debt Securities of such series and (ii) each Debt Security denominated in a Foreign Currency or composite currency shall be deemed to have the principal amount determined by the Exchange Rate Agent by converting the principal amount of such Debt Security in the currency in which such Debt Security is denominated into Dollars at the Exchange Rate as of the date such Act is delivered to the Trustee and, where it is hereby expressly required, to the Company, by Holders of the required aggregate principal amount of the Outstanding Debt Securities of such series (or, if there is no such rate on such date, such rate on the date determined as specified as contemplated in Section 3.1).
     (h) The Company may set a record date for purposes of determining the identity of Holders of Debt Securities of any series entitled to vote or consent to any action by vote or consent authorized or permitted by Section 5.12 or Section 5.13. Such record date shall be the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders of such Debt Securities furnished to the Trustee pursuant to Section 7.1 prior to such solicitation.
     Section 1.5 Notices, etc., to Trustee and Company.
     Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
     (a) the Trustee by any Holder, any holder of Capital Trust Securities or the Company shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided), if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Division, or
     (b) the Company by the Trustee, any Holder or any holder of Capital Trust Securities shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to the attention of its Secretary at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
     The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods; provided, however, that (a) the party providing such written instructions, subsequent to such transmission of written instructions, shall provide the originally executed instructions or directions to the Trustee in a timely manner, and (b) such originally executed instructions or directions shall be signed by an authorized representative of the party providing such instructions or directions. If the party elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from

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the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The party providing electronic instructions agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties.
    Section 1.6 Notice to Holders; Waiver.
     Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of any event, (1) such notice shall be sufficiently given to Holders of Registered Securities if in writing and mailed, first-class postage prepaid, to each Holder of a Registered Security affected by such event, at such Holder’s address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice; and (2) such notice shall be sufficiently given to Holders of Bearer Securities by publication thereof in an Authorized Newspaper in The City of New York and, if the Debt Securities of such series are then listed on The International Stock Exchange of the United Kingdom and the Republic of Ireland and such stock exchange shall so require, in London, and, if the Debt Securities of such series are then listed on the Luxembourg Stock Exchange and such stock exchange shall so require, in Luxembourg and, if the Debt Securities of such series are then listed on any other stock exchange outside the United States and such stock exchange shall so require, in any other required city outside the United States or, if not practicable, in Europe on a Business Day at least twice, the first such publication to be not later than the latest date and not earlier than the earliest date prescribed for the giving of such notice. In case, by reason of the suspension of or irregularities in regular mail service or for any other reason, it shall be impossible or impracticable to mail notice of any event to Holders when said notice is required to be given pursuant to any provision of this Indenture or of the Debt Securities, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice.
     In any case where notice to Holders of Registered Securities is to be given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice by publication to Holders of Bearer Securities given as provided above.
     In case, by reason of the suspension of publication of any Authorized Newspaper, or by reason of any other cause, it shall be impossible or impracticable to make publication of any notice to Holders of Bearer Securities as provided above, then such method of publication or notification as shall be made with the approval of the Trustee shall constitute a sufficient publication of such notice. Neither failure to give notice by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of any notice mailed to Holders of Registered Securities as provided above.
     Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such

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waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
     Any request, demand, authorization, direction, notice, consent, election, waiver or other Act required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication.
     Section 1.7 Conflict with Trust Indenture Act.
     If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control.
     Section 1.8 Effect of Headings and Table of Contents.
     The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
     Section 1.9 Successors and Assigns.
     All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether expressed or not.
     Section 1.10 Separability Clause.
     In case any provision in this Indenture or in the Debt Securities or coupons shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
     Section 1.11 Benefits of Indenture.
     Nothing in this Indenture or in the Debt Securities or coupons, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent, the Holders and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2, the holders of Capital Trust Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture.
     Section 1.12 Governing Law.
     This Indenture and the Debt Securities and coupons shall be governed by and construed in accordance with the laws of the State of New York.

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     Section 1.13 Legal Holidays.
     In any case where any Interest Payment Date, Redemption Date, Capital Exchange Date, Repayment Date or Stated Maturity of any Debt Security shall not be a Business Day at any Place of Payment or Place of Capital Exchange, then (notwithstanding any other provision of this Indenture or of the Debt Securities or coupons) payment of interest or principal (and premium, if any) or exchange of Debt Securities for Capital Securities or cash need not be made at such Place of Payment or Place of Capital Exchange on such date, but may be made on the next succeeding Business Day at such Place of Payment or Place of Capital Exchange with the same force and effect as if made on the Interest Payment Date, Capital Exchange Date, Redemption Date, Repayment Date or at the Stated Maturity, and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Repayment Date, Capital Exchange Date or Stated Maturity, as the case may be.
     Section 1.14 Counterparts.
     This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture.
     Section 1.15 Waiver of Jury Trial.
     EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE DEBT SECURITIES OR THE TRANSACTION CONTEMPLATED HEREBY.
     Section 1.16 Force Majeure.
     In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or third-party computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

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ARTICLE II
DEBT SECURITY FORMS
     Section 2.1 Forms Generally.
     The Registered Securities, if any, and the Bearer Securities and related coupons, if any, of each series shall be in substantially the form (including temporary or permanent global form) as shall be established in or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Debt Securities or coupons, as evidenced by their signatures on the Debt Securities or coupons. If the form of Debt Securities of any series or coupons (including any such Global Security) is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.3 for the authentication and delivery of such Debt Securities or coupons. Unless otherwise specified as contemplated by Section 3.1, Debt Securities in bearer form other than Debt Securities in temporary or permanent global form shall have coupons attached. The definitive Debt Securities and coupons, if any, shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Debt Securities, as evidenced by the execution of such Debt Securities and coupons.
     Section 2.2 Form of Trustee’s Certificate of Authentication.
     This is one of the Debt Securities, of the series designated herein, described in the within-mentioned Indenture.
         
  THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A.,
not in its individual capacity but solely as Trustee
 
 
  By:      
    Authorized Signatory    
       
 
Dated:                                        
     Section 2.3 Debt Securities in Global Form.
     If Debt Securities of a series are issuable in whole or in part in global form, as specified as contemplated by Section 3.1, then, notwithstanding clause (1) of Section 3.1 and the provisions of Section 3.2, such Global Security shall represent such of the outstanding Debt Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Debt Securities from time to time endorsed thereon and that the

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aggregate amount of Outstanding Debt Securities represented thereby may from time to time be reduced to reflect exchanges. Any endorsement of a Global Security to reflect the amount, or any increase or decrease in the amounts, of Outstanding Debt Securities represented thereby shall be made in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 3.3 or Section 3.4.
     The provisions of the last sentence of Section 3.3(f) shall apply to any Debt Securities represented by a Debt Security in global form if such Debt Security was never issued and sold by the Company and the Company delivers to the Trustee the Debt Security in global form together with written instructions (which need not comply with Section 1.2 and need not be accompanied by an Opinion of Counsel) with respect to the reduction in the principal amount of Debt Securities represented thereby, together with the written statement contemplated by the last sentence of Section 3.3(f).
     Global Securities may be issued in either registered or bearer form and in either temporary or permanent form.
    ARTICLE III
THE DEBT SECURITIES
     Section 3.1 Amount Unlimited; Issuance in Series.
     The aggregate principal amount of Debt Securities which may be authenticated and delivered under this Indenture is unlimited.
     The Debt Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers’ Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Debt Securities of any series:
     (a) the title of the Debt Securities of the series (which shall distinguish the Debt Securities of the series from all other Debt Securities);
     (b) the limit, if any, upon the aggregate principal amount of the Debt Securities of the series which may be authenticated and delivered under this Indenture (except for Debt Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debt Securities of the series pursuant to Section 3.4, 3.5, 3.6, 9.6, 11.7, 13.3, 14.8 or 19.3 and except for any Debt Securities which, pursuant to Section 3.3, are deemed never to have been authenticated and delivered hereunder);
     (c) if applicable, the date or dates on which the principal and premium, if any, of the Debt Securities of the series are payable;
     (d) the rate or rates, if any, at which the Debt Securities of the series shall bear interest, the rate or rates of and extent to which Additional Interest, if any, shall be payable in

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respect of any Debt Securities of the series, or the method or methods by which such rate or rates may be determined, the date or dates from which such interest or Additional Interest shall accrue, the Interest Payment Dates on which such interest shall be payable, the right, pursuant to Section 3.13 or as otherwise set forth therein, of the Company to defer or extend an Interest Payment Date, the Regular Record Date for the interest payable on any Registered Security on any Interest Payment Date and the other circumstances, if any, in which the Company may defer interest payments;
     (e) the place or places where, subject to the provisions of Section 10.2, the principal of (and premium, if any) and interest (including Additional Interest) on Debt Securities of the series shall be payable, any Registered Securities of the series may be surrendered for registration of transfer, Debt Securities of the series may be surrendered for exchange and notices and demands to or upon the Company in respect of the Debt Securities of the series and this Indenture may be served and where notices to Holders pursuant to Section 1.6 will be published;
     (f) if applicable, the period or periods within which or the date or dates on which, the price or prices at which and the terms and conditions upon which Debt Securities of the series may be redeemed, in whole or in part, at the option of the Company;
     (g) if applicable, the place or places at which, the period or periods within which, the price or prices at which and the terms and conditions upon which Debt Securities shall be exchangeable for Capital Securities of the Company, which terms and conditions shall not be inconsistent with Article XIV;
     (h) any covenant or option of the Company to create a Securities Fund for the repayment of the Debt Securities and the terms and conditions of such Securities Fund, which terms and conditions shall not be inconsistent with Article XV;
     (i) the obligation, if any, of the Company to redeem, repay or purchase Debt Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Debt Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation;
     (j) whether Debt Securities of the series are to be issuable as Registered Securities, Bearer Securities or both, whether Debt Securities of the series are to be issuable with or without coupons or both and, in the case of Bearer Securities, the date as of which such Bearer Securities shall be dated if other than the date of original issuance of the first Debt Security of such series of like tenor and term to be issued;
     (k) whether the Debt Securities of the series shall be issued in whole or in part in the form of a Global Security or Securities and, in such case, the Depositary and Global Exchange Agent for such Global Security or Securities, whether such global form shall be permanent or temporary and, if applicable, the Global Exchange Date;

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     (1) if Debt Securities of the series are to be issuable initially in the form of a temporary Global Security, the circumstances under which the temporary Global Security can be exchanged for definitive Debt Securities and whether the definitive Debt Securities will be Registered and/or Bearer Securities and will be in global form and whether interest (including any Additional Interest) in respect of any portion of such Global Security payable in respect of an Interest Payment Date prior to the Global Exchange Date shall be paid to any clearing organization with respect to a portion of such Global Security held for its account and, in such event, the terms and conditions (including any certification requirements) upon which any such interest payment received by a clearing organization will be credited to the Persons entitled to interest payable on such Interest Payment Date if other than as provided in this Article III;
     (m) whether, and under what conditions, additional amounts will be payable to Holders of Debt Securities of the series pursuant to Section 10.6;
     (n) the denominations in which any Registered Securities of the series shall be issuable, if other than denominations of $1,000 and any integral multiple thereof, and the denominations in which any Bearer Securities of such series shall be issuable, if other than the denomination of $5,000;
     (o) if other than the principal amount thereof, the portion of the principal amount of Debt Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.2;
     (p) the currency or currencies of denomination of the Debt Securities of any series, which may be in Dollars, any Foreign Currency or any composite currency, including but not limited to the Euro, and, if any such currency of denomination is a composite currency other than the Euro, the agency or organization, if any, responsible for overseeing such composite currency;
     (q) the currency or currencies in which payment of the principal of (and premium, if any) and interest (including any Additional Interest) on the Debt Securities will be made, the currency or currencies, if any, in which payment of the principal of (and premium, if any) or the interest (including any Additional Interest) on Registered Securities, at the election of each of the Holders thereof, may also be payable and the periods within which and the terms and conditions upon which such election is to be made and the Exchange Rate and Exchange Rate Agent (the “Exchange Rate Agent”);
     (r) if payments of principal of (and premium, if any) or interest (including any Additional Interest) on the Debt Securities of the series are to be made in a Foreign Currency other than the currency in which such Debt Securities are denominated (the “Exchange Rate”), the manner in which the Exchange Rate with respect to such payments shall be determined or if the Exchange Rate is to be determined otherwise than as provided in Section 1.1;
     (s) any Events of Default with respect to Debt Securities of such series, if not set forth herein, and any Events of Default set forth herein that shall not apply to Debt Securities of the series;

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     (t) any other covenant or warranty included for the benefit of the Debt Securities of the series in addition to (and not inconsistent with) those set forth herein for the benefit of Debt Securities of all series, or any other covenant or warranty included for the benefit of Debt Securities of the series in lieu of any covenant or warranty set forth herein for the benefit of Debt Securities of all series, or any provision that any covenant or warranty set forth herein for the benefit of Debt Securities of all series shall not be for the benefit of Debt Securities of such series, or any combination of such covenants, warranties or provisions and whether the provisions of Section 10.5 will not apply to such covenants and warranties;
     (u) the terms and conditions, if any, pursuant to which the Company’s obligations under this Indenture may be terminated through the deposit of money or Eligible Instruments as provided in Articles IV and XVII;
     (v) the Person or Persons who shall be Security Registrar for the Debt Securities of such series if other than the Trustee, and the place or places where the Security Register for such series shall be maintained and the Person or Persons who will be the initial Paying Agent or Agents, if other than the Trustee;
     (w) whether the Debt Securities of the series are Convertible Securities and the terms related thereto including the Conversion Price and the date on which the right to convert expires;
     (x) if such Debt Securities are to be issued to an Issuer Trust, the form or forms of the Trust Agreement and Guarantee Agreement relating thereto;
     (y) if other than as set forth herein, the relative degree, if any, to which the Debt Securities of the series shall be senior to or be subordinated to other series of Debt Securities in right of payment, whether such other series of Debt Securities are Outstanding or not; and
     (z) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture).
     All Debt Securities of any one series and the coupons appertaining to Bearer Securities of such series, if any, shall be substantially identical except, in the case of Registered Securities, as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officers’ Certificate or in any such indenture supplemental hereto.
     Debt Securities of any particular series may be issued at various times, with different dates on which the principal or any installment of principal is payable, with different rates of interest, if any, or different methods by which rates of interest may be determined, with different dates on which such interest may be payable and with different Redemption or Repayment Dates and may be denominated in different currencies or payable in different currencies.
     If any of the terms of a series of Debt Securities are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the

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Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers’ Certificate setting forth the terms of the series.
     Section 3.2 Denominations.
     Debt Securities of each series shall be issuable in such form and denominations as shall be specified in the form of Debt Security for such series approved or established pursuant to Section 2.1 or in the Officers’ Certificate delivered pursuant to Section 3.1. In the absence of any specification with respect to the Debt Securities of any series, the Registered Securities of such series, if any, shall be issuable in denominations of $1,000 and any integral multiple thereof and the Bearer Securities of such series, if any, shall be issuable in the denominations of $5,000.
     Section 3.3 Execution, Authentication, Delivery and Dating.
     (a) The Debt Securities shall be executed on behalf of the Company by its Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by its Treasurer or one of its Assistant Treasurers or its Secretary or one of its Assistant Secretaries under its corporate seal reproduced thereon. The signature of any of these officers on the Debt Securities may be manual or facsimile. Coupons shall bear the facsimile signature of an authorized officer of the Company.
     Debt Securities and coupons bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debt Securities or coupons of any series or did not hold such offices at the date of such Debt Securities or coupons.
     (b) At any time and from time to time after the execution and delivery of this Indenture, Debt Securities of any series may be executed by the Company and delivered to the Trustee for authentication, and, except as otherwise provided in this Article III, shall thereupon be authenticated and delivered by the Trustee upon Company Order, without any further action by the Company; provided, however, that, in connection with its original issuance, a Bearer Security may be delivered only outside the United States and, except in the case of a temporary Global Security, only if the Company or its agent shall have received the certification required pursuant to Sections 3.4(b)(iii) and (iv), unless such certification shall have been provided earlier pursuant to Section 3.4(b)(v) hereof, and only if the Company has no reason to know that such certification is false.
     To the extent authorized in or pursuant to a Board Resolution and set forth in an Officers’ Certificate, or established in one or more indentures supplemental hereto, such written Company Order may be given by any one officer or employee of the Company, may be electronically transmitted, and may provide instructions as to registration of holders, principal amounts, rates of interest, maturity dates and other matters contemplated by such Board Resolution and Officers’ Certificate or supplemental indenture to be so instructed in respect thereof. Before authorizing and delivering the first Debt Securities of any series (and upon request of the Trustee thereafter),

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the Company shall deliver to the Trustee (i) the certificates called for under Sections 2.1 and 3.1 hereof and (ii) an Opinion of Counsel described in the next sentence.
     In authenticating such Debt Securities, and accepting the additional responsibilities under this Indenture in relation to any Debt Securities, the Trustee shall be entitled to receive, prior to the initial authentication of such Debt Securities, and (subject to Section 6.1) shall be fully protected in relying upon:
     (i) a Board Resolution relating thereto and, if applicable, an appropriate record of any action taken pursuant to such resolution certified by the Secretary or an Assistant Secretary of the Company;
     (ii) an executed supplemental indenture, if any, relating thereto;
     (iii) an Officers’ Certificate setting forth the form and terms of the Debt Securities of such series and coupons, if any, pursuant to Sections 2.1 and 3.1 and stating that all conditions precedent provided for in this Indenture relating to the issuance of such Debt Securities have been complied with; and
     (iv) an Opinion of Counsel stating
     (1) that the form of such Debt Securities and coupons, if any, has been established in or pursuant to a Board Resolution or by a supplemental indenture as permitted by Section 2.1 in conformity with the provisions of this Indenture;
     (2) that the terms of such Debt Securities and coupons, if any, have been established in or pursuant to a Board Resolution or by a supplemental indenture as permitted by Section 3.1 in conformity with the provisions of this Indenture; and
     (3) that such Debt Securities and coupons, if any, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except that where Debt Securities of any series are to be exchanged for Capital Securities or paid from the Securities Fund, the issuance of Capital Securities will require further action by the Board of Directors, and subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally and the application of general principles of equity and except further as enforcement thereof may be limited by (i) requirements that a claim with respect to any Debt Securities denominated other than in Dollars (or a Foreign Currency or currency unit judgment in respect of such claim) be converted into Dollars at a rate of exchange prevailing on a date determined pursuant to

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applicable law or (ii) governmental authority to limit, delay or prohibit the making of payments in Foreign Currencies or currency units or payments outside the United States.
     (c) If the Company shall establish pursuant to Section 3.1 that the Debt Securities of a series are to be issued in whole or in part in the form of one or more Global Securities, then the Company shall execute and the Trustee shall, in accordance with this Section and the Company Order with respect to such series, authenticate and deliver one or more Global Securities in permanent or temporary form that (i) shall represent and shall be denominated in an aggregate amount equal to the aggregate principal amount of the Outstanding Debt Securities of such series to be represented by one or more Global Securities, (ii) shall be registered in the name of the Depositary for such Global Security or Securities or the nominee of such Depositary and (iii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary’s instructions.
     (d) The Trustee shall have the right to decline to authenticate and deliver any Debt Securities under this Section 3.3 if the issuance of such Debt Securities will adversely affect the Trustee’s own rights, duties or immunities under the Debt Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.
     (e) Each Registered Security shall be dated the date of its authentication. Each Bearer Security shall be dated as of the date specified as contemplated by Section 3.1.
     (f) No Debt Security or coupon attached thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Debt Security a certificate of authentication substantially in the form provided for herein executed by the Trustee, and such certificate upon any Debt Security shall be conclusive evidence, and the only evidence, that such Debt Security has been duly authenticated and delivered hereunder. Except as permitted by Section 3.6, the Trustee shall not authenticate and deliver any Bearer Security unless all appurtenant coupons for interest then matured have been detached and cancelled. Notwithstanding the foregoing, if any Debt Security or portion thereof shall have been duly authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Debt Security to the Trustee for cancellation as provided in Section 3.9 together with a written statement (which need not comply with Section 1.2 and need not be accompanied by an Opinion of Counsel) stating that such Debt Security or portion thereof has never been issued and sold by the Company, for all purposes of this Indenture such Debt Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
     (g) Each Depositary designated pursuant to Section 3.1 for a Global Security in registered form must, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Securities Exchange Act of 1934 and any other applicable statute or regulation.
     (h) Debt Securities distributed to holders of Book-Entry Capital Securities (as defined in the applicable Trust Agreement) upon the dissolution of an Issuer Trust shall be distributed in

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the form of one or more Global Securities registered in the name of a Depositary or its nominee, and deposited with the Security Registrar, as custodian for such Depositary, or with such Depositary, for credit by the Depositary to the respective accounts of the beneficial owners of the Debt Securities represented thereby (or such other accounts as they may direct). Debt Securities distributed to holders of Capital Trust Securities other than Book-Entry Capital Securities upon the dissolution of an Issuer Trust shall not be issued in the form of a Global Security or any other form intended to facilitate book-entry trading in beneficial interests in such Debt Securities.
     Section 3.4 Temporary Debt Securities.
     (a) Pending the preparation of definitive Debt Securities of any series, the Company may execute, and upon receipt of documents required by Sections 3.1 and 3.3, together with a Company Order, the Trustee shall authenticate and deliver, temporary Debt Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor and terms of the definitive Debt Securities in lieu of which they are issued in registered form or, if authorized, in bearer form with one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Debt Securities may determine, as evidenced by their signatures on such Debt Securities. In the case of Debt Securities of any series issuable as Bearer Securities, such temporary Debt Securities may be in global form, representing all or any part of the Outstanding Debt Securities of such series.
     (b) Unless otherwise provided pursuant to Section 3.1:
     (i) Except in the case of temporary Debt Securities in global form, if temporary Debt Securities of any series are issued, the Company will cause definitive Debt Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Debt Securities of such series, the related temporary Debt Securities shall be exchangeable for such definitive Debt Securities upon surrender of the temporary Debt Securities of such series at the office or agency of the Company in the Place of Payment for such series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debt Securities of any series (accompanied, if applicable, by all unmatured coupons and all matured coupons in default appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Debt Securities of the same series of like tenor and terms and of authorized denominations; provided, however, that no Bearer Security shall be delivered in exchange for a Registered Security; and provided, further, that a Bearer Security shall be delivered in exchange for a Bearer Security only in compliance with the conditions set forth in Section 3.5.
     (ii) If Debt Securities of any series are issued in temporary global form, any such temporary Global Security shall, unless otherwise provided pursuant to Section 3.1, be delivered to the Depositary for the benefit of Euroclear and Clearstream, for credit to the respective accounts of the beneficial owners of such Debt Securities (or to such other accounts as they may direct).

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     (iii) Without unnecessary delay but in any event not later than the date specified in, or determined pursuant to the terms of, any such temporary Global Security (the “Global Exchange Date”), the Company shall deliver definitive Debt Securities to the Trustee or the agent appointed by the Company pursuant to Section 3.1 to effect the exchange of the temporary Global Security for definitive Debt Securities (the “Global Exchange Agent”), in an aggregate principal amount equal to the principal amount of such temporary Global Security, executed by the Company. On or after the Global Exchange Date, such temporary Global Security shall be surrendered by the Depositary to the Global Exchange Agent, to be exchanged, in whole or from time to time in part, for definitive Debt Securities without charge and the Trustee or the Global Exchange Agent, if authorized by the Trustee pursuant to Section 6.14, shall authenticate and deliver, in exchange for each portion of such temporary Global Security, an equal aggregate principal amount of definitive Debt Securities of the same series of authorized denominations and of like tenor and terms as the portion of such temporary Global Security to be exchanged. Upon any exchange of a part of such temporary Global Security for definitive Debt Securities, the portion of the principal amount and any interest (including any Additional Interest) thereon so exchanged shall be endorsed by the Global Exchange Agent on a schedule to such temporary Global Security, whereupon the principal amount and interest payable with respect to such temporary Global Security shall be reduced for all purposes by the amount so exchanged and endorsed. The definitive Debt Securities to be delivered in exchange for any such temporary Global Security shall be in bearer form, registered form, global registered form or global bearer form, or any combination thereof, as specified and contemplated by Section 3.1, and, if any combination thereof is so specified, as requested by the beneficial owner thereof; provided, however, that, in the case of the exchange of the temporary Global Security for definitive Bearer Securities (including a definitive Global Bearer Security), upon such presentation by the Depositary, such temporary Global Security shall be accompanied by a certificate signed by Euroclear as to the portion of such temporary Global Security held for its account then to be exchanged and a certificate signed by Clearstream as to the portion of such temporary Global Security held for its account then to be exchanged, each in the form set forth in Exhibit B to this Indenture, unless such certificate(s) shall have been provided earlier pursuant to Section 3.4(b)(v) hereof; and provided, further, that definitive Bearer Securities (including a definitive Global Bearer Security) shall be delivered in exchange for a portion of a temporary Global Security only in compliance with the requirements of Section 3.3.
     (iv) The interest of a beneficial owner of Debt Securities of a series in a temporary Global Security shall be exchanged for definitive Debt Securities of the same series and of like tenor and terms following the Global Exchange Date when the account holder instructs Euroclear or Clearstream, as the case may be, to request such exchange on such account holder’s behalf and, in the case of the exchange of the temporary Global Security for definitive Bearer Securities

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(including a definitive Global Bearer Security), unless such certificate(s) shall have been provided earlier pursuant to Section 3.4(b)(v) hereof, the account holder delivers to Euroclear or Clearstream, as the case may be, a certificate in the form set forth in Exhibit A-l and, if applicable, A-2 to this Indenture, dated no earlier than 15 days prior to the Global Exchange Date, copies of which certificate shall be available from the offices of Euroclear and Clearstream, the Global Exchange Agent, any authenticating agent appointed for such series of Debt Securities and each Paying Agent. Unless otherwise specified in such temporary Global Security, any such exchange shall be made free of charge to the beneficial owners of such temporary Global Security, except that a Person receiving definitive Debt Securities must bear the cost of insurance, postage, transportation and the like in the event that such Person does not take delivery of such definitive Debt Securities in person at the offices of Euroclear and Clearstream. Definitive Debt Securities in bearer form to be delivered in exchange for any portion of a temporary Global Security shall be delivered only outside the United States.
     (v) Until exchanged in full as hereinabove provided, the temporary Debt Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Debt Securities of the same series and of like tenor and terms authenticated and delivered hereunder, except that interest (including any Additional Interest) payable on a temporary Global Security on an Interest Payment Date shall be payable to Euroclear and Clearstream on such Interest Payment Date only if there has been delivery by Euroclear and Clearstream to the Global Exchange Agent of a certificate or certificates in the form set forth in Exhibit B to this Indenture dated no earlier than the first Interest Payment Date, for credit without further interest on or after such Interest Payment Date to the respective accounts of the Persons who are the beneficial owners of such temporary Global Security on such Interest Payment Date and who have each delivered to Euroclear or Clearstream, as the case may be, a certificate in the form set forth in Exhibit A-l and, if applicable, A-2 to this Indenture dated no earlier than the first Interest Payment Date. Any interest so received by Euroclear and Clearstream and not paid as herein provided prior to the Global Exchange Date shall be returned to the Global Exchange Agent which, upon expiration of two years after such Interest Payment Date, shall repay such interest to the Company in accordance with Section 10.3.
     Section 3.5 Registration; Registration of Transfer and Exchange.
     The Company shall cause to be kept at one of the offices or agencies to be maintained by the Company in accordance with the provisions of this Section 3.5 and Section 10.2, with respect to the Debt Securities of each series which are Registered Securities, a register (herein sometimes referred to as the “Security Register”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. Pursuant to Section 3.1, the Company shall appoint, with respect to Debt Securities of each series which are Registered Securities, a “Security Registrar”

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for the purpose of registering such Debt Securities and transfers and exchanges of such Debt Securities as herein provided.
     Upon surrender for registration of transfer of any Registered Security of any series at the office or agency of the Company maintained for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series of any authorized denomination or denominations, of like tenor and terms and aggregate principal amount.
     At the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series of any authorized form and denomination, of like tenor and terms and aggregate principal amount, upon surrender of the Registered Securities to be exchanged at such office or agency. Bearer Securities may not be delivered in exchange for Registered Securities.
     At the option of the Holder, Registered Securities or Bearer Securities of any series may be issued in exchange for Bearer Securities (except as otherwise specified as contemplated by Section 3.1 with respect to a Bearer Security in global form) of the same series, of any authorized denominations and of like tenor and terms and aggregate principal amount, upon surrender of the Bearer Securities to be exchanged at any such office or agency, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured coupon or coupons or matured coupon or coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company and the Trustee in an amount equal to the face amount of such missing coupon or coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 10.2, interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such office or agency in exchange for a Registered Security of the same series and like tenor and terms after the close of business at such office or agency of (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or proposed date of payment, as the case may be.
     Whenever any Debt Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Debt Securities which the Holder making the exchange is entitled to receive.

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     If at any time the Depositary for the Debt Securities of a series notifies the Company that it is unwilling or unable to continue as Depositary for the Debt Securities of such series or if at any time the Depositary for the Debt Securities of such series shall no longer be eligible under Section 3.3(h), the Company shall appoint a successor Depositary with respect to the Debt Securities of such series. If a successor Depositary for the Debt Securities of such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company’s election pursuant to Section 3.1(k) shall no longer be effective with respect to the Debt Securities of such series and the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Debt Securities of such series, will authenticate and deliver, Debt Securities of such series in definitive form in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing such series in exchange for such Global Security or Securities.
     The Company may at any time and in its sole discretion determine that the Debt Securities of any series issued in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Debt Securities of such series, will authenticate and deliver, Debt Securities of such series in definitive form and in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing such series in exchange for such Global Security or Securities.
     If specified by the Company pursuant to Section 3.1 with respect to a series of Debt Securities, the Depositary for such series of Debt Securities may surrender a Global Security for such series of Debt Securities in exchange in whole or in part for Debt Securities of such series of like tenor and terms and in definitive form on such terms as are acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee shall authenticate and deliver, without service charge,
     (a) to each Person specified by such Depositary a new Debt Security or Securities of the same series, of like tenor and terms and of any authorized denominations as requested by such person in aggregate principal amount equal to and in exchange for such Person’s beneficial interest in the Global Security; and
     (b) to such Depositary a new Global Security of like tenor and terms and in a denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Debt Securities delivered to Holders thereof.
     In any exchange provided for in any of the preceding three paragraphs, the Company will execute and the Trustee will authenticate and deliver Debt Securities (a) in definitive registered form in authorized denominations, if the Debt Securities of such series are issuable as Registered Securities, (b) in definitive bearer form in authorized denominations, with coupons attached, if the Debt Securities of such series are issuable as Bearer Securities or (c) as either Registered or Bearer Securities, as shall be specified by the beneficial owner thereof, if the Debt Securities of

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such series are issuable in either form; provided, however, that no definitive Bearer Security shall be delivered in exchange for a temporary Global Security unless the Company or its agent shall have received from the person entitled to receive the definitive Bearer Security a certificate substantially in the form set forth in Exhibit A-l and, if applicable, A-2 hereto; and provided further that delivery of a Bearer Security shall occur only outside the United States; and provided further that no definitive Bearer Security will be issued if the Company has reason to know that any such certificate is false.
     Upon the exchange of a Global Security for Debt Securities in definitive form, such Global Security shall be cancelled by the Trustee. Registered Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Registered Securities to the persons in whose names such Debt Securities are so registered. The Trustee shall deliver Bearer Securities issued in exchange for a Global Security pursuant to this Section to the persons, and in such authorized denominations, as the Depositary for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee; provided, however, that no definitive Bearer Security shall be delivered in exchange for a temporary Global Security unless the Company or its agent shall have received from the person entitled to receive the definitive Bearer Security a certificate substantially in the form set forth in Exhibit A-l and, if applicable, A-2 hereto; and provided further that delivery of a Bearer Security shall occur only outside the United States; and provided further that no definitive Bearer Security will be issued if the Company has reason to know that any such certificate is false.
     All Debt Securities issued upon any registration of transfer or exchange of Debt Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debt Securities surrendered upon such registration of transfer or exchange.
     Every Registered Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Security Registrar or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company, the Security Registrar and the Trustee duly executed, by the Holder thereof or such Holder’s attorney duly authorized in writing.
     No service charge shall be made for any registration of transfer or exchange of Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer, registration of transfer or exchange of Debt Securities, other than exchanges expressly provided in this Indenture to be made at the Company’s own expense or without expense or without charge to the Holders.
     The Company shall not be required (i) to issue, register the transfer of or exchange Debt Securities of any particular series to be redeemed or exchanged for Capital Securities for a period of fifteen days preceding the first publication of the relevant notice of redemption or exchange

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or, if Registered Securities are outstanding and there is no publication, the mailing of the relevant notice of redemption or exchange, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption or exchange in whole or in part, except the unredeemed or unexchanged portion of such Registered Security being redeemed or exchanged in part, or (iii) to exchange any Bearer Security so selected for redemption or exchange except that such a Bearer Security may be exchanged for a Registered Security of like tenor and terms of that series, provided that such Registered Security shall be simultaneously surrendered for redemption or exchange.
     Notwithstanding anything herein to the contrary, the exchange of Bearer Securities into Registered Securities shall be subject to applicable laws and regulations in effect at the time of exchange; neither the Company, the Trustee nor the Security Registrar shall exchange any Bearer Securities into Registered Securities if it has received an Opinion of Counsel that as a result of such exchanges the Company would suffer adverse consequences under the United States Federal income tax laws and regulations then in effect and the Company has delivered to the Trustee a Company Order directing the Trustee not to make such exchanges thereafter unless and until the Trustee receives a subsequent Company Order to the contrary. The Company shall deliver copies of such Company Orders to the Security Registrar.
     Section 3.6 Mutilated, Destroyed, Lost and Stolen Debt Securities.
     If (i) any mutilated Debt Security or a Bearer Security with a mutilated coupon appertaining to it is surrendered to a Paying Agent outside the United States designated by the Company, or, in the case of any Registered Security, to the Trustee, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debt Security or coupon, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company and the Trustee that such Debt Security or coupon has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Debt Security or Bearer Security with a mutilated coupon appertaining to it or to which a destroyed, lost or stolen coupon appertains (with all appurtenant coupons not destroyed, lost or stolen) or in lieu of any such destroyed, lost or stolen Debt Security, a new Debt Security of like tenor and terms and principal amount, bearing a number not contemporaneously outstanding, with coupons corresponding to the coupon, if any, appertaining to such destroyed, lost or stolen Debt Security or to the Debt Security to which such destroyed, lost or stolen coupon appertains; provided, however, that any such new Bearer Security will be delivered only in compliance with the conditions set forth in Section 3.5.
     In case any such mutilated, destroyed, lost or stolen Debt Security or coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debt Security, pay such Debt Security or coupon; provided, however, that payment of principal of (and premium, if any) and any interest on Bearer Securities shall, except as otherwise provided in Section 10.2, be payable only at an office or agency located outside the United States; and provided, further, that, with respect to any such coupons, interest represented

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thereby (but not any additional amounts payable as provided in Section 10.6), shall be payable only upon presentation and surrender of the coupons appertaining thereto.
     Upon the issuance of any new Debt Security or coupons under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and printing expenses) connected therewith.
     Every new Debt Security of any series, with its coupons, if any, issued pursuant to this Section in lieu of any destroyed, lost or stolen Debt Security, or in exchange for a Bearer Security to which a destroyed, lost or stolen coupon appertains, shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debt Security and its coupons, if any, or the destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and any such new Debt Security and coupons, if any, shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debt Securities of that series and their coupons, if any, duly issued hereunder.
     The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debt Securities or coupons.
     Section 3.7 Payment of Interest and Additional Interest; Interest Rights Preserved.
     Interest and any Additional Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Registered Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. In case a Bearer Security of any series is surrendered in exchange for a Registered Security of such series after the close of business (at an office or agency in a Place of Payment for such series) on any Regular Record Date and before the opening of business (at such office or agency) on the next succeeding Interest Payment Date, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date and interest and any Additional Interest will not be payable on such Interest Payment Date in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. At the option of the Company, payment of interest and any Additional Interest on any Registered Security may be made by check in the currency designated for such payment pursuant to the terms of such Registered Security mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer to an account in such currency designated by such Person in writing not later than ten days prior to the date of such payment.
     Any interest (including any Additional Interest) on any Registered Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest”) shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of his having been such Holder, and such

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Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (a) or (b) below:
     (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Registered Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money and/or, to the extent such Debt Securities are denominated and payable in Dollars only, Eligible Instruments the payments of principal and interest on which when due (and without reinvestment and providing no tax liability will be imposed upon the Trustee or the Holder of such Registered Securities) will provide money in such amounts as will (together with any money irrevocably deposited in trust with the Trustee, without investment) be equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money and/or Eligible Instruments when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date. Unless the Trustee is acting as the Security Registrar, promptly after such Special Record Date, the Company shall furnish the Trustee with a list, or shall make arrangements satisfactory to the Trustee with respect thereto, of the names and addresses of, and principal amounts of Registered Securities of such series held by, the Holders appearing on the Security Register at the close of business on such Special Record Date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Registered Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (b). In case a Bearer Security of any series is surrendered at the office or agency in a Place of Payment for such series in exchange for a Registered Security of such series after the close of business at such office or agency on any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such proposed date of payment and Defaulted Interest will not be payable on such proposed date of payment in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture.
     (b) The Company may make payment of any Defaulted Interest on the Registered Securities of any series in any other lawful manner not inconsistent with the requirements of any

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securities exchange on which the Registered Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
     Subject to the foregoing provisions of this Section, each Debt Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debt Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debt Security.
     Subject to the limitations set forth in Section 10.2, the Holder of any coupon appertaining to a Bearer Security shall be entitled to receive the interest payable on such coupon upon presentation and surrender of such coupon on or after the Interest Payment Date of such coupon at an office or agency maintained for such purpose pursuant to Section 10.2.
     If any Registered Security is exchanged for Capital Securities after any record date and on or prior to the next succeeding Interest Payment Date (other than any Debt Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be paid by the Company on such Interest Payment Date notwithstanding such exchange, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Debt Security is registered at the close of business on such record date.
     If any Bearer Security is exchanged for Capital Securities after any record date and on or prior to the next succeeding Interest Payment Date (other than any Debt Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such exchange, and such interest (whether or not punctually paid or duly provided for) shall be paid by the Company pursuant to such procedures as may be satisfactory to the Trustee.
     Section 3.8 Persons Deemed Owners.
     Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or of the Trustee may treat the Person in whose name such Registered Security is registered as the owner of such Registered Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on such Registered Security and for all other purposes whatsoever, whether or not such Registered Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
     The Company, the Trustee and any agent of the Company or the Trustee may treat the bearer of any Bearer Security and the bearer of any coupon as the absolute owner of such Bearer Security or coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Bearer Security or coupon be overdue, and

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neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
     None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
     Section 3.9 Cancellation.
     Unless otherwise provided with respect to a series of Debt Securities, all Debt Securities and coupons surrendered for payment, redemption, repayment, transfer, exchange or credit against any sinking fund payment pursuant to this Indenture, shall, if surrendered to the Company or any agent of the Company, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Debt Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Debt Securities so delivered shall be promptly cancelled by the Trustee. No Debt Securities shall be authenticated in lieu of or in exchange for any Debt Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Debt Securities and coupons held by the Trustee shall be disposed of in the Trustee’s customary manner and certification of their destruction delivered to the Company, upon request, unless by a Company Order the Company shall direct that the cancelled Debt Securities or coupons be returned to it.
     Section 3.10 Computation of Interest.
     Except as otherwise specified as contemplated by Section 3.1 for Debt Securities of any series, interest (including any Additional Interest) on the Debt Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months.
     Section 3.11 Certification by a Person Entitled to Delivery of a Bearer Security.
     Whenever any provision of this Indenture or a Debt Security contemplates that certification be given by a Person entitled to delivery of a Bearer Security, such certification shall be provided substantially in the form of Exhibit A-l and, if applicable, A-2 hereto, with only such changes as shall be approved by the Company and consented to by the Trustee whose consent shall not unreasonably be withheld.
     Section 3.12 Judgments.
     The Company may provide, pursuant to Section 3.1, for the Debt Securities of any series that, to the fullest extent possible under applicable law and except as may otherwise be specified as contemplated in Section 3.1, (a) the obligation, if any, of the Company to pay the principal of (and premium, if any) and interest (including any Additional Interest) on the Debt Securities of any series and any appurtenant coupons in a Foreign Currency, composite currency or Dollars (the “Designated Currency”) as may be specified pursuant to Section 3.1 is of the essence and

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agrees that judgments in respect of such Debt Securities shall be given in the Designated Currency; (b) the obligation of the Company to make payments in the Designated Currency of the principal of (and premium, if any) and interest (including any Additional Interest) on such Debt Securities and any appurtenant coupons shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the Designated Currency that the Holder receiving such payment may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and cost of exchange) in the country of issue of the Designated Currency in the case of Foreign Currency or Dollars or in the international banking community in the case of a composite currency on the Business Day immediately following the day on which such Holder receives such payment; (c) if the amount in the Designated Currency that may be so purchased for any reason falls short of the amount originally due, the Company shall pay such additional amounts as may be necessary to compensate for such shortfall; and (d) any obligation of the Company not discharged by such payment shall be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect.
     Section 3.13 Deferrals of Interest Payment Dates.
     If specified as contemplated by Section 3.1 with respect to the Debt Securities of a particular series, so long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of such series, from time to time to defer the payment of interest on such Debt Securities for such period or periods as may be specified as contemplated by Section 3.1 (each, an “Extension Period”), during which Extension Periods the Company shall, if so specified as contemplated by Section 3.1, have the right to make partial payments of interest on any Interest Payment Date. No Extension Period shall end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Debt Securities (together with Additional Interest thereon, if any, at the rate specified for the Debt Securities of such series to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity, if any, of the principal of the Debt Securities of such series; and provided further, however that, unless otherwise specified as contemplated by Section 3.1, during any such Extension Period, the Company shall not (i) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Debt Securities of such series, or (ii) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company’s capital stock (other than (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of an exchange, redemption or conversion of any class or series of the Company’s capital stock (or any capital stock of a subsidiary of the Company) for any other class or series of the Company’s capital stock, or of any class or series of the Company’s indebtedness for any class or series of the Company’s capital stock, (c) the purchase of fractional interests in

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shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged, (d) any declaration of a dividend in connection with any Rights Plan, or the issuance of rights, stock or other property under any Rights Plan, or the redemption or repurchase of rights pursuant thereto, (e) any payment by the Company under any Guarantee Agreement, or (f) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock). Prior to the termination of any such Extension Period, the Company may extend such Extension Period and further defer the payment of interest, provided that no Event of Default has occurred and is continuing, and provided, further that no Extension Period shall exceed the period or periods specified in such Debt Securities, extend beyond the Stated Maturity, if any, of the principal of such Debt Securities or end on a date other than an Interest Payment Date. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above conditions. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest as and to the extent as may be specified as contemplated by Section 3.1. The Company shall give the Holders of the Debt Securities of such series and the Trustee notice of its election to begin any such Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on Debt Securities of such series would be payable but for such deferral or, with respect to any Debt Securities of a series issued to an Issuer Trust, so long as any such Debt Securities are held by such Issuer Trust, at least one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Capital Trust Securities of such Issuer Trust would be payable but for such deferral, and (ii) the date on which the Property Trustee of such Issuer Trust is required to give notice to holders of such Capital Trust Securities of the record date or the date such Distributions are payable. The Trustee shall promptly give notice of the Company’s election to begin any such Extension Period to the Holders of the Outstanding Debt Securities of such series.
     Section 3.14 Right of Set-Off.
     With respect to the Debt Securities of a series initially issued to an Issuer Trust, notwithstanding anything to the contrary herein, the Company shall have the right to set off any payment it is otherwise required to make in respect of any such Debt Security to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee Agreement relating to such payment in respect of such Debt Security or a payment to a holder of Capital Trust Securities relating to such payment in respect of such Debt Security pursuant to an action undertaken under Section 5.8 of this Indenture.
     Section 3.15 Agreed Tax Treatment.
     Except to the extent otherwise provided pursuant to Section 3.1 with respect to any series of Debt Securities, each Debt Security issued hereunder shall provide that the Company and, by its acceptance of a Debt Security or a beneficial interest therein, the Holder of, and any Person

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that acquires a beneficial interest in, such Debt Security agree that for United States Federal, state and local tax purposes it is intended that such Debt Security constitutes indebtedness.
     Section 3.16 CUSIP Numbers.
     The Company in issuing the Debt Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debt Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debt Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the “CUSIP” numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
     Section 4.1 Satisfaction and Discharge of Indenture.
     This Indenture shall upon Company Request cease to be of further effect, including the provisions of Article XVIII hereof (except as to any surviving rights of registration of transfer or exchange of Debt Securities herein expressly provided for and rights to receive payments of principal and interest thereon (including any Additional Interest) and any right to receive additional amounts, as provided in Section 10.6) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when
     (a) either all Debt Securities theretofore authenticated and delivered and all coupons appertaining thereto (other than (i) coupons appertaining to Bearer Securities surrendered in exchange for Registered Securities and maturing after such exchange, surrender of which is not required or has been waived as provided in Section 3.5, (ii) Debt Securities and coupons which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6, (iii) coupons appertaining to Bearer Securities called for redemption or surrendered for repayment and maturing after the relevant Redemption Date or Repayment Date, as appropriate, surrender of which has been waived as provided in Section 11.6 or 13.3 and (iv) Debt Securities and coupons for whose payment money and/or Eligible Instruments have theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee cancelled or for cancellation; or
     (b) all such Debt Securities not theretofore delivered to the Trustee for cancellation
     (i) have become due and payable, or

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     (ii) will become due and payable at their Stated Maturity within one year, or
     (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (b)(i), (b)(ii) or (b)(iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose money and/or, to the extent such Debt Securities are denominated and payable in Dollars only, Eligible Instruments the payments of principal and interest on which when due (and without reinvestment and providing no tax liability will be imposed upon the Trustee or the Holders of Debt Securities) will provide money in such amounts as will (together with any money irrevocably deposited in trust with the Trustee, without investment) be sufficient to pay and discharge the entire indebtedness on such Debt Securities and coupons of such series for principal (and premium, if any) and interest (including any Additional Interest), and any mandatory sinking fund, repayment or analogous payments thereon, on the scheduled due dates therefor to the date of such deposit (in the case of Debt Securities and coupons which have become due and payable) or to the Stated Maturity or Redemption Date, if any, and all Repayment Dates (in the case of Debt Securities repayable at the option of the Holders thereof); provided, however, that in the event a petition for relief under the Bankruptcy Reform Act of 1978 or a successor statute is filed with respect to the Company within 91 days after the deposit, the obligations of the Company under the Indenture with respect to the Debt Securities of such series shall not be deemed terminated or discharged, and in such event the Trustee shall be required to return the deposited money and Eligible Instruments to the Company;
     (c) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
     (d) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
     Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7 and, if money or Eligible Instruments shall have been deposited with the Trustee pursuant to clause (b) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive.
     Section 4.2 Application of Trust Money and Eligible Instruments.
     (a) Subject to the provisions of the last paragraph of Section 10.3, all money and Eligible Instruments deposited with the Trustee pursuant to Section 4.1, 4.3 or 17.1 shall be held in trust and such money and the principal and interest received on such Eligible Instruments shall be applied by it, in accordance with the provisions of the Debt Securities, the coupons and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of

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the principal (and premium, if any) and interest (including any Additional Interest) for whose payment such money or Eligible Instruments have been deposited with the Trustee.
     (b) The Trustee shall deliver or pay to the Company from time to time upon Company Request any Eligible Instruments or money held by it as provided in Section 4.3 or 17.1 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such Eligible Instruments or money were deposited or received.
     (c) If this Section 4.2(c) is specified, as contemplated by Section 3.1, to be applicable to the Debt Securities of any series, the Trustee shall deliver to the Company from time to time upon Company Request any Eligible Instruments held by it as provided in Section 4.3 or 17.1, provided that the Company in substitution therefor simultaneously delivers to the Trustee, money or other Eligible Instruments which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, would then be sufficient to satisfy the Company’s payment obligations in respect of the Debt Securities in the manner contemplated by Section 4.3 or 17.1.
     Section 4.3 Satisfaction, Discharge and Defeasance of Debt Securities of any Series.
     If this Section 4.3 is specified, as contemplated by Section 3.1, to be applicable to Debt Securities of any series, then, notwithstanding Section 4.1, (i) the Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Debt Securities of any such series and related coupons; (ii) the provisions of this Indenture as it relates to such Outstanding Debt Securities and related coupons shall no longer be in effect, including the provisions of Article XVIII hereof (except as to the rights of Holders of Debt Securities to receive, from the trust fund described in subparagraph (1) below, payment of (x) the principal of (and premium, if any) and any installment of principal of (and premium, if any) or interest (including any Additional Interest) on such Debt Securities and related coupons on the Stated Maturity of such principal (and premium, if any) or installment of principal (and premium, if any) or interest (including any Additional Interest) or (y) any mandatory sinking fund, repayment or analogous payments applicable to the Debt Securities of that series on that day on which such payments are due and payable in accordance with the terms of this Indenture and of such Debt Securities, the Company’s obligations with respect to such Debt Securities under Sections 3.4, 3.5, 3.6, 10.2, 10.3 and 10.6 and the rights, powers, trusts, duties and immunities of the Trustee hereunder, including those under Section 6.7 hereof); and (iii) the Trustee, at the expense of the Company, shall, upon Company Order, execute proper instruments acknowledging satisfaction and discharge of such indebtedness, when
     (a) either
     (i) with respect to all Outstanding Debt Securities of such series and related coupons, with reference to this Section 4.3, the Company has deposited or caused to be deposited with the Trustee (or another trustee satisfying the

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requirements of Section 6.9 who shall agree to comply with the provisions of this Section 4.3 applicable to it) irrevocably, as trust funds in trust, money and/or, to the extent such Debt Securities are denominated and payable in Dollars only, Eligible Instruments the payments of principal and interest on which when due (and without reinvestment and providing no tax liability will be imposed upon the Trustee or the Holders of such Debt Securities) will provide money in such amounts as will (together with any money irrevocably deposited in trust with the Trustee, without investment) be sufficient to pay and discharge (i) the principal of (and premium, if any) and interest (including any Additional Interest) on the Outstanding Debt Securities of that series and related coupons on the Stated Maturity of such principal or interest (including any Additional Interest) or, if such series may be redeemed by the Company prior to the Stated Maturity thereof, and the Company shall have given irrevocable instructions to the Trustee to effect such redemption, at the date fixed for such redemption pursuant to Article XI, and (ii) any mandatory sinking fund payments or analogous payments applicable to Debt Securities of such series on the date on which such payments are due and payable in accordance with the terms of this Indenture and of such Debt Securities; or
     (ii) the Company has properly fulfilled such other means of satisfaction and discharge as is specified, as contemplated by Section 3.1, to be applicable to the Debt Securities of such series;
     (b) the Company has paid or caused to be paid all other sums payable with respect to the Outstanding Debt Securities of such series and related coupons;
     (c) such deposit will not result in a breach of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;
     (d) no Event of Default or event which, with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Debt Securities of such series shall have occurred and be continuing on the date of such deposit and no Event of Default under Section 
5.1(e) or Section 5.1(f) or event which, with the giving of notice or lapse of time, or both, would become an Event of Default under Section 
5.1(e) or Section 5.1(f) shall have occurred and be continuing on the 91st day after such date; provided, however, that should that condition fail to be satisfied on or before such 91st day, the Trustee shall promptly, upon satisfactory receipt of evidence of such failure, return such deposit to the Company;
     (e) the Company has delivered to the Trustee an Opinion of Counsel to the effect that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (b) since the date of this Indenture there has been a change in applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of Debt Securities and related coupons of such series will not recognize income, gain or loss for United States Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to United States Federal income tax on the same

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amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred;
     (f) if the Debt Securities of that series are then listed on any domestic or foreign securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit, defeasance and discharge will not cause such Debt Securities to be delisted;
     (g) such deposit shall have been effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 3.1; and
     (h) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of the entire indebtedness of all Outstanding Debt Securities and related coupons have been complied with.
     Any deposits with the Trustee referred to in Section 4.3(a) above shall be irrevocable and shall be made under the terms of an escrow trust agreement in form and substance satisfactory to the Trustee. If any Outstanding Debt Securities of such series are to be redeemed prior to their Stated Maturity, whether pursuant to any optional redemption provisions or in accordance with any mandatory sinking fund requirement, the applicable escrow trust agreement shall provide therefor and the Company shall make such arrangements as are satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company.
     Upon the satisfaction of the conditions set forth in this Section 4.3 with respect to all the Outstanding Debt Securities of any series, the terms and conditions of such series, including the terms and conditions with respect thereto set forth in this Indenture, shall no longer be binding upon, or applicable to, the Company; provided that the Company shall not be discharged from any payment obligations in respect of Debt Securities of such series which are deemed not to be Outstanding under clause (iii) of the definition thereof if such obligations continue to be valid obligations of the Company under applicable law.
     Notwithstanding the cessation, termination and discharge of all obligations, covenants and agreements (except as provided above in this Section 4.3) of the Company under this Indenture with respect to any series of Debt Securities, the obligations of the Company to the Trustee under Section 6.7, and the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3, shall survive with respect to such series of Debt Securities.

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ARTICLE V
REMEDIES
     Section 5.1 Events of Default.
     “Event of Default”, wherever used herein with respect to Debt Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law, pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
     (a) default in the payment of any interest upon any Debt Security of such series or a related coupon, if any, when it becomes due and payable, and continuance of such default for a period of 30 days (subject to the deferral of any due date in the case of an Extension Period); or
     (b) default in the payment of the principal of (or premium, if any, on) any Debt Security of such series at its Maturity; or
     (c) default in the deposit of any sinking fund payment, when and as due by the terms of a Debt Security of such series; or
     (d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of Debt Securities of a series other than such series), and continuance of such default or breach for a period of 90 days after there has been given by registered or certified mail, to the Company by the Trustee, or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Debt Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or
     (e) the entry of a decree or order for relief in respect of the Company by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or
     (f) the commencement by the Company of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or the consent by the Company to the entry of a decree or order for relief in an involuntary case under any such law; or
     (g) any other Event of Default, if any, provided with respect to Debt Securities of such series specified as contemplated by Section 3.1.

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     Section 5.2 Acceleration of Maturity; Rescission and Annulment.
     If an Event of Default with respect to Debt Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of Outstanding Debt Securities of such series may declare the principal amount (or, if the Debt Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of and all accrued but unpaid interest (including any Additional Interest) on all the Debt Securities of such series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by such Holders), provided that, in the case of the Debt Securities of a series issued to an Issuer Trust, if, upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debt Securities of such series fail to declare the principal of all the Outstanding Debt Securities of such series to be immediately due and payable, either the Property Trustee or the holders of at least 25% in aggregate Liquidation Amount (as defined in the related Trust Agreement) of the related series of Capital Trust Securities issued by such Issuer Trust then outstanding shall have the right to make such declaration by a notice in writing to the Company and the Trustee; and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. Upon payment of such amount, all obligations of the Company in respect of the payment of principal of the Debt Securities of such series shall terminate.
     At any time after such a declaration of acceleration with respect to Debt Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Debt Securities of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if
     (a) the Company has paid or deposited with the Trustee a sum sufficient to pay
     (i) all overdue installments of interest on all Debt Securities of such series and any related coupons and any accrued Additional Interest on all Debt Securities of such series,
     (ii) the principal of (and premium, if any, on) any Debt Securities of such series which have become due otherwise than by such declaration of acceleration and interest and Additional Interest thereon at the rate or rates prescribed therefor in such Debt Securities,
     (iii) to the extent that payment of such interest is lawful, interest upon overdue installments of interest on each Debt Security and any related coupons at the rate or rates prescribed therefor in such Debt Securities, and
     (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and

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     (b) all Events of Default with respect to Debt Securities of such series, other than the non-payment of the principal of such series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13;
provided, however, that in the case of Debt Securities of a series initially issued to an Issuer Trust, any such rescission and annulment shall require the consent of the holders of a majority in aggregate Liquidation Amount (as defined in the related Trust Agreement) of the related series of Capital Trust Securities then outstanding.
     In the case of Debt Securities of a series initially issued to an Issuer Trust, if the Holders of such Debt Securities fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount (as defined in the related Trust Agreement) of the related series of Capital Trust Securities issued by such Issuer Trust then outstanding shall also have the right to rescind and annul such declaration and its consequences by written notice to the Company and the Trustee, subject to the satisfaction of the conditions set forth in Clauses (1) and (2) above of this Section 5.2.
     No such rescission shall affect any subsequent default or impair any right consequent thereon.
     Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
     The Company covenants that if:
     (a) default is made in the payment of any installment of interest (including any Additional Interest) on any Debt Security or any related coupon when such interest becomes due and payable and such default continues for a period of 30 days, or
     (b) default is made in the payment of the principal of (or premium, if any, on) any Debt Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Debt Securities and coupons, the amount then due and payable on such Debt Securities and coupons for principal (and premium, if any) and interest (including any Additional Interest), including the delivery of any Capital Securities then required to be delivered, and, to the extent that payment of such interest shall be legally enforceable, interest upon the overdue principal (and premium, if any) and, upon overdue installments of interest, at the rate or rates prescribed therefor in such Debt Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
     If the Company fails to pay such amounts (including the delivery of any Capital Securities then required to be delivered) forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid and the delivery of any Capital Securities required to be delivered and not so delivered, or, in the case of the failure to deliver Capital Securities, money equal to

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the principal amount of the Debt Securities for which the Capital Securities were to be exchanged, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Debt Securities and coupons and collect the moneys (or money equal to the principal amount of any Debt Securities for which Capital Securities were to be exchanged) adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Debt Securities and coupons, wherever situated.
     If an Event of Default with respect to Debt Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Debt Securities of such series and any related coupons by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
     Section 5.4 Trustee May File Proofs of Claim.
     In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings, or any voluntary or involuntary case under the Federal bankruptcy laws as now or hereafter constituted, relative to the Company or any other obligor upon the Debt Securities of a particular series or any related coupons or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of such Debt Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest (including any Additional Interest)) shall be entitled and empowered, by intervention in such proceedings or otherwise,
     (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest (including any Additional Interest) owing and unpaid in respect of the Debt Securities of such series and any appurtenant coupons and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
     (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, custodian, liquidator, sequestrator or other similar official in any such proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.7.

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     Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debt Securities or coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
     Section 5.5 Trustee May Enforce Claims without Possession of Debt Securities or Coupons.
     All rights of action and claims under this Indenture or the Debt Securities or coupons may be prosecuted and enforced by the Trustee without the possession of any of the Debt Securities or coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name, as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Debt Securities and coupons in respect of which such judgment has been recovered.
     Section 5.6 Application of Money Collected.
     Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (and premium, if any) or interest (including any Additional Interest), upon presentation of the Debt Securities or coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
     FIRST: To the payment of all amounts due the Trustee under Section 6.7;
     SECOND: To the payment of amounts then due and unpaid to the holders of Senior Debt, to the extent required by Article XVIII;
     THIRD: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest (including any Additional Interest) on the Debt Securities and any coupons, in respect of which or for the benefit of which such money has been collected ratably, without preference or priority of any kind, according to the amounts due and payable on such Debt Securities and any coupons for principal (and premium, if any) and interest (including any Additional Interest), respectively. The Holders of each series of Debt Securities denominated in Euro, any other composite currency or a Foreign Currency and any matured coupons relating thereto shall be entitled to receive a ratable portion of the amount determined by the Exchange Rate Agent by converting the principal amount Outstanding of such series of Debt Securities and matured but unpaid interest (including any Additional Interest) on such series of Debt Securities in the currency in which such series of Debt Securities is denominated into Dollars at the Exchange Rate as of the date of declaration of acceleration of the Maturity of the Debt Securities; and

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     FOURTH: The balance, if any, to the Company or as a court of competent jurisdiction may direct.
     Section 5.7 Limitation on Suits.
     No Holder of any Debt Securities of any series or any related coupons shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
     (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Debt Securities of such series;
     (b) the Holders of not less than 25% in principal amount of the Outstanding Debt Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
     (c) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;
     (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
     (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Debt Securities of such series;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
     Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and to Exchange Debt Securities for Capital Securities; Direct Action by Holders of Capital Trust Securities.
     Notwithstanding any other provision in this Indenture, the Holder of any Debt Security or coupon shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on such Debt Security or payment of such coupon on the respective Stated Maturity or Maturities expressed in such Debt Security or coupon (or, in the case of redemption or repayment, on the Redemption Date or the Repayment Date, as the case may be), to have the Debt Securities exchanged for Capital Securities pursuant to Article XIV, if applicable, and to institute suit for the enforcement of any such payment or exchange, and such right shall not be impaired without the consent of such Holder, subject, however, to the provisions of

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Article XVIII. In the case of Debt Securities of a series issued to an Issuer Trust, any registered holder of the series of Capital Trust Securities issued by such Issuer Trust shall have the right, upon the occurrence of an Event of Default described in Section 5.1(a) or (b), to institute a suit directly against the Company for enforcement of payment to such holder of principal of (premium, if any) and (subject to Sections 3.7 and 3.13) interest (including any Additional Interest) on the Debt Securities having a principal amount equal to the aggregate Liquidation Amount (as defined in the related Trust Agreement) of such Capital Trust Securities held by such holder.
     Section 5.9 Restoration of Rights and Remedies.
     If the Trustee, any Holder or any holder of Capital Trust Securities issued by an Issuer Trust has instituted any proceedings to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, such Holder or such holder of Capital Trust Securities, then and in every such case the Company, the Trustee, the Holders and the holders of Capital Trust Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee, the Holders and the holders of the Capital Trust Securities shall continue as though no such proceeding had been instituted.
     Section 5.10 Rights and Remedies Cumulative.
     Except as otherwise provided in Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
     Section 5.11 Delay or Omission Not Waiver.
     No delay or omission of the Trustee or of any Holder of any Debt Security or coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders and the right and remedy given to the holders of Capital Trust Securities by Section 5.8 may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the Holders or the holders of Capital Trust Securities, as the case may be.
     Section 5.12 Control by Holders of Debt Securities.
     The Holders of a majority in principal amount of the Outstanding Debt Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Debt Securities of such series, provided, that

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     (a) such direction shall not be in conflict with any rule of law or with this Indenture;
     (b) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be unjustly prejudicial to the Holders of Debt Securities of such series not joining in any such direction; and
     (c) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
     Section 5.13 Waiver of Past Defaults.
     The Holders of not less than a majority in principal amount of the Outstanding Debt Securities of any series on behalf of the Holders of all the Debt Securities of any such series and any related coupons and, in the case of any Debt Securities of a series initially issued to an Issuer Trust, the holders of a majority in aggregate Liquidation Amount (as defined in the related Trust Agreement) of Capital Trust Securities issued by such Issuer Trust may waive any past default hereunder with respect to such series and its consequences, except a default
     (a) in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Debt Security of such series, or
     (b) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Debt Security of such series or coupons affected;
provided, however, that in the case of any Debt Securities of a series initially issued by an Issuer Trust, such waiver shall not be effective as to such Debt Securities unless the holders of at least a majority in aggregate Liquidation Amount (as defined in the related Trust Agreement) of Capital Trust Securities issued by such Issuer Trust shall have consented to such waiver; provided further, that if the consent of the Holder of each Outstanding Debt Security is required, such waiver shall not be effective unless each holder of Capital Trust Securities issued by such Issuer Trust shall have consented to such waiver.
     Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
     Section 5.14 Undertaking for Costs.
     All parties to this Indenture agree, and each Holder of any Debt Security or coupon by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party

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litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having a due regard to the merits and good faith of the claims or defenses made by such party litigant, but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Debt Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Debt Security or the payment of any coupons on or after the respective Stated Maturity or Maturities expressed in such Debt Security or coupon (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date, as the case may be) or for the enforcement of the right to exchange any Debt Securities for Capital Securities as provided in Article XIV.
     Section 5.15 Waiver of Stay or Extension Laws.
     The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law whenever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
     Section 6.1 Certain Duties and Responsibilities.
     The duties and responsibilities of the Trustee shall be as provided in the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
     (a) Except during the continuance of an Event of Default,
     (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

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     (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).
     (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
     (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that
     (i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
     (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and
     (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Debt Securities of any series, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Debt Securities of such series.
     Section 6.2 Notice of Default.
     If a default occurs hereunder with respect to Debt Securities of any series the Trustee shall transmit by mail to all Holders of Debt Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.1(d) with respect to Debt Securities of such series no such notice to Holders shall be given until at least 30 days after the occurrence thereof; and provided further, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Debt Security of such series or any related coupons or in the payment of any sinking fund installment with respect to Debt Securities of such series or in the exchange of Capital Securities for Debt Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of

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directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of Debt Securities of such series. For the purpose of this Section, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Debt Securities of such series.
     Section 6.3 Certain Rights of Trustee.
     Except as otherwise provided in Section 6.1:
     (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any signature, resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
     (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution;
     (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate;
     (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
     (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Debt Securities of such series or any related coupons pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
     (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney, other than any such books or records containing information as to the affairs of the customers of the Company or any of its subsidiaries; provided that the Trustee may examine such books and records relating to

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customers to the extent that such books and records contain information as to any payments made to such customers in their capacity as Holders of Debt Securities; provided, further, that such inquiry or investigation shall be at the sole cost of the Company and that the Trustee shall incur no liability or additional liability of any kind by reason of such inquiry or investigation;
     (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; no Exchange Rate Agent, Capital Exchange Agent, Global Exchange Agent, Depositary or Paying Agent shall be deemed an agent of the Trustee and the Trustee shall not be responsible for any act or omission by any of them;
     (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;
     (i) in no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action;
     (j) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Debt Securities and this Indenture;
     (k) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder; and
     (1) the Trustee may request that the Company deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture.
     Section 6.4 Not Responsible for Recitals or Issuance of Debt Securities.
     The recitals contained herein and in the Debt Securities, except the Trustee’s certificates of authentication, and in any coupons, and the information in any registration statement, including all attachments thereto, except information provided by the Trustee therein, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debt Securities of any series or any coupons or any Capital Securities. The Trustee shall not be accountable for the use or application by the Company of any Debt Securities or the proceeds thereof. The Trustee shall not be responsible for and makes no

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representations to the Company’s ability or authority to issue Bearer Securities or the lawfulness thereof.
     Section 6.5 May Hold Debt Securities or Coupons.
     The Trustee, any Paying Agent, the Security Registrar or any other agent of the Company or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Debt Securities and coupons, and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such agent.
     Section 6.6 Money Held in Trust.
     Money held by the Trustee or any Paying Agent in trust hereunder need not be segregated from other funds except to the extent required by law. Neither the Trustee nor any Paying Agent shall be under any liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
     Section 6.7 Compensation and Reimbursement.
     The Company agrees
     (a) to pay to the Trustee from time to time such compensation for all services rendered by it hereunder which shall have been separately agreed to in writing from time to time by the Company and the Trustee (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
     (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct; and
     (c) to indemnify the Trustee or any predecessor Trustee and their agents for, and to hold them harmless against, any claim, damage, loss, liability or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee), incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust or performance of its duties hereunder, including the costs and expenses of defending itself against any claim (whether asserted by the Company, or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, or in connection with enforcing the provisions of this Section.
     As security for the performance of the obligations of the Company under this Section the Trustee shall have a claim prior to the Debt Securities and any coupons upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of

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principal of (and premium, if any) or interest on particular Debt Securities or any coupons. The claims of the Trustee under this Section shall not be subject to the provisions of Article XVIII. The provisions of this Section 6.7 shall survive the termination or discharge of this Indenture and the resignation or removal of the Trustee.
     When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(e) or Section 5.1(f), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law.
     Section 6.8 Disqualification; Conflicting Interests.
     If the Trustee has or shall acquire any conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest with respect to Debt Securities of any series by virtue of being a trustee under this Indenture with respect to Debt Securities of any particular series of Debt Securities other than that series. The Trust Agreement and the Guarantee Agreement with respect to each Issuer Trust shall be deemed to be specifically described in this Indenture for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
     Section 6.9 Corporate Trustee Required; Eligibility.
     There shall at all times be a Trustee hereunder which shall be a corporation that is eligible pursuant to the Trust Indenture Act to act as such and organized and doing business under the laws of the United States, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal or State authority; provided, however, that if Section 310(a) of the Trust Indenture Act or the rules and regulations of the Commission under the Trust Indenture Act at any time permit a corporation organized and doing business under the laws of any other jurisdiction to serve as trustee of an indenture qualified under the Trust Indenture Act, this Section 6.9 shall be automatically amended to permit a corporation organized and doing business under the laws of any such other jurisdiction to serve as Trustee hereunder. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

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     Section 6.10 Resignation and Removal; Appointment of Successor.
     (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11.
     (b) The Trustee may resign at any time with respect to the Debt Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debt Securities of such series.
     (c) The Trustee may be removed at any time with respect to the Debt Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Debt Securities of such series, delivered to the Trustee and to the Company.
     (d) If at any time:
     (i) the Trustee shall fail to comply with Section 6.8 with respect to the Debt Securities of any series after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Debt Security of such series for at least six months, or
     (ii) the Trustee shall cease to be eligible under Section 6.9 with respect to any series of Debt Securities and shall fail to resign after written request therefor by the Company or by any such Holder, or
     (iii) the Trustee shall become incapable of acting with respect to any series of Debt Securities or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Trustee in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law; or a decree or order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator or other similar official of the Trustee or of its property or affairs, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation, winding up or liquidation, or
     (iv) the Trustee shall commence a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator or other similar official of the Trustee or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its

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     inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action,
then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to such series or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Debt Security of any series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee for the Debt Securities of such series and the appointment of a successor Trustee.
     (e) If the Trustee shall resign, be removed or become incapable of acting with respect to any series of Debt Securities, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Debt Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Debt Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Debt Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Debt Securities of any particular series) and shall comply with the applicable requirements of Section 6.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Debt Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Debt Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Debt Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Debt Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Debt Security of such series for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debt Securities of such series.
     (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Debt Securities of any series and each appointment of a successor Trustee with respect to the Debt Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Registered Securities, if any, of such series as their names and addresses appear in the Security Register and, if Debt Securities of such series are issuable as Bearer Securities, by publishing notice of such event once in an Authorized Newspaper in each Place of Payment located outside the United States. Each notice shall include the name of the successor Trustee with respect to the Debt Securities of such series and the address of its Corporate Trust Office.
     Section 6.11 Acceptance of Appointment by Successor.
     (a) In the case of an appointment hereunder of a successor Trustee with respect to all Debt Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such

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successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
     (b) In the case of the appointment hereunder of a successor Trustee with respect to the Debt Securities of one or more (but not all) series, the Company, the retiring Trustee upon payment of its charges and each successor Trustee with respect to the Debt Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debt Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Debt Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debt Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture, the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debt Securities of that or those series to which the appointment of such successor Trustee relates; but, on the request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Debt Securities of that or those series to which the appointment of such successor Trustee relates.
     (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be.
     (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
     Section 6.12 Merger, Conversion, Consolidation or Succession to Business.
     Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation

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to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the executing or filing of any paper or any further act on the part of any of the parties hereto. In case any Debt Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debt Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Debt Securities. In case any Debt Securities shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Debt Securities, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee.
     Section 6.13 Preferential Collection of Claims Against Company.
     If and when the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company (or any other obligor upon the Debt Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding collection of claims against the Company (or any such other obligor).
     Section 6.14 Authenticating Agent.
     The Trustee shall upon Company request appoint one or more authenticating agents (including, without limitation, the Company or any Affiliate thereof) with respect to one or more series of Debt Securities which shall be authorized on behalf of the Trustee in authenticating Debt Securities of such series in connection with the issue, delivery, registration of transfer, exchange, partial redemption or repayment of such Debt Securities. Wherever reference is made in this Indenture to the authentication of Debt Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Company and must be a corporation organized and doing business under the laws of the United States or of any State or the District of Columbia, having a combined capital and surplus of at least $1,000,000, authorized under such laws to do a trust business and subject to supervision or examination by Federal or State authorities.
     Any corporation succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent.
     An authenticating agent may at any time resign with respect to one or more series of Debt Securities by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent with respect to one or more series of Debt Securities by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be eligible in accordance with the

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provisions of this Section, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent herein. No successor authenticating agent shall be appointed unless eligible under the provisions of this Section.
     The Company agrees to pay to each authenticating agent from time to time reasonable compensation for its services under this Section.
     The provisions of Sections 1.4, 1.11, 3.6, 3.9, 6.3, 6.4 and 6.5 shall be applicable to any authenticating agent.
     Pursuant to each appointment made under this Section, the Debt Securities of each series covered by such appointment may have endorsed thereon, in lieu of the Trustee’s certificate of authentication, an alternate certificate of authentication in substantially the following form:
     This is one of the Debt Securities, of the series designated herein, described in the within-mentioned Indenture.
             
    THE BANK OF NEW YORK MELLON TRUST    
    COMPANY, N.A.    
    not in its individual capacity, but solely as Trustee    
 
           
 
  By:        
 
      As Authenticating Agent for the Trustee      
 
           
 
  By:        
 
      Authorized Officer      
Date:                                         
ARTICLE VII
HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY
     Section 7.1 Company to Furnish Trustee Names and Addresses of Holders.
     The Company will furnish or cause to be furnished to the Trustee with respect to Debt Securities of each series for which it acts as Trustee:
     (a) not more than 15 days after the Regular Record Date in respect of the Debt Securities of such series or on May 15 and November 15 of each year with respect to each series of Debt Securities for which there are no Regular Record Dates, a list, in such form as the

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Trustee may reasonably require, of the names and addresses of the Holders of Registered Securities as of such Regular Record Date or May 1 or November 1, as the case may be, and
     (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security Registrar, no such list need be furnished.
     Section 7.2 Preservation of Information; Communications to Holders.
     (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders of Registered Securities contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders of Registered Securities received by the Trustee in its capacity as Paying Agent or Security Registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. The Trustee shall preserve for at least two years the names and addresses of Holders of Bearer Securities filed with the Trustee by such Holders.
     (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Debt Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act.
     (c) Every Holder of Debt Securities or coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of any disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act.
     Section 7.3 Reports by Trustee.
     (a) Within 60 days after April 15 of each year commencing with the first April 15 after the first issuance of Debt Securities pursuant to this Indenture and at any other time required by the Trust Indenture Act, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture and such other matters as may be required pursuant to the Trust Indenture Act in the manner required by the Trust Indenture Act.
     (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Debt Securities of such series are listed, with the Commission and also with the Company. The Company will notify the Trustee when any series of Debt Securities are listed or delisted on any stock exchange.
     Section 7.4 Reports by Company.
     The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required

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pursuant to the Trust Indenture Act at the time and in the manner pursuant to such Act; provided that such information, documents or reports required to be filed with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same are so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
     Section 8.1 Company May Consolidate, etc. only on Certain Terms.
     The Company shall not consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:
     (a) the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, or any State or political subdivision thereof, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest (including any Additional Interest and all additional amounts, if any, payable pursuant to Section 10.6) on all the Debt Securities and any related coupons and the performance of every covenant of this Indenture on the part of the Company to be performed or observed;
     (b) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and
     (c) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been met.
     Section 8.2 Successor Corporation Substituted.
     Upon any consolidation with or merger into any other corporation, or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 8.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company

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under this Indenture with the same effect as if such successor had been named as the Company herein, and thereafter, except in the case of a lease, the Company (which term for this purpose shall mean the Person named as the “Company” in the first paragraph of this instrument or any successor corporation which shall theretofore have become such in the manner presented in this Article) shall be relieved of all obligations and covenants under this Indenture and the Debt Securities and coupons.
ARTICLE IX
SUPPLEMENTAL INDENTURES
     Section 9.1 Supplemental Indentures without Consent of Holders.
     Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
     (a) to evidence the succession of another corporation to the Company, and the assumption by such successor of the covenants of the Company herein and in the Debt Securities contained; or
     (b) to add to the covenants of the Company, for the benefit of the Holders of all or any series of Debt Securities or coupons (and if such covenants are to be for the benefit of less than all series of Debt Securities or coupons, stating that such covenants are expressly being included solely for the benefit of such series), to convey, transfer, assign, mortgage or pledge any property to or with the Trustee, or to surrender any right or power herein conferred upon the Company; or
     (c) to add any additional Events of Default (and if such Events of Default are to be applicable to less than all series of Debt Securities, stating that such Events of Default are expressly being included solely to be applicable to such series); or
     (d) to add to, change or eliminate any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal (or premium, if any) on Registered Securities or of principal (or premium, if any) or any interest on Bearer Securities, to permit Bearer Securities to be issued in exchange for Registered Securities of other authorized denominations or to permit or facilitate the issuance of Debt Securities in uncertificated form, provided any such action shall not adversely affect the interests of the Holders of Debt Securities of any series or any related coupons in any material respect; or
     (e) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination (a) shall become effective only when there is no Debt Security Outstanding of any series created prior to the execution of such supplemental indenture which is

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entitled to the benefit of such provisions or (b) shall not apply to any Debt Security Outstanding; or
     (f) to establish the form or terms of Debt Securities of any series as permitted by Sections 2.1 and 3.1; or
     (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debt Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or
     (h) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with any provision of this Indenture, provided such other provisions shall not adversely affect the interests of the Holders of Debt Securities of any series or any related coupons in any material respect or, in the case of the Debt Securities of a series issued to an Issuer Trust and for so long as any of the corresponding series of Capital Trust Securities issued by such Issuer Trust shall remain outstanding, the holders of such Capital Trust Securities; or
     (i) to add to or change or eliminate any provision of this Indenture as shall be necessary or desirable in accordance with any amendments to the Trust Indenture Act, provided such action shall not adversely affect the interest of Holders of Debt Securities of any series or any appurtenant coupons in any material respect.
     Section 9.2 Supplemental Indentures with Consent of Holders.
     With the consent of the Holders of not less than a majority in principal amount of the Outstanding Debt Securities of all series affected by such supplemental indenture, acting together as a class, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture of such Debt Securities of such series and any related coupons; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debt Security or coupon affected thereby,
     (a) change the Stated Maturity of the principal or any installment of principal of, or any installment of interest (including any Additional Interest) on, any Debt Security (other than to the extent set forth in any such Debt Security), or reduce the principal amount thereof or the interest thereon or any premium payable upon redemption or repayment thereof, or change any obligation of the Company to pay additional amounts pursuant to Section 10.6 (except as contemplated by Section 8.1(a) and permitted by Section 9.1(a)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2, or change any Place

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of Payment, or the coin or currency in which any Debt Security or the interest thereon or any coupon is payable, or impair any right to the delivery of Capital Securities in exchange for Debt Securities provided for in this Indenture or the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date or Capital Exchange Date, as the case may be), or
     (b) reduce the percentage in principal amount of the Outstanding Debt Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 16.4 for quorum or voting, or
     (c) modify any of the provisions of this Section, Section 5.13 or Section 10.5, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debt Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to “the Trustee” and concomitant changes in this Section and Section 10.5, or the deletion of this proviso, in accordance with the requirements of Section 6.11(b) and 9.1(g); or
     (d) adversely affect the right to repayment, if any, of Debt Securities of any series at the option of the Holders thereof; or
     (e) impair the right of any Holder of Debt Securities of any series to receive Capital Securities on any Capital Exchange Date for Debt Securities of such series with a Market Value equal to the principal amount of such Holder’s Debt Securities of such series or in an amount sufficient to provide proceeds upon sale by the Company in the Secondary Offering equal to the principal amount of such Holder’s Debt Securities of such series; or
     (f) impair the right of any Holder of Convertible Securities of any series to convert such Debt Securities pursuant to Article XIX;
and provided, further, that no change shall be made in the provisions of Article XVIII that will affect adversely the holders of Senior Debt without the consent of the holders of all Senior Debt Outstanding; and provided, further, that, in the case of the Debt Securities of a series issued to an Issuer Trust, so long as any of the corresponding series of Capital Trust Securities issued by such Issuer Trust remains outstanding, (i) no such amendment shall be made that adversely affects the holders of such related Capital Trust Securities in any material respect, and no termination of this Indenture shall occur, and no waiver of compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount (as defined in the related Trust Agreement) of such Capital Trust Securities then outstanding unless and until the principal of (and premium, if any, on) the Debt Securities of such series and all accrued and (subject to Section 3.7) unpaid interest (including any Additional Interest) thereon have been paid in full, (ii) no such amendment or waiver that requires the consent of the Holder of each Outstanding Debt Security affected thereby shall be made without

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the prior consent of all the holders of the related Capital Trust Securities then outstanding unless and until the principal of (and premium, if any, on) the Debt Securities of such series and all accrued interest and (subject to Section 3.7) unpaid interest (including any Additional Interest) therein have been paid in full, and (iii) no amendment shall be made to Section 5.8 of this Indenture that would impair the rights of the holders of Capital Trust Securities issued by any Issuer Trust provided therein without the prior consent of the holders of each such Capital Trust Security then outstanding unless and until the principal of (and premium, if any, on) the Debt Securities of such series and all accrued and (subject to Section 3.7) unpaid interest (including any Additional Interest) thereon have been paid in full.
     A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Debt Securities or any corresponding series of Capital Trust Securities of an Issuer Trust that holds the Debt Securities of any series, or which modifies the rights of the Holders of Debt Securities of such series or holders of such Capital Trust Securities of such corresponding series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Debt Securities of any other series or holders of Capital Trust Securities of any other such corresponding series. It shall not be necessary for any Act of Holders of the Debt Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
     Section 9.3 Execution of Supplemental Indentures.
     In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel and an Officers’ Certificate each stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.
     Section 9.4 Effect of Supplemental Indentures.
     Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debt Securities theretofore or thereafter authenticated and delivered hereunder and of any coupons appertaining thereto shall be bound thereby.
     Section 9.5 Conformity with Trust Indenture Act.
     Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.

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     Section 9.6 Reference in Debt Securities to Supplemental Indentures.
     Debt Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debt Securities of any series and any appurtenant coupons so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debt Securities of such series and any appurtenant coupons.
ARTICLE X
COVENANTS
     Section 10.1 Payment of Principal, Premium and Interest.
     The Company covenants and agrees for the benefit of each series of Debt Securities and any appurtenant coupons that it will duly and punctually pay the principal of (and premium, if any) and interest (including any Additional Interest) on the Debt Securities and any appurtenant coupons in accordance with the terms of the Debt Securities, any appurtenant coupons and this Indenture. Any interest due on Bearer Securities on or before Maturity, other than additional amounts, if any, payable as provided in Section 10.6 in respect of principal of (or premium, if any, on) such a Debt Security, shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. For all purposes of this Indenture, the exchange of Capital Securities for Debt Securities of any series pursuant to the Indenture shall constitute full payment of principal of the Debt Securities of such series being exchanged on any Capital Exchange Date for Debt Securities of such series, without prejudice to any Holder’s rights pursuant to Section 14.13.
     Section 10.2 Maintenance of Office or Agency.
     The Company will maintain in each Place of Payment for any series of Debt Securities an office or agency where Debt Securities (but, except as otherwise provided below, unless such Place of Payment is located outside the United States, not Bearer Securities) may be presented or surrendered for payment, where Debt Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Debt Securities and this Indenture may be served. If Debt Securities of a series are issuable as Bearer Securities, the Company will maintain, subject to any laws or regulations applicable thereto, an office or agency in a Place of Payment for such series which is located outside the United States where Debt Securities of such series and the related coupons may be presented and surrendered for payment (including payment of any additional amounts payable on Debt Securities of such series pursuant to Section 10.6); provided, however, that if the Debt Securities of such series are listed on The Stock Exchange of the United Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company will maintain a Paying Agent in London or

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Luxembourg or any other required city located outside the United States, as the case may be, so long as the Debt Securities of such series are listed on such exchange. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices or demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee its agent to receive all presentations, surrenders, notices and demands, except that Bearer Securities of that series and the related coupons may be presented and surrendered for payment (including payment of any additional amounts payable on Bearer Securities of that series pursuant to Section 10.6) at the place specified for the purpose pursuant to Section 3.1(e).
     No payment of principal of, premium or interest on Bearer Securities shall be made at any office or agency of the Company in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; provided, however, payment of principal of and any premium and interest denominated in Dollars (including additional amounts payable in respect thereof) on any Bearer Security may be made at an office or agency of, and designated by, the Company located in the United States if (but only if) payment of the full amount of such principal, premium, interest or additional amounts in Dollars at all offices outside the United States maintained for the purpose by the Company in accordance with this Indenture is illegal or effectively precluded by exchange controls or other similar restrictions and the Trustee receives an Opinion of Counsel that such payment within the United States is legal. Unless otherwise provided as contemplated by Section 3.1 with respect to any series of Debt Securities, at the option of the Holder of any Bearer Security or related coupon, payment may be made by check in the currency designated for such payment pursuant to the terms of such Bearer Security presented or mailed to an address outside the United States or by transfer to an account in such currency maintained by the payee with a bank located outside the United States.
     The Company may also from time to time designate one or more other offices or agencies (in or outside of such Place of Payment) where the Debt Securities of one or more series and any appurtenant coupons (subject to the preceding paragraph) may be presented or surrendered for any or all such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for any series of Debt Securities for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such other office or agency.
     Section 10.3 Money for Debt Securities Payments to Be Held in Trust.
     If the Company shall at any time act as its own Paying Agent with respect to any series of Debt Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Debt Securities of such series and any appurtenant coupons, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest (including any Additional Interest) so becoming due until such

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sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act.
     Whenever the Company shall have one or more Paying Agents with respect to any series of Debt Securities, it will, on or before each due date of the principal of (and premium, if any) or interest (including any Additional Interest) on any of the Debt Securities of such series and any appurtenant coupons, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest (including any Additional Interest) so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest (including any Additional Interest), and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
     The Company will cause each Paying Agent with respect to any series of Debt Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will
     (a) hold all sums held by it for the payment of the principal of (and premium, if any) or interest (including any Additional Interest) on Debt Securities of such series and any appurtenant coupons in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
     (b) give the Trustee notice of any default by the Company (or any other obligor upon the Debt Securities of such series or any appurtenant coupons) in the making of any payment of principal of (and premium, if any) or interest (including any Additional Interest) on the Debt Securities of such series or any appurtenant coupons; and
     (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
     The Company may at any time, for the purpose of terminating its obligations as Paying Agent under this Indenture with respect to Debt Securities of any series or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
     Any principal and interest received on the Eligible Instruments deposited with the Trustee or any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest (including any Additional Interest) on any Debt Security of any series or any appurtenant coupons or any money on deposit with the Trustee or any Paying Agent representing amounts deducted from the Redemption Price or Repayment Price with respect to unmatured coupons not presented upon redemption or exercise of the Holder’s option for repayment pursuant to Section 11.6 or 13.3 and remaining unclaimed for two years after such principal (and premium, if any) or interest has

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become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Debt Security or any coupon appertaining thereto shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money (including the principal and interest received on Eligible Instruments deposited with the Trustee), and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper of general circulation in the Borough of Manhattan, The City of New York, and each Place of Payment or mailed to each such Holder, or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company.
     Section 10.4 Officers’ Certificate as to Default.
     The Company will deliver to the Trustee, on or before a date not more than four months after the end of each fiscal year of the Company ending after the date hereof, an Officers’ Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture, and, if the Company shall be in default, specifying all such defaults and the nature thereof of which they may have knowledge.
     Section 10.5 Waiver of Certain Covenants.
     Subject to the rights of holders of Capital Trust Securities specified in Section 9.2, if any, the Company may omit in any particular instance to comply with any covenant or condition applicable to the Debt Securities of any series pursuant to Section 3.1 unless such covenant or condition is determined pursuant to Section 3.1 not to be subject to this provision if, before the time for such compliance the Holders of at least a majority in principal amount of all series of the Debt Securities at the time Outstanding to which such covenant or condition applies shall, acting together as a class, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect.
     Section 10.6 Payment of Additional Amounts.
     If the Debt Securities of a series provide for the payment of additional amounts, the Company will pay to the Holder of any Debt Security of any series or any coupon appertaining thereto additional amounts upon the terms and subject to the conditions provided therein. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of (or premium, if any) or interest on, or in respect of, any Debt Security of any series or any related coupon or the net proceeds received on the sale or exchange of any Debt Security of any series, such mention shall be deemed to include mention of the payment of additional amounts provided

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for in the terms of such Debt Securities and this Section to the extent that, in such context, additional amounts are, were or would be payable in respect thereof pursuant to the provisions of this Section and express mention of the payment of additional amounts (if applicable) in any provisions hereof shall not be construed as excluding additional amounts in those provisions hereof where such express mention is not made.
     If the Debt Securities of a series provide for the payment of additional amounts, at least 10 days prior to the first Interest Payment Date with respect to that series of Debt Securities (or if the Debt Securities of that series will not bear interest prior to Maturity, the first day on which a payment of principal (and premium, if any) is made), and at least 10 days prior to each date of payment of principal (and premium, if any) or interest if there has been any change with respect to the matters set forth in the below-mentioned Officers’ Certificate, the Company will furnish the Trustee and the Company’s principal Paying Agent or Paying Agents, if other than the Trustee, with an Officers’ Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of (and premium, if any) or interest on the Debt Securities of that series shall be made to Holders of Debt Securities of that series or the related coupons who are United States Aliens without withholding for or on account of any tax, assessment or other governmental charge described in the Debt Securities of that series. If any such withholding shall be required, then such Officers’ Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Debt Securities or coupons and the Company will pay to the Trustee or such Paying Agent the additional amounts, if any, required by the terms of such Debt Securities and the first paragraph of this Section. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or willful misconduct on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers’ Certificate furnished pursuant to this Section.
     Section 10.7 Additional Sums.
     In the case of the Debt Securities of a series initially issued to an Issuer Trust, so long as no Event of Default has occurred and is continuing and except as otherwise specified as contemplated by Section 3.1, if (i) an Issuer Trust is the Holder of all of the Outstanding Debt Securities of such series, and (ii) a Tax Event has occurred and is continuing in respect of such Issuer Trust, the Company shall pay to such Issuer Trust (and its permitted successors or assigns under the related Trust Agreement) for so long as such Issuer Trust (or its permitted successor or assignee) is the registered holder of the Outstanding Debt Securities of such series, such additional sums as may be necessary in order that the amount of Distributions (including any Additional Amounts (as defined in the relevant Trust Agreement)) then due and payable by such Issuer Trust on the related Capital Trust Securities and Common Trust Securities that at any time remain outstanding in accordance with the terms thereof shall not be reduced as a result of any Additional Taxes arising from such Tax Event; provided, however, that Additional Sums shall not include any withholding taxes arising after the occurrence of a Tax Event and which have been withheld from payments to Holders of Trust Securities and for which Holders are liable (the “Additional Sums”). Whenever in this Indenture or the Debt Securities there is a reference in any context to the payment of principal of or interest on the Debt Securities, such mention shall be deemed to include mention of the payments of the Additional Sums provided for in this

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paragraph to the extent that, in such context, Additional Sums are, were or would be payable in respect thereof pursuant to the provisions of this paragraph and express mention of the payment of Additional Sums (if applicable) in any provisions hereof shall not be construed as excluding Additional Sums in those provisions hereof where such express mention is not made; provided, however, that the deferral of the payment of interest pursuant to Section 3.13 or the Debt Securities shall not defer the payment of any Additional Sums that may be due and payable.
     Section 10.8 Additional Covenants.
     The Company covenants and agrees with each Holder of Debt Securities of each series that it shall not (x) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Debt Securities of such series, or (y) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of the Company’s capital stock (other than (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of an exchange, redemption or conversion of any other class or series of the Company’s capital stock (or any capital stock of a subsidiary of the Company) for any class or series of the Company’s capital stock, or of any class or series of the Company’s indebtedness for any class or series of the Company’s capital stock, (c) the purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged, (d) any declaration of a dividend in connection with any Rights Plan, or the issuance of rights, stock or other property under any Rights Plan, or the redemption or repurchase of rights pursuant thereto, (e) any payment by the Company under any Guarantee Agreement, or (f) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock) if at such time (i) there shall have occurred any event (A) of which the Company has actual knowledge that with the giving of notice or the lapse of time, or both, would constitute an Event of Default with respect to the Debt Securities of such series under Sections 5.1(a), (b), (e) or (f), and (B) which the Company shall not have taken reasonable steps to cure, (ii) if the Debt Securities of such series are held by an Issuer Trust, the Company shall be in default with respect to its payment of any obligations under the Guarantee Agreement relating to the Capital Trust Securities issued by such Issuer Trust, or (iii) the Company shall have given notice of its election to begin an Extension Period with respect to the Debt Securities of such series as provided herein and shall not have rescinded such notice, and such Extension Period, or any extension thereof, shall be continuing.
     The Company also covenants with each Holder of Debt Securities of a series issued to an Issuer Trust (i) to hold, directly or indirectly, 100% of the Common Trust Securities of such Issuer Trust, provided that any permitted successor of the Company hereunder may succeed to

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the Company’s ownership of such Common Trust Securities, (ii) as holder of such Common Trust Securities, not to voluntarily terminate, wind-up or liquidate such Issuer Trust, other than (a) in connection with a distribution of the Debt Securities of such series to the holders of the related Capital Trust Securities in liquidation of such Issuer Trust, or (b) in connection with certain mergers, consolidations or amalgamations permitted by the related Trust Agreement, and (iii) to use its reasonable efforts, consistent with the terms and provisions of such Trust Agreement, to cause such Issuer Trust to continue not to be taxable as a corporation for United States Federal income tax purposes.
ARTICLE XI
REDEMPTION OF DEBT SECURITIES
     Section 11.1 Applicability of Article.
     Subject to the Company having received the prior approval of the Primary Federal Regulator, if then required under the applicable capital guidelines or policies of the Primary Federal Regulator, Debt Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 3.1 for Debt Securities of any series) in accordance with this Article.
     Section 11.2 Election to Redeem; Notice to Trustee.
     The election of the Company to redeem any Debt Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all of the Debt Securities of any series, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee and, in the case of Debt Securities of a series held by an Issuer Trust, the Property Trustee under the related Trust Agreement, of such Redemption Date and of the principal amount and the tenor and terms of the Debt Securities of any series to be redeemed; provided that in the case of any series of Debt Securities initially issued to an Issuer Trust, for so long as such Debt Securities are held by such Issuer Trust, such notice shall be given not less than 45 nor more than 75 days prior to such Redemption Date (unless a shorter notice shall be satisfactory to the Property Trustee under the related Trust Agreement). In the case of any redemption of Debt Securities prior to the expiration of any restriction on such redemption provided in the terms of such Debt Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers’ Certificate evidencing compliance with such restriction.
     Section 11.3 Selection by Trustee of Debt Securities to be Redeemed.
     Except as otherwise specified and contemplated by Section 3.1 for Debt Securities of any series, if less than all the Debt Securities of any series with like tenor and terms are to be redeemed, the particular Debt Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debt Securities of such series with like tenor and terms not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of

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portions (equal to the minimum authorized denomination for Debt Securities of such series or any integral multiple thereof which is also an authorized denomination) of the principal amount of Registered Securities or Bearer Securities (if issued in more than one authorized denomination) of such series of a denomination larger than the minimum authorized denomination for Debt Securities of such series.
     The Trustee shall promptly notify the Company in writing of the Debt Securities selected for redemption and, in the case of any Debt Securities selected for partial redemption, the principal amount thereof to be redeemed.
     For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debt Securities shall relate, in the case of any Debt Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Debt Security which has been or is to be redeemed.
     Section 11.4 Notice of Redemption.
     Notice of redemption shall be given in the manner provided in Section 1.6 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Debt Securities to be redeemed, provided that in the case of any series of Debt Securities initially issued to an Issuer Trust, for so long as such Debt Securities are held by such Issuer Trust, such notice shall be given not less than 45 nor more than 75 days prior to such Redemption Date (unless a shorter notice shall be satisfactory to the Property Trustee under the related Trust Agreement).
     All notices of redemption shall state:
     (a) the Redemption Date,
     (b) the Redemption Price,
     (c) if less than all Outstanding Debt Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Debt Securities to be redeemed,
     (d) that on the Redemption Date the Redemption Price will become due and payable upon each such Debt Security to be redeemed, and that interest (including any Additional Interest) thereon shall cease to accrue on and after said date,
     (e) the Place or Places of Payment where such Debt Securities, together in the case of Bearer Securities with all coupons, if any, appertaining thereto maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price,
     (f) that Bearer Securities may be surrendered for payment only at such place or places which are outside the United States, except as otherwise provided in Section 10.2,
     (g) that the redemption is for a sinking fund, if such is the case, and

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     (h) the CUSIP number, if any.
     A notice of redemption published as contemplated by Section 1.6 need not identify particular Registered Securities to be redeemed.
     Notice of redemption of Debt Securities to be redeemed at the election of the Company shall be given by the Company, or, at the Company’s request and provision of such notice information five days prior to the mailing of the notice, by the Trustee in the name and at the expense of the Company.
     Section 11.5 Deposit of Redemption Price.
     On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money and/or, to the extent the Debt Securities to be redeemed are denominated and payable in Dollars only, Eligible Instruments the payments of principal and interest on which when due (and without reinvestment and providing no tax liability will be imposed upon the Trustee or the Holders of the Debt Securities to be redeemed) will provide money on or prior to the Redemption Date in such amounts as will (together with any money irrevocably deposited in trust with the Trustee, without investment) be sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest (including any Additional Interest) on, all the Debt Securities or portions thereof which are to be redeemed on that date; provided, however, that deposits with respect to Bearer Securities shall be made with a Paying Agent or Paying Agents located outside the United States except as otherwise provided in Section 10.2, unless otherwise specified as contemplated by Section 3.1.
     Section 11.6 Debt Securities Payable on Redemption Date.
     Notice of redemption having been given as aforesaid, the Debt Securities to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Debt Securities shall cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Debt Security for redemption in accordance with said notice, such Debt Security shall be paid by the Company at the Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date; provided, however, that installments of interest (including any Additional Interest) on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only upon presentation and surrender of coupons for such interest (at an office or agency located outside the United States except as otherwise provided in Section 10.2), and provided further, that installments of interest (including any Additional Interest) on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Debt Securities, or one or more Predecessor Securities, registered as such on the relevant Record Dates according to their terms and the provisions of Section 3.7.

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     If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant coupons maturing after the Redemption Date, such Bearer Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Bearer Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted without interest thereon; provided, however, that interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside of the United States except as otherwise provided in Section 10.2.
     If any Debt Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Debt Security.
     Section 11.7 Debt Securities Redeemed in Part.
     Any Registered Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company, the Security Registrar and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Debt Security without service charge, a new Registered Security or Registered Securities of the same series and of like tenor and terms, of any authorized denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debt Security so surrendered.
     Section 11.8 Right of Redemption of Debt Securities Initially Issued to an Issuer Trust.
     In the case of the Debt Securities of a series initially issued to an Issuer Trust, except as otherwise specified as contemplated by Section 3.1, the Company, at its option, may redeem such Debt Securities (i) on or after the date specified in such Debt Security, in whole at any time or in part from time to time, or (ii) upon the occurrence and during the continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event, at any time within 90 days following the occurrence and during the continuation of such Tax Event, Investment Company Event or Capital Treatment Event, in whole (but not in part), in each case at a Redemption Price specified in such Debt Security, together with accrued interest (including any Additional Interest) to, but excluding, the Redemption Date.
     If less than all the Debt Securities of any such series are to be redeemed, the aggregate principal amount of such Debt Securities remaining Outstanding after giving effect to such

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redemption shall be sufficient to satisfy any provisions of the Trust Agreement related to the Issuer Trust to which such Debt Securities were issued, including any requirement in such Trust Agreement as to the minimum Liquidation Amount (as defined in such Trust Agreement) of Capital Trust Securities that may be held by a holder of Capital Trust Securities thereunder.
ARTICLE XII
SINKING FUNDS
     Section 12.1 Applicability of Article.
     The provisions of this Article shall be applicable to any sinking fund for the retirement of Debt Securities of a series except as otherwise specified as contemplated by Section 3.1 for Debt Securities of such series.
     The minimum amount of any sinking fund payment provided for by the terms of Debt Securities of any series is herein referred to as a “mandatory sinking fund payment”, and any payment in excess of such minimum amount provided for by the term of Debt Securities of any series is herein referred to an “optional sinking fund payment”. If provided for by the terms of Debt Securities of any series, the amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Debt Securities of any series as provided for by the terms of Debt Securities of such series.
     Section 12.2 Satisfaction of Sinking Fund Payments with Debt Securities.
     The Company (1) may deliver Outstanding Debt Securities of a series (other than any previously called for redemption), together in the case of any Bearer Securities of such series with all unmatured coupons appertaining thereto, and (2) may apply as a credit Debt Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Debt Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Debt Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Debt Securities of such series required to be made pursuant to the terms of such Debt Securities as provided for by the terms of such series; provided that such Debt Securities have not been previously so credited. Such Debt Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Debt Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Debt Securities in lieu of cash payments pursuant to this Section 12.2, the principal amount of Debt Securities to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Debt Securities for redemption, except upon Company Request, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by

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the Company to the Trustee of Debt Securities purchased by the Company having an unpaid principal amount equal to the cash payment requested to be released to the Company.
     Section 12.3 Redemption of Debt Securities for Sinking Fund.
     Not less than 60 days prior to each sinking fund payment date for any series of Debt Securities (unless a shorter period shall be satisfactory to the Trustee), the Company will deliver to the Trustee an Officers’ Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash, the portion thereof, if any, which is to be satisfied by crediting Debt Securities of that series pursuant to Section 12.2 and the basis for any such credit and, prior to or concurrently with the delivery of such Officers’ Certificate, will also deliver to the Trustee any Debt Securities to be so credited and not theretofore delivered to the Trustee. Not less than 30 days (unless a shorter period shall be satisfactory to the Trustee) before each such sinking fund payment date the Trustee shall select the Debt Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Debt Securities shall be made upon the terms and in the manner stated in Sections 11.5, 11.6 and 11.7.
ARTICLE XIII
REPAYMENT AT THE OPTION OF HOLDERS
     Section 13.1 Applicability of Article.
     Debt Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity shall be repaid in accordance with their terms and (except as otherwise specified pursuant to Section 3.1 for Debt Securities of such series) in accordance with this Article.
     Section 13.2 Repayment of Debt Securities.
     Each Debt Security which is subject to repayment in whole or in part at the option of the Holder thereof on a Repayment Date shall be repaid at the applicable Repayment Price together with interest accrued to such Repayment Date as specified pursuant to Section 3.1.
     Section 13.3 Exercise of Option; Notice.
     Each Holder desiring to exercise such Holder’s option for repayment shall, as conditions to such repayment, surrender the Debt Security to be repaid in whole or in part together with written notice of the exercise of such option at any office or agency of the Company in a Place of Payment, not less than 30 nor more than 45 days prior to the Repayment Date; provided, however, that surrender of Bearer Securities together with written notice of exercise of such option shall be made at an office or agency located outside the United States except as otherwise provided in Section 10.2. Such notice, which shall be irrevocable, shall specify the principal

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amount of such Debt Security to be repaid, which shall be equal to the minimum authorized denomination for such Debt Security or an integral multiple thereof, and shall identify the Debt Security to be repaid and, in the case of a partial repayment of the Debt Security, shall specify the denomination or denominations of the Debt Security or Debt Securities of the same series to be issued to the Holder for the portion of the principal of the Debt Security surrendered which is not to be repaid.
     If any Bearer Security surrendered for repayment shall not be accompanied by all unmatured coupons and all matured coupons in default, such Bearer Security may be paid after deducting from the Repayment Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Bearer Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Repayment Price, such Holder shall be entitled to receive the amount so deducted without interest thereon; provided, however, that interest represented by coupons shall be payable only at an office or agency located outside the United States except as otherwise provided in Section 10.2.
     The Company shall execute and the Trustee shall authenticate and deliver without service charge to the Holder of any Registered Security so surrendered a new Registered Security or Securities of the same series, of any authorized denomination specified in the foregoing notice, in an aggregate principal amount equal to any portion of the principal of the Registered Security so surrendered which is not to be repaid.
     The Company shall execute and the Trustee shall authenticate and deliver without service charge to the Holder of any Bearer Security so surrendered a new Registered Security or Securities or new Bearer Security or Securities (and all appurtenant unmatured coupons and matured coupons in default) or any combination thereof of the same series of any authorized denomination or denominations specified in the foregoing notice, in an aggregate principal amount equal to any portion of the principal of the Debt Security so surrendered which is not to be paid; provided, however, that the issuance of a Registered Security therefor shall be subject to applicable laws and regulations, including provisions of the United States Federal income tax laws and regulations in effect at the time of the exchange; neither the Company, the Trustee nor the Security Registrar shall issue Registered Securities for Bearer Securities if it has received an Opinion of Counsel that as a result of such issuance the Company would suffer adverse consequences under the United States Federal income tax laws then in effect and the Company has delivered to the Trustee a Company Order directing the Trustee not to make such issuances thereafter unless and until the Trustee receives a subsequent Company Order to the contrary. The Company shall deliver copies of such Company Order to the Security Registrar.
     For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the repayment of Debt Securities shall relate, in the case of any Debt Security repaid or to be repaid only in part, to the portion of the principal of such Debt Security which has been or is to be repaid.

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     Section 13.4 Election of Repayment by Remarketing Entities.
     The Company may elect, with respect to Debt Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity, at any time prior to any Repayment Date to designate one or more Remarketing Entities to purchase, at a price equal to the Repayment Price, Debt Securities of such series from the Holders thereof who give notice and surrender their Debt Securities in accordance with Section 13.3.
     Section 13.5 Securities Payable on the Repayment Date.
     Notice of exercise of the option of repayment having been given and the Debt Securities so to be repaid having been surrendered as aforesaid, such Debt Securities shall, unless purchased in accordance with Section 13.4, on the Repayment Date become due and payable at the price therein specified and from and after the Repayment Date such Debt Securities shall cease to bear interest and shall be paid on the Repayment Date, and the coupons for such interest appertaining to Bearer Securities so to be repaid, except to the extent provided above, shall be void, unless the Company shall default in the payment of such price in which case the Company shall continue to be obligated for the principal amount of such Debt Securities and shall be obligated to pay interest on such principal amount at the rate borne by such Debt Securities from time to time until payment in full of such principal amount.
ARTICLE XIV
EXCHANGE OF CAPITAL SECURITIES FOR DEBT SECURITIES
     Section 14.1 Applicability of Article.
     If an Officers’ Certificate or supplemental indenture pursuant to Section 3.1 provides for the exchange of Capital Securities for Debt Securities of any series at the election of the Company or otherwise, Debt Securities of such series shall be exchanged for Capital Securities in accordance with their terms and (except as otherwise specified in such Officers’ Certificate or supplemental indenture) in accordance with this Article.
     Section 14.2 Exchange of Capital Securities for Debt Securities at Stated Maturity.
     At the Stated Maturity of Debt Securities of any series which may be exchanged, subject to prepayment prior to such Stated Maturity on the Capital Exchange Date selected by the Company for Debt Securities of such series, as described below, early exchange pursuant to Section 14.3 or payment in cash pursuant to Section 5.2, 14.16 or 14.17, the Company shall exchange Capital Securities with a Market Value equal to the principal amount of the Outstanding Debt Securities of such series for the Debt Securities of such series in whole.
     The Company shall give notice in the manner provided in Section 1.6 to Holders of the Debt Securities of any series to be exchanged, the Trustee and the Capital Exchange Agent as to the type of Capital Securities to be exchanged for the Debt Securities of such series on the Capital Exchange Date for Debt Securities of such series. Such notice shall include a form of

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Capital Security Election Form substantially as set forth in Section 14.9, shall make the statements and contain the information included in Section 14.4(a), and shall be given no less than 90 days prior to the Stated Maturity of such Debt Securities. Notice of such Capital Exchange Date, together with the amount of Capital Securities being exchanged for each $1,000 principal amount of Debt Securities of such series, or the minimum denomination of the Debt Securities of such series, if larger, shall also be given by the Company in the manner required by Section 14.4(b) not less than three Business Days prior to such Capital Exchange Date.
     The Capital Exchange Date for any prepayment of Debt Securities of each series may be selected by the Company to be any date between a date 60 days prior to the Stated Maturity of such Debt Securities and such Stated Maturity, inclusive, and to be the date of the closing of the Secondary Offering for Debt Securities of such series. In the event the Company fails to effect such Secondary Offering, the Capital Exchange Date will be the Stated Maturity of the Debt Securities of such series. Notice of each such Capital Exchange Date, together with the amount of Capital Securities being exchanged for each $1,000 principal amount of Debt Securities of such series, or the minimum denomination of the Debt Securities of such series, if larger, shall also be given by the Company in the manner required by Section 14.4(b) not less than three Business Days prior to such Capital Exchange Date.
     The Company will effect each Secondary Offering such that the closing of the Secondary Offering will occur on the Capital Exchange Date.
     Section 14.3 Right of Early Exchange of Capital Securities for Debt Securities.
     The Debt Securities of any series to be exchanged may be exchanged at the election of the Company, as a whole or from time to time in part, prior to the Stated Maturity thereof for Capital Securities with a Market Value equal to the principal amount of such Debt Securities on any early Capital Exchange Date, together with accrued interest to such Capital Exchange Date.
     The Company shall give notice in the manner provided in Section 1.6 to Holders of the Debt Securities of any series to be exchanged, the Trustee and the Capital Exchange Agent not less than 90 days nor more than 120 days prior to any early Capital Exchange Date for Debt Securities of such series, which notice shall include a form of Capital Security Election Form substantially as set forth in Section 14.9 and make the statements and contain the information included in Section 14.4(a). Notice of each such early Capital Exchange Date, together with the amount of Capital Securities being exchanged for each $1,000 principal amount of Debt Securities of such series, or the minimum denomination of such series, if larger, shall also be given by the Company in the manner required by Section 14.4(b) not less than three Business Days prior to such early Capital Exchange Date.
     The Company may at its option accelerate any such Capital Exchange Date within the 60-day period prior to such Capital Exchange Date by giving notice of such accelerated Capital Exchange Date, together with the amount of Capital Securities being exchanged for each $1,000 principal amount of Debt Securities of such series, or the minimum denomination of such series, if larger, in the manner required by Section 14.4(b) not less than three Business Days prior to such accelerated Capital Exchange Date.

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     The Company will effect each Secondary Offering such that the closing of such Secondary Offering will occur on the Capital Exchange Date.
     Section 14.4 Notices of Exchange.
     (a) All notices of exchange subject to this paragraph shall state:
     (i) the type of Capital Securities to be exchanged for the Debt Securities of such series on the Capital Exchange Date for Debt Securities of such series;
     (ii) the proposed Capital Exchange Date;
     (iii) that each Holder of Debt Securities of such series being exchanged will receive on such Capital Exchange Date accrued and unpaid interest in cash and may elect to receive on such Capital Exchange Date Capital Securities with a Market Value equal to the principal amount of the Debt Securities of such series owned by such Holder and that, in the absence of any such election by the Holder, such Holder will be deemed to have received on such Capital Exchange Date Capital Securities having such Market Value and to have elected to have such Capital Securities sold for such Holder by the Company in the related Secondary Offering for cash proceeds to such Holder on such Capital Exchange Date equal to the aggregate principal amount of all Debt Securities of such series being exchanged owned by such Holder;
     (iv) that on such Capital Exchange Date the Capital Exchange Price will become due and payable upon each such Debt Security to be exchanged and that interest thereon will cease to accrue on and after said date;
     (v) if less than all the Outstanding Debt Securities of any series are to be exchanged, the identification and principal amount of the particular Debt Securities to be exchanged;
     (vi) that each Holder for whom Capital Securities are being offered in the Secondary Offering shall be deemed to have appointed the Company its attorney-in-fact to execute any and all documents and agreements the Company deems necessary or appropriate to effect such Secondary Offering;
     (vii) (A) that the Company will assume, unless advised to the contrary in writing within 30 days after the date of notice of exchange, that the Capital Securities are to be offered for the account of the Holder, that such Holder has not held any position, office or other material relationship with the Company within three years preceding the Secondary Offering, that the Holder owns no other Capital Securities, and that after completion of the Secondary Offering the Holder will own less than one percent of the class of such Capital Securities, and (B) that

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if any of these assumptions is not correct, the Holder shall promptly so advise the Company;
     (viii) the Place or Places of Capital Exchange;
     (ix) that Bearer Securities may be surrendered for payment or exchange only at a Place or Places of Capital Exchange which are outside the United States, except as otherwise provided in Section 10.2; and
     (x) the CUSIP number, if any.
     (b) Each notice of exchange subject to this paragraph shall be given in the manner provided in Section 1.6 to each Holder of Debt Securities to be exchanged, and the Company shall forthwith give such notice by telephone to the Trustee and the Capital Exchange Agent, promptly confirmed in writing.
     (i) Except as may otherwise be specified pursuant to Section 3.1 for Debt Securities of any series, if less than all the Debt Securities of any series are to be exchanged, the Company shall at least 135 days prior to the related Capital Exchange Date (unless a shorter period shall be satisfactory to the Trustee) notify the Trustee of such Capital Exchange Date and of the principal amount of Debt Securities of such series to be exchanged and the particular Debt Securities to be exchanged shall be selected not more than 135 days prior to the related Capital Exchange Date by the Trustee, from the Outstanding Debt Securities of such series not previously exchanged, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for exchange of portions (equal to the minimum authorized denomination for Debt Securities of such series or any integral multiple thereof) of the principal amount of Registered or Bearer Securities of such series of a denomination larger than the minimum authorized denomination for Debt Securities of such series. In any case where Debt Securities of such series are registered in the same name, the Trustee in its discretion may treat the aggregate principal amount so registered as if it were represented by one Debt Security of such series.
     (ii) The Trustee shall promptly notify the Company in writing of the Debt Securities selected for exchange and, in the case of any Debt Securities selected for partial exchange, the principal amount thereof to be exchanged.
     (iii) For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the exchange of Debt Securities shall relate, in the case of any Debt Securities exchanged or to be exchanged only in part, to the portion of the principal amount of such Debt Security which has been or is to be exchanged.

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     Section 14.5 Rights and Duties of Holders of Debt Securities to be Exchanged for Capital Securities.
     (a) Subject to Section 5.3, and without prejudice to the rights pursuant to Section 14.13 of Holders of Debt Securities of any series to be exchanged, no Holder of Debt Securities of such series shall be entitled to receive any cash from the Company on any Capital Exchange Date or at the Stated Maturity of any Debt Security of such series except from the proceeds of the sale of such Holder’s Capital Securities in the related Secondary Offering and except as provided herein with respect to fractional Capital Securities, amounts equal to expenses of the sale in the related Secondary Offering of such Capital Securities, accrued and unpaid interest and acceleration upon an Event of Default. In the event that the Company does not effect such Secondary Offering, such Holder will receive Capital Securities with a Market Value equal to the principal amount of Debt Securities of such series owned by such Holder which are subject to such exchange and not cash other than in lieu of any fractional Capital Securities and for accrued and unpaid interest, without prejudice to such Holder’s rights pursuant to Section 14.13.
     (b) Each Holder for whom Capital Securities are being offered in the Secondary Offering shall be deemed to have appointed the Company its attorney-in-fact to execute any and all documents and agreements the Company deems necessary or appropriate to effect such Secondary Offering.
     (c) Unless advised to the contrary in writing within 30 days following the date of the notice described in Section 14.4(a) by any Holder for whom Capital Securities are being offered in the Secondary Offering, the Company shall assume for the purposes of any Secondary Offering that the Capital Securities are to be offered for the account of such Holder, that such Holder has not held any position, office or other material relationship with the Company within three years preceding the Secondary Offering, that such Holder owns no other Capital Securities, and that after completion of the Secondary Offering such Holder will own less than one percent of the class of such Capital Securities.
     (d) Each Holder for whom Capital Securities are being offered in the Secondary Offering agrees to indemnify and hold harmless the Company, any other Holder, and any underwriter, agent or other similar person from and against any and all losses, claims, damages and liabilities resulting from or based upon any untrue statement or alleged untrue statement of any material fact contained in any notice of exchange, any offering memorandum or selling document or registration statement relating to the Secondary Offering, any preliminary prospectus or prospectus contained therein, or any amendment thereof or supplement thereto, or resulting from or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which untrue statement, alleged untrue statement, omission or alleged omission is made therein (i) in reliance upon and in conformity with any written information furnished to the Company by or on behalf of any such Holder specifically for use in connection with the preparation thereof or (ii) because of such Holder’s failure to advise the Company in writing that any of the assumptions described in Section 14.4(a)(vii)(A) and Subsection (c) of this Section is incorrect.

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     (e) In order for any Holder who has duly returned a Capital Security Election Form to receive Capital Securities on any Capital Exchange Date for any Debt Security of any series, (1) the Holder of any Registered Security to be exchanged shall surrender such Debt Security (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder of any Registered Security or his attorney duly authorized in writing) to the Capital Exchange Agent on the Capital Exchange Date, and (2) the Holder of any Bearer Security to be exchanged shall surrender such Debt Security and all unmatured coupons and all matured coupons in default with the Capital Security Election Form at a Place of Capital Exchange outside the United States designated pursuant to Section 14.4(a)(viii) except as otherwise provided in Section 10.2. If the Holder of a Bearer Security is unable to produce any such Debt Security or coupons, the surrender of such Debt Security or coupons may be waived by the Company and the Trustee, if there be furnished to them such security or indemnity as they may require to save each of them and any Capital Exchange Agent harmless in respect of such Debt Security or coupons. Except as provided in Section 3.7, no payment or adjustment shall be made upon any exchange on account of any interest accrued on any Debt Securities surrendered for exchange or on account of any dividends or interest on the Capital Securities issued upon exchange.
     (f) Debt Securities of any series to be exchanged shall be deemed to have been exchanged on the Capital Exchange Date therefor in accordance with the foregoing provisions, and at such time the rights of the Holders of such Debt Securities as Holders shall cease (subject to the provisions of Section 3.7 and without prejudice to the rights of Holders of Debt Securities of such series pursuant to Section 14.13), and the Person or Persons entitled to receive the Capital Securities issuable upon such exchange shall be treated for all purposes as the record holder or holders of such Capital Securities at such time.
     Section 14.6 Election to Exchange.
     The election of the Company to exchange Capital Securities for Debt Securities pursuant to Section 14.3 shall be evidenced by a Board Resolution.
     Section 14.7 Deposit of Capital Exchange Price.
     On any Capital Exchange Date for Debt Securities of any series which may be exchanged, the Company shall deposit with the Trustee or with a Capital Exchange Agent in the Borough of Manhattan, The City of New York (or, if the Company is acting as Capital Exchange Agent, segregate and hold in trust as provided in Section 10.3) Capital Securities and an amount of money which together are sufficient to pay the Capital Exchange Price of, and (except if such Capital Exchange Date shall be an Interest Payment Date) accrued interest on, all the Debt Securities of such series or portions thereof which are to be exchanged on that date; provided, however, that deposits with respect to Bearer Securities shall be made with a Capital Exchange Agent or Capital Exchange Agents located outside the United States except as otherwise provided in Section 10.2, unless otherwise specified as contemplated by Section 3.1.

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     Section 14.8 Debt Securities Due on Capital Exchange Date; Debt Securities Exchanged in Part.
     Notice of exchange having been given as aforesaid, the Debt Securities of any series so to be exchanged shall, on the Capital Exchange Date for such Debt Securities, become due and payable at the Capital Exchange Price therein specified, and from and after such date (unless the Company shall default in the payment of the Capital Exchange Price and accrued interest) Debt Securities of such series to be exchanged shall cease to bear interest and the coupons for such interest appertaining to any Bearer Securities to be exchanged, except to the extent provided below, shall be void. Upon surrender of any Debt Security of such series for exchange in accordance with said notice, such Debt Security shall be paid by the Company at the Capital Exchange Price, together with accrued interest to the Capital Exchange Date; provided, however, that if such Capital Exchange Date is an Interest Payment Date, the interest payable on such date shall be paid to the Holder of Debt Securities of such series according to the terms of the Debt Securities of such series and the provisions of Section 3.7; and provided further, that exchanges of Bearer Securities shall be made only and installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Capital Exchange Date shall be payable only at an office or agency located outside the United States except as otherwise provided in Section 10.2 and, unless otherwise specified as contemplated by Section 3.1, only upon presentation and surrender of those Bearer Securities and coupons.
     If any Bearer Security surrendered for exchange shall not be accompanied by all unmatured coupons and all matured coupons in default, such Bearer Security may be paid after deducting from the Capital Exchange Price an amount equal to the face amount of all missing coupons, or the surrender of such missing coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Capital Exchange Agent harmless. If thereafter the Holder of such Bearer Security shall surrender to the Trustee or Capital Exchange Agent any such missing coupon in respect of which a deduction shall have been made from the Capital Exchange Price, such Holder shall be entitled to receive the amount so deducted without interest thereon; provided, however, that interest on Bearer Securities shall be payable only at an office or agency located outside of the United States except as otherwise provided in Section 10.2.
     If any Debt Security of any series called for exchange shall not be so paid or exchanged upon surrender thereof for exchange, the principal shall, until paid, bear interest from such Capital Exchange Date at the rate or rates prescribed therefor in such Debt Security; provided, however, that in the case of Bearer Securities, any such principal and interest thereon shall be paid at an office or agency located outside the United States except as otherwise provided in Section 10.2.
     Any Registered Security which is to be exchanged only in part shall be surrendered as provided herein (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder or his attorney duly authorized in writing) and the Company shall execute, the Trustee shall authenticate and there shall be delivered to the Holder of such Debt Security without service charge a new Registered Security or Securities of the same series, of any

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authorized denomination or denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unexchanged portion of principal of the Debt Security so surrendered.
     Any Bearer Security which is to be exchanged only in part shall be surrendered as provided herein and the Company shall execute, the Trustee shall authenticate and there shall be delivered to the Holder of such Debt Security without service charge a new Registered Security or Securities or new Bearer Security or Securities (and all appurtenant unmatured coupons and coupons in default) or any combination thereof of the same series, of any surrendered denomination or denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unexchanged portion of principal of the Debt Security so surrendered; provided, however, the issuance of a Registered Security therefor shall be subject to applicable laws and regulations, including provisions of the United States federal income tax laws and regulations in effect at the time of the exchange; neither the Company, the Trustee nor the Security Registrar shall issue Registered Securities in exchange for Bearer Securities if it has received an Opinion of Counsel that as a result of such exchanges the Company would suffer adverse consequences under the United States Federal income tax laws then in effect and the Company has delivered to the Trustee a Company Order directing the Trustee not to make such exchanges thereafter unless and until the Company delivers to the Trustee a subsequent Company Order to the contrary. The Company shall deliver copies of such Company Orders to the Security Registrar.
     Section 14.9 Form of Capital Security Election Form.
     The form of Capital Security Election Form shall be substantially as follows with such additions, deletions or changes thereto as may be approved by the Company:
CAPITAL SECURITY ELECTION FORM
To:   [Insert Names and Address of
Capital Exchange Agents]
     The undersigned Holder of [insert title of Debt Security] (“Debt Securities”) of Superior Bancorp hereby elects to receive on the Capital Exchange Date determined pursuant to the Indenture dated as of December 11, 2009 (“Indenture”), between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A., as Trustee, and referred to in the notice of exchange published or delivered to the undersigned with this Capital Security Election Form, Capital Securities of Superior Bancorp with a Market Value equal to the principal amount of the Debt Securities being exchanged owned by the undersigned Holder and, in the case of Bearer Securities, delivered herewith together with all coupons appertaining thereto. Unless this Capital Security Election Form together with, in the case of Bearer Securities, such Bearer Securities and coupons, is received by any Capital Exchange Agent named above at an address shown above on or prior to                                         , the Holder will be deemed to have elected to participate in the sale of the Holder’s Capital Securities in the Secondary Offering and will receive cash on the Capital Exchange Date in an amount equal to the principal amount of all

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Debt Securities being exchanged owned by the Holder. All terms used herein and not otherwise defined herein shall have the meanings specified in the Indenture.
Dated:                                                            
                                                                             
Name of Holder                         
     Section 14.10 Fractional Capital Securities.
     No fractional Capital Securities shall be issued upon exchange for any Debt Securities. If more than one Debt Security of any series shall be surrendered for exchange at one time by the same Holder, the amount of all Capital Securities which shall be issuable upon exchange thereof shall be computed on the basis of the aggregate principal amount of Debt Securities of such series so surrendered. In lieu of issuing any fractional Capital Security, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Market Value of the Capital Security.
     Section 14.11 Company to Obtain Governmental and Regulatory Approvals.
     The Company covenants that if any Capital Securities required to be exchanged for Debt Securities hereunder require registration with or approval of any governmental authority under any federal or state law, or any national securities exchange, before such Capital Securities may be issued, the Company will in good faith and as expeditiously as possible endeavor to cause such Capital Securities to be duly registered or approved, as the case may be; provided, however, that nothing in this Section shall be deemed to affect in any way the obligation of the Company to exchange Capital Securities for Debt Securities as provided in this Article.
     Section 14.12 Taxes on Exchange.
     The Company will pay any and all transfer, stamp or similar taxes that may be payable in respect of the issue or delivery of Capital Securities in exchange for Debt Securities pursuant hereto.
     Section 14.13 Covenants as to Capital Securities and Secondary Offering.
     (a) The Company covenants that it will issue, or cause to be issued, Capital Securities of the type, in the amounts and at the times required by this Indenture.
     (b) The Company covenants that all Capital Securities which may be issued in exchange for Debt Securities will upon issuance be duly and validly issued and, if applicable, fully paid and nonassessable.
     (c) The Company unconditionally undertakes to sell Capital Securities in each Secondary Offering (and to bear all expenses of each Secondary Offering, including underwriting discounts and commissions) at the times and in the manner required by this

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Indenture unless all Holders have duly elected to receive Capital Securities on the related Capital Exchange Date.
     (d) The Company agrees to indemnify and hold harmless in connection with any Secondary Offering any Holder for the account of whom Capital Securities are being offered and sold from and against any and all losses, claims, damages and liabilities resulting from or based upon any untrue statement or alleged untrue statement of any material fact contained in any notice of exchange, any offering memorandum or selling document or registration statement relating to the Secondary Offering, any preliminary prospectus or prospectus contained therein, or any amendment thereof or supplement thereto, or resulting from or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or resulting from the Company’s failure to comply with Section 14.11; provided, however, the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement, alleged untrue statement, omission or alleged omission made therein (i) in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such Holder specifically for use in connection with the preparation thereof or (ii) because of such Holder’s failure to advise the Company in writing that any of the assumptions described in Section 14.4(a)(vii)(A) is incorrect. In connection with any Secondary Offering, the Company agrees to obtain appropriate indemnification of any Holder for the account of whom Capital Securities are being offered and sold in any Secondary Offering from any underwriter, agent or other similar person.
     Section 14.14 Provision in Case of Consolidation, Merger or Transfer of Assets.
     In case of any consolidation of the Company with, or merger of the Company into, any other corporation (other than a consolidation or merger in which the Company is the continuing corporation), or in case of any conveyance or transfer of the properties and assets of the Company substantially as an entirety, the corporation formed by such consideration or the corporation into which the Company shall have been merged or the corporation which shall have acquired such assets of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Debt Security then Outstanding shall have the right thereafter to receive securities of such successor on the Capital Exchange Date for such Debt Security with a Market Value equal to the principal amount of such Debt Security. The above provisions of this Section shall similarly apply to successive consolidations, mergers, conveyances or transfers.
     Section 14.15 Trustee Not Responsible.
     The Trustee shall not at any time be under any duty or responsibility to any Holder of Debt Securities of any series to be exchanged to determine the Market Value of any Capital Securities delivered in exchange for Debt Securities of such series and may rely on and shall be given prior to any Capital Exchange Date for Debt Securities of such series an Officers’ Certificate of the Company as to the Market Value of the Capital Securities being exchanged for the Debt Securities of such series and the amount of Capital Securities being exchanged for each $1,000 principal amount of Debt Securities of such series or the minimum denomination of such

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series, if larger, and that such Capital Securities qualify as Capital Securities under the definition thereof contained herein. The Trustee shall not be accountable with respect to the validity or value (or the kind or amount) of any Capital Securities which may at any time be issued or delivered in exchange for any Debt Security; and the Trustee does not make any representation with respect thereto. The Trustee shall not be responsible for any failure of the Company to issue, transfer or deliver any Capital Securities or Capital Security certificates or other securities or property upon the surrender of any Debt Security for the purpose of exchange or to comply with any of the covenants of the Company contained in this Article.
     Section 14.16 Revocation of Obligation to Exchange Capital Securities for Debt Securities.
     The Company’s obligations to exchange Capital Securities for Debt Securities of any series as provided in Section 14.2 is absolute and unconditional; provided, however, that such obligation may be revoked at the option of the Company at any time on not less than 60 days’ prior notice given in the manner provided in Section 1.6 to the Holders of Debt Securities of such series, the Trustee and the Capital Exchange Agent, if the Company shall determine that under regulations then in effect of the Company’s Primary Federal Regulator either the Debt Securities are no longer includable as capital or it is no longer necessary for the Company to be obligated to exchange Capital Securities for Debt Securities in order for the Debt Securities to maintain the same capital treatment as they are then receiving under the regulations or if approval of the Primary Federal Regulator is obtained for such revocation.
     In the event such obligation is revoked
     (a) the Company will pay the Debt Securities of such series in cash at 100% of the principal amount thereof on the Stated Maturity thereof, and
     (b) the Company may, at any time on or after a date selected by the Company, on not less than 60 days’ prior notice given in the manner provided in Section 1.6 to the Holders of Debt Securities of such series and the Trustee, redeem the Debt Securities of such series, in whole or in part, for cash at 100% of the principal amount thereof, plus accrued interest to the Redemption Date.
     Section 14.17 Optional Securities Funds.
(a) (i) With respect to Debt Securities of any series for which an Officers’ Certificate or supplemental indenture pursuant to Section 3.1 provides that the Debt Securities of such series are exchangeable for Capital Securities, the Company may elect to establish a fund (referred to herein as the “Optional Securities Funds"} to which funds may at any time be designated by the Company as provided in Section 15.2 as if such Optional Securities Funds were Securities Funds (as defined in Article XV) to be used to pay the principal of the Debt Securities of such series.

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     (ii) Notwithstanding any provisions to the contrary contained in this Indenture or in the Debt Securities of any series, neither funds designated as Optional Securities Funds nor any other property from time to time held as Optional Securities Funds shall be deemed to be for any purpose property of the Holders or trust funds for the benefit of the Holders, and the Optional Securities Funds shall not constitute security for the payment of the Debt Securities.
     (b) In lieu of, or in addition to, any exchange of Capital Securities for Debt Securities of any series which may be made in accordance with the provisions of Sections 14.2 and 14.3, the Company may elect to redeem the Debt Securities of such series in accordance with the provisions of Section 11.6 and the terms of the Debt Securities of each series, in whole or in part, by paying the principal of such Debt Securities with funds designated as Optional Securities Funds at a price equal to the percentage of the principal amount established in the terms of the Debt Securities of such series on the Redemption Date of the Debt Securities to be so redeemed, and (except if such Redemption Date shall be an Interest Payment Date) by paying accrued interest on such Debt Securities. If such Redemption Date is an Interest Payment Date, the interest payable on such date shall be paid to the Holder of Debt Securities of such series according to the terms of the Debt Securities of such series and the provisions of Section 3.7.
     (c) The Company shall give notice of such proposed redemption in the manner provided in Section 1.6 to the Holders of the Debt Securities of such series within the time prescribed for the giving of the initial notice in Section 14.2 or 14.3, depending upon the Redemption Date selected by the Company. Such notice shall state the Redemption Date and the place or places where the Debt Securities of the series to be paid are to be surrendered for payment; provided, however, if such redemption is of less than all of the Debt Securities of such series and is to be made on a Capital Exchange Date specified in accordance with Section 14.2 or 14.3, then such notice may be incorporated into any initial notice of such Capital Exchange Date and provided that no notice of any redemption may be given unless there are sufficient Optional Securities Funds to pay the principal amount of the Debt Securities to be redeemed.
     (d) If less than all the Debt Securities of any series are to be so redeemed, then Sections 14.4(a)(v) and 14.8 shall apply to the redemption in the same manner as if such Debt Securities were to be exchanged for Capital Securities.
     (e) Funds designated as Optional Securities Funds shall be released from such designation under the circumstances described in Section 15.3.
ARTICLE XV
SECURITIES FUNDS
     Section 15.1 Creation of Securities Funds.
     A fund (the “Securities Funds”) will be established when specified in an Officers’ Certificate or supplemental indenture pursuant to Section 3.1 for the Debt Securities of any series

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pursuant to which funds may be designated by the Company as provided in Section 15.2, to be used to pay the principal of the Debt Securities of that series.
     Notwithstanding any provision to the contrary contained in this Indenture or in the Debt Securities of any series, neither funds designated as Securities Funds nor any other property from time to time held as Securities Funds shall be deemed to be for any purpose property of the Holders or trust funds for the benefit of the Holders, and the Securities Funds shall not constitute security for the payment of the Debt Securities.
     Section 15.2 Designations of Securities Funds.
     The Securities Funds will consist of amounts equal to (i) the net proceeds of the sale of Capital Securities for cash from time to time after the date of initial issuance of the Debt Securities of any series for which funds may be designated by the Company as provided in this Section, and (ii) the market value, as determined by the Company, of Capital Securities sold from time to time after the date of initial issuance of the Debt Securities of such series in exchange for other property, less the expenses to effect any such exchanges, and (iii) other funds which the regulations of the Primary Federal Regulator then permit for the payment of principal of “mandatory convertible securities (equity commitment notes)” as defined in such regulations; provided that (x) the Company has designated such amounts as Securities Funds on its books and records in the manner required by the Primary Federal Regulator, and (y) there shall be deducted from the Securities Funds an amount equal to the amount of any funds used to redeem or repay the Debt Securities of such series for which Securities Funds are required to be designated or any similar securities.
     Section 15.3 Covenant of the Company to Obtain Securities Funds.
     Notwithstanding anything else contained herein, the Company hereby covenants and agrees that with regard to the Debt Securities of any series which by its terms requires the designation of Securities Funds (i) by the Interest Payment Date which occurs on or next preceding the date when one-third of the period from the date of issuance of the Debt Securities of such series to their Stated Maturity has elapsed, it will have obtained Securities Funds in an amount that will equal at least one-third of the original aggregate principal amount of the Debt Securities of such series (or such lesser amount as the Primary Federal Regulator may permit from time to time) and will have prepared and delivered to the Trustee an Officers’ Certificate to the foregoing effect, (ii) by the Interest Payment Date which occurs on or next preceding the date when two-thirds of the period from the date of issuance of the Debt Securities of such series to their Stated Maturity has elapsed, it will have obtained Securities Funds in an amount that will equal at least two-thirds of the original aggregate principal amount of the Debt Securities of such series (or such lesser amount as the Primary Federal Regulator may permit from time to time) and will have prepared and delivered to the Trustee an Officers’ Certificate to the foregoing effect, and (iii) by 60 days prior to the Stated Maturity of the Debt Securities of such series, it will have obtained Securities Funds in an amount that will equal not less than the original aggregate principal amount of the Debt Securities of such series (or such lesser amount as the Primary Federal Regulator may permit from time to time) and will have prepared and delivered to the Trustee an Officers’ Certificate to the foregoing effect; provided, however, that such

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covenant and agreement of the Company shall be cancelled and amounts theretofore designated as Securities Funds will be released from such designation in the event and to the extent that the Company shall determine that under the regulations of the Company’s Primary Federal Regulator either the Debt Securities are no longer includable as capital or it is no longer necessary for the Company to be obligated to pay the principal of the Debt Securities out of Securities Funds in order for the Debt Securities to maintain the same capital treatment as they are then receiving under such regulations, in the event and to the extent that approval of the Primary Federal Regulator is obtained for such cancellation and release or in the event and to the extent that the Company shall have exchanged or redeemed such Debt Securities pursuant to the terms of such Debt Securities of such series from a source other than amounts designated as Securities Funds.
ARTICLE XVI
MEETINGS OF HOLDERS OF DEBT SECURITIES
     Section 16.1 Purposes for Which Meetings May Be Called.
     If Debt Securities of a series are issuable in whole or in part as Bearer Securities, a meeting of Holders of Debt Securities of such series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other Act provided by this Indenture to be made, given or taken by Holders of Debt Securities of such series.
     Section 16.2 Call, Notice and Place of Meetings.
     (a) The Trustee may at any time call a meeting of Holders of Debt Securities of any series issuable as Bearer Securities for any purpose specified in Section 16.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, or in Birmingham, Alabama, as the Trustee shall determine. Notice of every meeting of Holders of Debt Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting.
     (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Debt Securities of any series shall have requested the Trustee to call a meeting of the Holders of Debt Securities of such series for any purpose specified in Section 16.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Debt Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, For such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section.

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     Section 16.3 Persons Entitled to Vote at Meetings.
     To be entitled to vote at any meeting of Holders of Debt Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Debt Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Debt Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Debt Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
     Section 16.4 Quorum; Action.
     The Persons entitled to vote a majority in principal amount of the Outstanding Debt Securities of a series shall constitute a quorum for a meeting of Holders of Debt Securities of such series. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Debt Securities of such series, be dissolved. In the absence of a quorum in any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairperson of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairperson of the meeting prior to the adjournment of such adjourned meeting. Notice of this reconvening of any adjourned meeting shall be given as provided in Section 16.2(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Debt Securities of such series which shall constitute a quorum.
     Except as limited by the proviso to Section 9.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of majority in principal amount of the Outstanding Debt Securities of that series, provided however, that, except as limited by the proviso to Section 9.2, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other Act which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Debt Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Debt Securities of that series.
     Any resolution passed or decision taken at any meeting of Holders of Debt Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Debt Securities of such series and the related coupons, whether or not present or represented at the meeting.

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     Section 16.5 Determination of Voting Rights; Conduct and Adjournment of Meetings.
     (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Debt Securities of such series in regard to proof of the holding of Debt Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Debt Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4 or, in the case of Bearer Securities, by having the signature of the person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 1.4 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.4 or other proof.
     (b) The Trustee shall, by an instrument in writing, appoint a temporary chairperson of the meeting, unless the meeting shall have been called by the Company or by Holders of Debt Securities as provided in Section 16.2(b), in which case the Company or the Holders of Debt Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairperson. A permanent chairperson and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Debt Securities of such series represented at the meeting.
     (c) At any meeting each Holder of a Debt Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount (or the equivalent in Euro, any other composite currency or a Foreign Currency) of Debt Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Debt Security challenged as not Outstanding and ruled by the chairperson of the meeting not to be Outstanding. The chairperson of the meeting shall have no right to vote, except as a Holder of a Debt Security of such series or proxy.
     (d) Any meeting of Holders of Debt Securities of any series duly called pursuant to Section 16.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Debt Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice.
     Section 16.6 Counting Votes and Recording Action of Meetings.
     The vote upon any resolution submitted to any meeting of Holders of Debt Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Debt Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Debt Securities of such series held or represented by them. The permanent chairperson of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the

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secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate, of the proceedings of each meeting of Holders of Debt Securities of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 16.2 and, if applicable, Section 16.1. Each copy shall be signed and verified by the affidavits of the permanent chairperson and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.
ARTICLE XVII
DEFEASANCE
     Section 17.1 Termination of Company’s Obligations.
     If this Section 17.1 is specified, as contemplated by Section 3.1, to be applicable to any series of Debt Securities and if the Company deposits irrevocably in trust with the Trustee money and/or, to the extent such Debt Securities are denominated and payable in Dollars only, Eligible Instruments the payments of principal and interest on which when due (and without reinvestment and providing no tax liability will be imposed upon the Trustee or the Holders of such Debt Securities) will provide money in such amounts as will (together with any money irrevocably deposited in trust with the Trustee, without investment) be sufficient to pay the principal of (and premium, if any) and any installment of principal of (and premium, if any) or interest (including any Additional Interest) when due on the Debt Securities of such series and any coupons appertaining thereto and any mandatory sinking fund, repayment or analogous payments thereon on the scheduled due dates therefor at the Stated Maturity thereof, the Company’s obligations under any covenant determined pursuant to Section 3.1 to be subject to this Section shall terminate with respect to the Debt Securities of the series for which such deposit was made; provided, however, that (i) no Event of Default with respect to the Debt Securities of such series under Section 5.1(f) or Section 5.1(g) or event that with notice or lapse of time or both would constitute such an Event of Default shall have occurred and be continuing on such date, (ii) such deposit will not result in a breach of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound, and (iii) such termination shall not relieve the Company of its obligations under the Debt Securities of such series and this Indenture to pay when due the principal of (and premium, if any) and interest (including any Additional Interest) and additional amounts on such Debt Securities and any coupons appertaining thereto if such Debt Securities or coupons are not paid (or payment is not provided for) when due from the money and Eligible Instruments (and the proceeds thereof) so deposited.
     It shall be a condition to the deposit of cash and/or Eligible Instruments and the termination of the Company’s obligations pursuant to the provisions of this Section with respect to the Debt Securities of any series under any covenant determined pursuant to Section 3.1 to be

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subject to this Section that the Company deliver to the Trustee (i) an Opinion of Counsel to the effect that: (a) Holders of Debt Securities of such series and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and termination and (b) such Holders (and future Holders) will be subject to tax in the same amount, manner and timing as if such deposit and termination had not occurred, (ii) an Officers’ Certificate to the effect that under the laws in effect on the date such money and/or Eligible Instruments are deposited with the Trustee, the amount thereof will be sufficient, after payment of all Federal, state and local taxes in respect thereof payable by the Trustee, to pay principal (and premium, if any) and interest (including any Additional Interest) when due on the Debt Securities of such series and any coupons appertaining thereto; and (iii) an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the defeasance contemplated in this Section have been complied with.
     It shall be an additional condition to the deposit of cash and/or Eligible Instruments and the termination of the Company’s obligations pursuant to the provisions of this Section under any covenant determined pursuant to Section 3.1 to be subject to this Section, with respect to the Debt Securities of any series then listed on the New York Stock Exchange, that the Company deliver an Opinion of Counsel that the Debt Securities of such series will not be delisted from the New York Stock Exchange as a result of such deposit and termination.
     After a deposit as provided herein, the Trustee shall, upon Company Request, acknowledge in writing the discharge of the Company’s obligations pursuant to the provisions of this Section with respect to the Debt Securities of such series under any covenant determined pursuant to Section 3.1 to be subject to this Section.
     Section 17.2 Repayment to Company.
     The Trustee and any Paying Agent shall promptly pay to the Company upon Company Request any money or Eligible Instruments not required for the payment of the principal of (and premium, if any) and interest (including any Additional Interest) on the Debt Securities of any series and any related coupons for which money or Eligible Instruments have been deposited pursuant to Section 17.1 held by them at any time.
     The Trustee and any Paying Agent shall promptly pay to the Company upon Company Request any money held by them for the payment of principal (and premium, if any) and interest (including any Additional Interest) that remains unclaimed for two years after the Maturity of the Debt Securities for which a deposit has been made pursuant to Section 17.1. After such payment to the Company, the Holders of the Debt Securities of such series and any related coupons shall thereafter, as unsecured general creditors, look only to the Company for the payment thereof.
     Section 17.3 Indemnity for Eligible Instruments.
     The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the deposited Eligible Instruments or the principal or interest received on such Eligible Instruments.

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ARTICLE XVIII
SUBORDINATION OF DEBT SECURITIES
     Section 18.1 Debt Securities Subordinate to Senior Debt.
     The Company covenants and agrees that anything in this Indenture or the Debt Securities of any series to the contrary notwithstanding, the indebtedness evidenced by the Debt Securities of each series and any coupons appurtenant thereto is subordinate and junior in right of payment to all Senior Debt to the extent provided herein and shall be pari passu with all Trust Related Securities, and each Holder of Debt Securities of each series and coupons appurtenant thereto, by such Holder’s acceptance thereof, likewise covenants and agrees to the subordination herein provided and shall be bound by the provisions hereof. Senior Debt shall continue to be Senior Debt and entitled to the benefits of these subordination provisions irrespective of any amendment, modification or waiver of any term of the Senior Debt or extension or renewal of the Senior Debt.
     In the event of
     (a) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company, its creditors or its property,
     (b) any proceeding for the liquidation, dissolution or other winding up of the Company, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings,
     (c) any assignment by the Company for the benefit of creditors, or
     (d) any other marshalling of the assets of the Company,
all Senior Debt (including any interest thereon accruing after the commencement of any such proceedings) shall first be paid in full before any payment or distribution, whether in cash, securities or other property, shall be made to any Holder of any of the Debt Securities or coupons appurtenant thereto on account thereof. Any payment or distribution, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in these subordination provisions with respect to the indebtedness evidenced by the Debt Securities, to the payment of all Senior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for these subordination provisions) be payable or deliverable in respect of the Debt Securities of any series or coupons appurtenant thereto shall be paid or delivered directly to the holders of Senior Debt in accordance with the priorities then existing among such holders until all Senior Debt (including any interest thereon accruing after the commencement of any such proceedings) shall have been paid in full. In the event of any such proceeding, after payment in full of all sums owing with respect to Senior Debt, the Holders of the Debt Securities and coupons appurtenant thereto, together with the holders of any obligations of the Company

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ranking on a parity with the Debt Securities, shall be entitled to be paid from the remaining assets of the Company the amounts at the time due and owing on account of unpaid principal of (and premium, if any) and interest on the Debt Securities and such other obligations before any payment or other distribution, whether in cash, property or otherwise, shall be made on account of any capital stock or any obligations of the Company ranking junior to the Debt Securities and such other obligations.
     In the event that, notwithstanding the foregoing, any payment or distribution of any character or any security, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in these subordination provisions with respect to the indebtedness evidenced by the Debt Securities, to the payment of all Senior Debt at the time outstanding and to any securities issued in respect thereof under any such plan or reorganization or readjustment), shall be received by the Trustee or any Holder in contravention of any of the terms hereof such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Debt at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all such Senior Debt in full. In the event of the failure of the Trustee or any Holder to endorse or assign any such payment, distribution or security, each holder of Senior Debt is hereby irrevocably authorized to endorse or assign the same.
     No present or future holder of any Senior Debt shall be prejudiced in the right to enforce subordination of the indebtedness evidenced by the Debt Securities by any act or failure to act on the part of the Company. Nothing contained herein shall impair, as between the Company and the Holders of Debt Securities of each series, the obligation of the Company to pay to such Holders the principal of (and premium, if any) and interest (including any Additional Interest) on such Debt Securities and coupons appurtenant thereto or prevent the Trustee or the Holder (or to the extent expressly provided herein, the holder of any Capital Trust Securities) from exercising all rights, powers and remedies otherwise permitted by applicable law or hereunder upon a default or Event of Default hereunder, all subject to the rights of the holders of the Senior Debt to receive cash, securities or other property otherwise payable or deliverable to the Holders.
     Senior Debt shall not be deemed to have been paid in full unless the holders thereof shall have received cash, securities or other property equal to the amount of such Senior Debt then outstanding. Upon the payment in full of all Senior Debt, the Holders of Debt Securities of each series and coupons appurtenant thereto, if any, shall be subrogated to all rights of any holders of Senior Debt to receive any further payments or distributions applicable to the Senior Debt until the indebtedness evidenced by the Debt Securities of such series and coupons appertaining thereto, if any, shall have been paid in full, and such payments or distributions received by such Holders, by reason of such subrogation, of cash, securities or other property which otherwise would be paid or distributed to the holders of Senior Debt shall, as between the Company and its creditors other than the holders of Senior Debt, on the one hand, and such Holders, on the other hand, be deemed to be a payment by the Company on account of Senior Debt, and not on account of the Debt Securities of such series.

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     The Trustee and Holders will take such action (including, without limitation, the delivery of this Indenture to an agent for the holders of Senior Debt or consent to the filing of a financing statement with respect hereto) as may, in the opinion of counsel designated by the holders of a majority in principal amount of the Senior Debt at the time outstanding, be reasonably necessary or appropriate to assure the effectiveness of the subordination effected by these provisions.
     The provisions of this Section 18.1 shall not impair any rights, interests, remedies or powers of any secured creditor of the Company in respect of any security interest the creation of which is not prohibited by the provisions of this Indenture.
     Section 18.2 Trustee and Holders of Debt Securities May Rely on Certificate of Liquidating Agent; Trustee May Require Further Evidence as to Ownership of Senior Debt; Trustee Not Fiduciary to Holders of Senior Debt.
     Upon any payment or distribution of assets of the Company referred to in this Article XVIII, the Trustee and the Holders shall be entitled to rely upon an order or decree made by any court of competent jurisdiction in which such dissolution or winding up or liquidation or reorganization or arrangement proceedings are pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XVIII. In the absence of any such bankruptcy trustee, receiver, assignee or other Person, the Trustee shall be entitled to rely upon a written notice by a Person representing himself or herself to be a holder of Senior Debt (or a trustee or representative on behalf of such holder) as evidence that such Person is a holder of such Senior Debt (or is such a trustee or representative). In the event that the Trustee determines, in good faith, that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payments or distributions pursuant to this Article XVIII, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, as to the extent to which such Person is entitled to participate in such payment or distribution, and as to other facts pertinent to the rights of such Person under this Article XVIII, and if such evidence is not furnished, the Trustee may offer any payment to such Person pending judicial determination as to the right of such Person to receive payment. The Trustee, however, shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Debt Securities or to the Company or to any other person cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article or otherwise; provided, however, that such cash, property or securities shall not be deemed to have been paid or distributed to the holder of Debt Securities or to the Company or to any other person until such time as the holders of Debt Securities or the Company or any other person have actually received such cash, property or securities. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article and no implied covenants or obligations with respect to holders of Senior Debt shall be read into this Indenture against the Trustee.

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     Section 18.3 Payment Permitted If No Default.
     Nothing contained in this Article XVIII or elsewhere in this Indenture, or in any of the Debt Securities, shall prevent (a) the Company at any time, except during the pendency of any dissolution, winding up, liquidation or reorganization proceedings referred to in Section 18.1, from making payments of the principal of (or premium, if any) or interest (including any Additional Interest) on the Debt Securities or (b) the application by the Trustee or any Paying Agent of any moneys deposited with it hereunder to payments of the principal of or interest (including any Additional Interest) on the Debt Securities, if, at the time of such deposit, the Trustee or such Paying Agent, as the case may be, did not have the written notice provided for in Section 18.4 of any event prohibiting the making of such deposit, or if, at the time of such deposit (whether or not in trust) by the Company with the Trustee or any Paying Agent (other than the Company) such payment would not have been prohibited by the provisions of this Article, and the Trustee or any Paying Agent shall not be affected by any notice to the contrary received by it on or after such date.
     Section 18.4 Trustee Not Charged with Knowledge of Prohibition.
     Anything in this Article XVIII or elsewhere in this Indenture contained to the contrary notwithstanding, the Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment of money to or by the Trustee and shall be entitled conclusively to assume that no such facts exist and that no event specified in Section 18.1 has happened, until the Trustee shall have received an Officers’ Certificate to that effect or notice in writing to that effect signed by or on behalf of the holder or holders, or their representatives, of Senior Debt who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder or holders or representatives or from any trustee under any indenture pursuant to which such Senior Debt shall be outstanding. The Company shall give prompt written notice to the Trustee and to the Paying Agent of any facts which would prohibit the payment of money to or by the Trustee or any Paying Agent.
     Section 18.5 Trustee to Effectuate Subordination.
     Each Holder of Debt Securities or coupons by such Holder’s acceptance thereof authorizes and directs the Trustee in such Holder’s behalf to take such action as may be necessary or appropriate to effectuate the subordination as between such Holder and holders of Senior Debt as provided in this Article and appoints the Trustee its attorney-in-fact for any and all such purposes.
     Section 18.6 Rights of Trustee as Holder of Senior Debt.
     The Trustee shall be entitled to all the rights set forth in this Article with respect to any Senior Debt which may at the time be held by it, to the same extent as any other holder of Senior Debt; provided that nothing in this Article shall deprive the Trustee of any rights as such holder

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and provided further that nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7.
     Section 18.7 Article Applicable to Paying Agents.
     In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term “Trustee” as used in this Article shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if the Paying Agent were named in this Article in addition to or in place of the Trustee, provided, however, that Sections 18.4 and 18.6 shall not apply to the Company or any Affiliate of the Company if the Company or such Affiliate acts as Paying Agent.
     Section 18.8 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt.
     No right of any present or future holders of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Debt may, at any time or from time to time and in their absolute discretion, change the manner, place or terms of payment, change or extend the time of payment of, or renew or alter, any such Senior Debt, or amend or supplement any instrument pursuant to which any such Senior Debt is issued or by which it may be secured, or release any security therefor, or exercise or refrain from exercising any other of their rights under the Senior Debt including, without limitation, the waiver of default thereunder, all without notice to or assent from the Holders of the Debt Securities or the Trustee and without affecting the obligations of the Company, the Trustee or the Holders of the Debt Securities under this Article.
ARTICLE XIX
CONVERSION OF CONVERTIBLE SECURITIES
     Section 19.1 Applicability of Article.
     If an Officers’ Certificate or supplemental indenture pursuant to Section 3.1 provides that the Debt Securities of a series shall be Convertible Securities, Debt Securities of such series shall be convertible in accordance with their terms and (except as otherwise specified in such Officers’ Certificate or supplemental indenture) in accordance with this Article.
     Section 19.2 Right to Convert.
     Subject to and upon compliance with the provisions of this Article, the Holder of any Convertible Security shall have the right, at such Holder’s option, at any time prior to the close of business on the date set forth in the Officers’ Certificate delivered pursuant to Section 3.1 hereof

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(or if such Convertible Security is called for redemption or submitted for repayment, then in respect of such Convertible Security to and including but not after the close of business on the Redemption or Repayment Date, as the case may be, unless the Company shall default in the payment due) to convert the principal amount of any such Convertible Security, or, in the case of any Convertible Security of a denomination greater than $1,000, any portion of such principal which is $1,000 or an integral multiple thereof, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of the Convertible Security or portion thereof surrendered for conversion by the Conversion Price, by surrender of the Convertible Security so to be converted in whole or in part in the manner provided in Section 19.3. Such conversion shall be effected by the Company.
     Section 19.3 Exercise of Conversion Privilege; Delivery of Common Stock on Conversion; No Adjustment for Interest or Dividends.
     In order to exercise the conversion privilege, the Holder of any Convertible Security to be converted in whole or in part shall surrender such Convertible Security at an office or agency maintained by the Company pursuant to Section 10.2, accompanied by the funds, if any, required by the last paragraph of this Section, together with written notice of conversion, in the form provided on the Convertible Securities, that the Holder elects to convert such Convertible Security or the portion thereof specified in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be deliverable on such conversion shall be registered, and shall be accompanied by transfer taxes, if required pursuant to Section 19.8. Each Convertible Security surrendered for conversion shall, unless the shares deliverable on conversion are to be registered in the same name as the registration of such Convertible Security, be duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the Holder or such Holder’s duly authorized attorney.
     As promptly as practicable after the surrender of such Convertible Security and the receipt of such notice and funds, if any, as aforesaid, the Company shall deliver at such office or agency to such Holder, or on such Holder’s written order, a certificate or certificates for the number of full shares deliverable upon the conversion of such Convertible Security or portion thereof in accordance with the provisions of this Article and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion as provided in Section 19.4. In case any Convertible Security of a denomination greater than $1,000 shall be surrendered for partial conversion and subject to Section 3.2, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Convertible Security so surrendered, without charge to such Holder, a new Convertible Security or Convertible Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Convertible Security.
     Each conversion shall be deemed to have been effected on the date on which such Convertible Security shall have been surrendered (accompanied by the funds, if any, required by the last paragraph of this Section) and such notice shall have been received by the Company, as aforesaid, and the person in whose name any certificate or certificates for shares of Common Stock shall be registrable upon such conversion shall be deemed to have become on said date the

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holder of record of the shares represented thereby; provided however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be registered as the record holder thereof for all purposes on the next succeeding day on which stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Convertible Security shall have been surrendered.
     Any Convertible Security or portion thereof surrendered for conversion during the period from the close of business on the Regular Record Date for any Interest Payment Date to the opening of business on such Interest Payment Date shall (unless such Convertible Security or portion thereof being converted shall have been called for redemption or submitted for repayment on a date in such period) be accompanied by payment, in legal tender or other funds acceptable to the Company, of an amount equal to the interest otherwise payable on such Interest Payment Date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Convertible Securities. An amount equal to such payment shall be paid by the Company on such Interest Payment Date to the Holder of such Convertible Security on such Regular Record Date, provided, however, that if the Company shall default in the payment of interest on such Interest Payment Date, such amount shall be paid to the person who made such required payment. Except as provided above in this Section, no adjustment shall be made for interest accrued on any Convertible Security converted or for dividends on any shares issued upon the conversion of such Convertible Security as provided in this Article.
     Section 19.4 Cash Payments in Lieu of Fractional Shares.
     No fractional shares of Common Stock or scrip representing fractional shares shall be delivered upon conversion of Convertible Securities. If more than one Convertible Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the Convertible Securities (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be deliverable upon the conversion of any Convertible Security or Convertible Securities, the Company shall make an adjustment therefor in cash at the current market value of such fractional share of stock. The market value of a share of Common Stock shall be the Closing Price on the Business Day immediately preceding the day on which the Convertible Securities (or specified portions thereof) are deemed to have been converted.
     Section 19.5 Conversion Price.
     The Conversion Price shall be as specified in the form of Convertible Security hereinabove set forth, subject to adjustment as provided in this Article.

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     Section 19.6 Adjustment to Conversion Price.
     The Conversion Price shall be adjusted from time to time as follows:
     (a) in case the Company shall (i) pay a dividend or make a distribution on the Common Stock in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class), (ii) subdivide or reclassify its outstanding Common Stock into a greater number of securities (including Common Stock), or (iii) combine or reclassify its outstanding Common Stock into a smaller number of securities (including Common Stock), the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of any Convertible Security thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Company which such Holder would have owned or have been entitled to receive after the happening of any of the events described above had such Convertible Security been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision or combination. If, as a result of an adjustment made pursuant to this subsection (a), the Holder of any Convertible Security thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company (whose determination shall be conclusive and shall be described in a written statement filed with the Trustee and any conversion agent) shall determine the allocation of the adjusted Conversion Price between or among shares of such classes of capital stock.
     In the event that at any time, as a result of an adjustment made pursuant to this subsection (a) of this Section 19.6, the Holder of any Convertible Security thereafter converted shall become entitled to receive any shares or other securities of the Company other than shares of Common Stock, thereafter the number of such other shares so received upon conversion of any Convertible Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 19.6, and other provisions of this Article XIX with respect to the shares of Common Stock shall apply on like terms to any such other shares or other securities.
     (b) In case the Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock (or securities convertible into Common Stock) entitling them (for a period expiring within 45 days after such record date) to subscribe for or purchase Common Stock at a price per share (or a conversion price per share) less than the current market price per share of Common Stock (as defined in subsection (d) below) at such record date, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares so offered (or the aggregate initial conversion price of the convertible securities so offered) would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are initially convertible). Such adjustment shall

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be made successively whenever such a record date is fixed, and shall become effective immediately after such record date. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such current market price, and in determining the aggregate offering price of such shares, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors of the Company. Common Stock owned by or held for the account of the Company or any majority owned subsidiary shall not be deemed outstanding for the purpose of any adjustment required under this subsection (b).
     (c) In case the Company shall fix a record date for making a distribution to all holders of its Common Stock evidences of its indebtedness or assets (excluding regular quarterly or other periodic or recurring cash dividends or distributions and cash dividends or distributions paid from retained earnings of the Company or dividends or distributions referred to in subsection (a) above) or rights or warrants to subscribe or purchase (excluding those referred to in subsection (b) above), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the current market price per share (as defined in subsection (d) below) of the Common Stock on such record date less the then fair market value (as determined by the Board of Directors of the Company whose determination shall be conclusive, and described in a certificate filed with the Trustee) of the portion of the assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator shall be the current market price per share (as defined in subsection (d) below) of the Common Stock. Such adjustment shall be made successively whenever such a record date is fixed and shall become effective immediately after such record date. Notwithstanding the foregoing, in the event that the Company shall distribute any rights or warrants to acquire capital stock (“Rights”) pursuant to this subsection (c), the distribution of separate certificates representing such Rights subsequent to their initial distribution (whether or not such distribution shall have occurred prior to the date of the issuance of such Convertible Securities) shall be deemed to be the distribution of such Rights for purposes of this subsection (c); provided that the Company may, in lieu of making any adjustment pursuant to this subsection (c) upon a distribution of separate certificates representing such Rights, make proper provision so that each Holder of such Convertible Security who converts such Convertible Security (or any portion thereof) (i) before the record date for such distribution of separate certificates shall be entitled to receive upon such conversion shares of Common Stock issued with Rights and (ii) after such record date and prior to the expiration, redemption or termination of such Rights shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the same number of such Rights as would a holder of the number of shares of Common Stock that such Convertible Security so converted would have entitled the holder thereof to purchase in accordance with the terms and provisions of and applicable to the Rights if such Convertible Security were converted immediately prior to the record date for such distribution. Common Stock owned by or held for the account of the Company or any majority owned subsidiary shall not be deemed outstanding for the purpose of any adjustment required under this subsection (c).

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     (d) For the purpose of any computation under subsection (b) and (c) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily Closing Prices for the thirty consecutive days (which are not legal holidays as defined in Section 1.13) commencing forty-five days (which are not legal holidays as defined in Section 1.13) before the day in question. The Closing Price for any day shall be (i) if the Common Stock is listed or admitted for trading on any national securities exchange, the last sale price (regular way), or the average of the closing bid and ask prices if no sale occurred, of Common Stock on the principal securities exchange on which the Common Stock is listed, or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”), (ii) if not listed or quoted as described in (i), the mean between the closing high bid and low asked quotations of Common Stock reported by NASDAQ, or any similar system or automated dissemination of quotations of securities prices then in common use, if so quoted, or (iii) if not quoted as described in clause (ii), the mean between the high bid and low asked quotations for Common Stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least 5 of the 10 preceding days. If none of the conditions set forth above is met, the Closing Price of Common Stock on any day or the average of such Closing Prices for any period shall be the fair market value of Common Stock as determined by a member firm of the New York Stock Exchange, Inc. selected by the Company.
     (e) (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subsection (e)(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment, further provided, however, that any adjustments which by reason of this subsection (e)(i) are not otherwise required to be made shall be made no later than 3 years after the date on which occurs an event that requires an adjustment to be made or carried forward.
     (i) All calculations under this Article XIX shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section 19.6 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Conversion Price, in addition to those required by this Section 19.6, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable.
     (f) Whenever the Conversion Price is adjusted, as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers’ Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which such adjustment becomes effective and shall

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mail such notice of such adjustment of the Conversion Price to the Holder of each Convertible Security at such Holder’s last address appearing on the Security Register provided for in Section 3.5 of this Indenture.
     (g) In any case in which this Section 19.6 provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) delivering to the Holder of any Convertible Security converted after such record date and before the occurrence of such event the additional shares of Common Stock deliverable upon such conversion by reason of the adjustment required by such event over and above the Common Stock deliverable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 19.4, provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s rights to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment. If such event does not occur, no adjustments shall be made pursuant to this Section 19.6.
     Section 19.7 Effect of Reclassification, Consolidation, Merger or Sale.
     If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock deliverable upon conversion of the Convertible Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, but including any change in the shares of Common Stock into two or more classes or series of securities), (ii) any consolidation or merger to which the Company is a party (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of its Common Stock) or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation; then the Company, or such successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall conform to the Trust Indenture Act as in force at the date of execution of such supplemental indenture and comply with the provisions of Article IX) providing that each Convertible Security shall be convertible into the kind and amount of shares of stock and other securities or property, including cash, receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of a number of shares of Common Stock deliverable upon conversion of such Convertible Securities immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Convertible Securities, at his address appearing on the Security Register provided for in Section 3.5 of this Indenture.
     The above provisions of this Section shall similarly apply to successive reclassifications, consolidations, mergers and sales.

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     Section 19.8 Taxes on Shares Issued.
     The delivery of stock certificates on conversions of Convertible Securities shall be made without charge to the Holder converting a Convertible Security for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the delivery of stock registered in any name other than of the Holder of any Convertible Security converted, and the Company shall not be required to deliver any such stock certificate unless and until the person or persons requesting the delivery thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
     Section 19.9 Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock.
     The Company covenants that all shares of Common Stock which may be delivered upon conversion of Convertible Securities will upon delivery be fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issue thereof.
     The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Convertible Securities hereunder require registration with or approval of any governmental authority under any Federal or state law before such shares may be validly delivered upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be.
     The Company further covenants that it will, if permitted by the rules of the New York Stock Exchange, list and keep listed for so long as the Common Stock shall be so listed on such exchange, upon official notice of issuance, all Common Stock deliverable upon conversion of the Convertible Securities.
     Section 19.10 Trustee Not Responsible.
     Neither the Trustee nor any authenticating agent nor any conversion agent shall at any time be under any duty or responsibility to any Holder of Convertible Securities to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee nor any authenticating agent nor any conversion agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be delivered upon the conversion of any Convertible Security, and neither the Trustee nor any authenticating agent nor any conversion agent makes any representation with respect thereto. Subject to the provisions of Section 6.1, neither the Trustee nor any authenticating agent nor any conversion agent shall be responsible for any failure of the Company to deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Convertible Security for the purpose of conversion or for any failure of the Company to comply with any of the covenants of the Company contained in this Article.

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     Section 19.11 Notice to Holders Prior to Certain Actions.
     In case:
     (a) the Company shall declare a dividend (or any other distribution) on the Common Stock (other than in cash out of its current or retained earnings); or
     (b) the Company shall authorize the granting to the holders of the Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or
     (c) of any reclassification or change of the Common Stock (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value) or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required or of the sale or transfer of all or substantially all of the assets of the Company; or
     (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company;
the Company shall cause to be filed with the Trustee and the Company shall cause to be mailed to each holder of Convertible Securities at his address appearing on the Security Register, provided for in Section 3.5 of this Indenture, as promptly as possible but in any event no less than fifteen days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up or any adjustment in the Conversion Price required by this Article XIX.
     Section 19.12 Covenant to Reserve Shares.
     The Company covenants that it will at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, such number of shares of Common Stock as shall then be deliverable upon the conversion of all outstanding Convertible Securities.

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     IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written.
             
    SUPERIOR BANCORP    
 
           
 
  By:   /s/ James A. White
 
   
 
  Name:   James A. White    
 
  Title:   Chief Financial Officer    
 
           
    THE BANK OF NEW YORK MELLON
TRUST COMPANY,
N.A., as Trustee
   
 
           
 
  By:
Name:
  /s/ Charles S. Northen IV
 
Charles S. Northen IV
   
 
  Title:   Authorized Signatory    

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EXHIBIT A-1
[FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP BY A
NON-UNITED STATES PERSON OR BY CERTAIN OTHER PERSONS]
CERTIFICATE SUPERIOR BANCORP
[INSERT TITLE OR SUFFICIENT DESCRIPTION OF DEBT SECURITIES TO BE
DELIVERED]
Reference is hereby made to the Indenture dated as of December 11, 2009 (the “Indenture”) between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), covering the above-captioned Debt Securities. This is to certify that as of the date hereof,                                          principal amount of Debt Securities credited to you for our account (i) is owned by persons that are not United States Persons, as defined below; (ii) is owned by United States Persons that are (a) foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v)) (“financial institutions”) purchasing for their own account or for resale, or (b) United States Persons who acquired the Debt Securities through foreign branches of United States financial institutions and who hold the Debt Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution encloses herewith a certificate in the form of Exhibit A-2 to the Indenture); or (iii) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), which United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) certify that they have not acquired the Debt Securities for purposes of resale directly or indirectly to a United States Person or to a person within the United States or its possessions.
[Insert if certificate does not relate to an interest payment—We undertake to advise you if the above statement as to beneficial ownership is not correct on the date of delivery of the above-captioned Debt Securities in bearer form as to all of such Debt Securities with respect to such of said Debt Securities as then appear in your books as being held for our account.] We understand that this certificate is required in connection with United States tax laws. We irrevocably authorize you to produce this certificate or a copy hereof to any interested party in any administrative or legal proceedings with respect to the matters covered by this certificate. “United States Person” shall mean a citizen or resident of the United States of America (including the District of Columbia), a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof or an estate or trust that is subject to United States Federal income taxation regardless of the source of its income.
[This certificate excepts and does not relate to principal amount of Debt Securities credited to you for our account and to which we are not now able to make the certification set forth above.

 


 

We understand that definitive Debt Securities cannot be delivered and interest cannot be paid until we are able to so certify with respect to such principal amount of Debt Securities.]*
Dated:                                        
[To be dated on or after
(the date determined as
provided in the Indenture)]
[Name of Person Entitled to Receive Bearer Security]
 
* Delete if inappropriate.

 


 

EXHIBIT A-2
[FORM OF CERTIFICATE OF STATUS AS A
FOREIGN BRANCH OF A UNITED STATES FINANCIAL INSTITUTION]
CERTIFICATE
SUPERIOR BANCORP
[INSERT TITLE OR SUFFICIENT DESCRIPTION OF DEBT SECURITIES TO BE
DELIVERED]
Reference is hereby made to the Indenture dated as of December 11, 2009 (the “Indenture”), between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the offering of the above-captioned Debt Securities (the “Debt Securities”). Unless herein defined, terms used herein have the same meaning as given to them in the Indenture.
The undersigned represents that it is a branch located outside the United States of a United States securities clearing organization, bank or other financial institution (as defined in U.S. Treasury Regulation Section 1.165-12(c)(1)(v)) that holds customers’ securities in the ordinary course of its trade or business and agrees, and authorizes you to advise the issuer or the issuer’s agent, that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986 and the regulations thereunder and is not purchasing for resale directly or indirectly to a United States Person or to a person within the United States or its possessions. We undertake to advise you if the statement in the immediately preceding sentence is not correct on the date of delivery of the above-captioned Debt Securities in bearer form.
We understand that this certificate is required in connection with the United States tax laws. We irrevocably authorize you to produce this certificate or a copy hereof to any interested party in any administrative or legal proceedings with respect to the matters covered by this certificate.
Dated:                                        
[To be dated on or after
(the date determined as
provided in the Indenture)]
[Name of Person Entitled to Receive Bearer Security]
[Name of Person Entitled to Receive Security]

 


 

EXHIBIT B
[FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND CLEARSTREAM
IN CONNECTION WITH THE EXCHANGE OF ALL OR A PORTION OF A
TEMPORARY GLOBAL SECURITY OR TO
OBTAIN INTEREST PRIOR TO EXCHANGE]
CERTIFICATE
SUPERIOR BANCORP
[INSERT TITLE OR SUFFICIENT DESCRIPTION OF DEBT SECURITIES TO BE
DELIVERED]
We refer to that portion,                                                             , of the Global Security representing the above-captioned issue [which is herewith submitted to be exchanged for definitive Debt Securities]* [for which we are seeking to obtain payment of interest]* (the “Submitted Portion”). This is to certify, pursuant to the Indenture dated as of December 11, 2009 (the “Indenture”) between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), that we have received in writing, by electronic transmission from member organizations with respect to each of the persons appearing in our records as being entitled to a beneficial interest in the Submitted Portion a Certificate of Beneficial Ownership by a Non-United States Person or by Certain Other Persons [and, in some cases, a Certificate of Status as a Foreign Branch of a United States Financial Institution, authorizing us to inform the issuer or the issuer’s agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986 and the regulations thereunder]* substantially in the form of Exhibit A-1 [and A-2]* to the Indenture.
We hereby request that you deliver to the office of                                                              in                                                             definitive Bearer Securities in the denominations on the attached Schedule A.
We further certify that as of the date hereof we have not received any notification from any of the persons giving such certificates to the effect that the statements made by them with respect to any part of the Submitted Portion are no longer true and cannot be relied on as of the date hereof.
Dated:                                        
[EUROCLEAR BANK S.A./N.V., as Operator
of the Euroclear System] [Clearstream
Banking S.A.]
 
* Delete if in appropriate.

 


 

SUPERIOR BANCORP
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of December 11, 2009
             
        INDENTURE
    TRUST INDENTURE ACT SECTION   SECTION
ss. 310
  (a)(1)     6.9  
 
  (a)(2)     6.9  
 
  (a)(3)   Not Applicable
 
  (a)(4)   Not Applicable
 
  (a)(5)     6.9  
 
  (b)     6.8, 6.10  
 
  (c)   Not Applicable
ss. 311
  (a)     6.13  
 
  (b)     6.13  
ss. 312
  (a)     7.1, 7.2(a)  
 
  (b)     7.2(b)  
 
  (c)     7.2(c)  
ss. 313
  (a)     7.3(a)  
 
  (b)     7.3(a)  
 
  (c)     7.3(a)  
 
  (d)     7.3(b)  
ss. 314
  (a)     7.4, 10.4  
 
  (b)   Not Applicable
 
  (c)(1)     1.2  
 
  (c)(2)     1.2  
 
  (c)(3)   Not Applicable
 
  (d)   Not Applicable
 
  (e)     1.2  
ss. 315
  (a)     6.1  
 
  (b)     6.2  
 
  (c)     6.1  
 
  (d)     6.1  
 
  (e)     5.14  
ss. 316
  (a)     1.1  
 
  (a)(1)(A)     1.4(h), 5.2, 5.2  
 
  (a)(1)(B)     1.4(h), 5.13  
 
  (a)(2)   Not Applicable
 
  (b)     5.8  
 
  (c)     1.4(h)  
ss. 317
  (a)(l)     5.3  
 
  (a)(2)     5.4  
 
  (b)     10.3  
ss. 318
  (a)     1.7  
 
  (c)     1.7  
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture.

 

EX-4.25 4 g22315exv4w25.htm EX-(4)-25 exv4w25
Exhibit (4) – 25
FIRST SUPPLEMENTAL INDENTURE
between
SUPERIOR BANCORP
and
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
Dated as of December 11, 2009

 


 

TABLE OF CONTENTS
         
    Page  
ARTICLE I
 
       
DEFINITIONS
 
       
Section 1.1 Definition of Terms
    2  
 
       
ARTICLE II
 
       
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
 
       
Section 2.1 Designation and Principal Amount
    3  
Section 2.2 No Maturity
    3  
Section 2.3 Form and Payment
    3  
Section 2.4 Global Debenture
    4  
Section 2.5 Interest
    5  
Section 2.6 Forms of Declaration and Guarantee Agreement
    6  
Section 2.7 Events of Default
    6  
 
       
ARTICLE III
 
       
REDEMPTION OF THE DEBENTURES
 
       
Section 3.1 Optional Redemption
    6  
Section 3.2 Redemption Procedures
    6  
Section 3.3 No Sinking Fund
    6  
 
       
ARTICLE IV
 
       
EXTENSION OF INTEREST PAYMENT PERIOD
 
Section 4.1 Extension of Interest Payment Period
    7  
Section 4.2 Notice of Extension
    7  
Section 4.3 Limitation of Transactions
    8  

i


 

         
    Page  
ARTICLE V
 
       
EXPENSES
Section 5.1 Payment of Expenses
    8  
Section 5.2 Payment Upon Resignation or Removal
    9  
 
       
ARTICLE VI
 
       
COVENANT TO LIST ON EXCHANGE
 
       
Section 6.1 Listing on an Exchange
    9  
ARTICLE VII
 
       
FORM OF DEBENTURE
Section 7.1 Form of Debenture
    10  
 
       
ARTICLE VIII
 
       
ORIGINAL ISSUE OF DEBENTURES
 
       
Section 8.1 Original Issue of Debentures
    10  
 
       
ARTICLE IX
 
       
MISCELLANEOUS
 
       
Section 9.1 Ratification of Indenture
    10  
Section 9.2 Trustee Not Responsible for Recitals
    10  
Section 9.3 Governing Law
    10  
Section 9.4 Separability
    11  
Section 9.5 Counterparts
    11  

ii


 

     FIRST SUPPLEMENTAL INDENTURE, dated as of December 11, 2009 (the “First Supplemental Indenture”), between SUPERIOR BANCORP, a Delaware corporation (hereinafter sometimes called the “Company”), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association, as trustee (hereinafter sometimes called the “Trustee”) under the Indenture dated as of December 11, 2009 between the Company and the Trustee (the “Indenture”).
     WHEREAS, the Company executed and delivered the Indenture to the Trustee to provide for the future issuance of the Company’s unsecured junior subordinated debentures to be issued from time to time in one or more series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount which may be authenticated and delivered as provided in the Indenture;
     WHEREAS, pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of such securities to be known as its Fixed Rate Perpetual Junior Subordinated Debentures, Series A (the “Debentures”), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in the Indenture and this First Supplemental Indenture;
     WHEREAS, the Company and Superior Capital Trust II, a Delaware statutory trust (the “Trust”), propose to exchange for outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference per share, of the Company (the “Series A Preferred Stock”) $69,000,000 aggregate liquidation amount of the Trust’s Fixed Rate Capital Securities (the “Capital Securities”), representing preferred undivided beneficial interests in the assets of the Trust, and the Trust proposes to use the Series A Preferred Stock, together with the proceeds of the issuance and sale by the Trust to the Company of $100,000 aggregate liquidation amount of its Fixed Rate Common Securities (the “Common Securities”), to purchase $69,100,000 aggregate principal amount of the Debentures; and
     WHEREAS, the Company has requested that the Trustee execute and deliver this First Supplemental Indenture and all requirements necessary to make this First Supplemental Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company, and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects.

1


 

     NOW THEREFORE, in consideration of the purchase and acceptance of the Debentures by the Holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the Debentures and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows:
ARTICLE I
DEFINITIONS
     Section 1.1 Definition of Terms.
     Unless the context otherwise requires:
     (a) a term defined in the Indenture has the same meaning when used in this First Supplemental Indenture;
     (b) a term defined anywhere in this First Supplemental Indenture has the same meaning throughout;
     (c) the singular includes the plural and vice versa;
     (d) a reference to a Section or Article is to a Section or Article of this First Supplemental Indenture;
     (e) headings are for convenience of reference only and do not affect interpretation;
     (f) the following terms have the meanings given to them in the Declaration: (i) Capital Securities Certificate; (ii) Delaware Trustee; (iii) Distributions; (iv) Exchange Agreement; (v) Guarantee; (vi) Property Trustee; and (vii) Trust Securities; and
     (g) the following terms have the meanings given to them in this Section 1.1(g):
     “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Company as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.
     “Common Stock” means the common stock, par value $0.001 per share, of the Company.
     “Compound Interest” shall have the meaning set forth in Section 4.1.
     “Coupon Rate” shall have the meaning set forth in Section 2.5(a).
     “Creditor” shall have the meaning set forth in Section 5.1.
     “Declaration” means the Amended and Restated Declaration of Trust and Trust Agreement of Superior Capital Trust II, a Delaware statutory trust, dated as of December 11, 2009.
     “ Deferred Interest” shall have the meaning set forth in Section 4.1.

2


 

     “Dissolution Event” means the dissolution of the Trust and distribution of the Debentures held by the Property Trustee pro rata to the holders of the Trust Securities in liquidation of such holders’ interests in the Trust in accordance with the Declaration, such event to occur at the option of the Company at any time upon the terms and conditions set forth in the Declaration.
     “Extended Interest Payment Period” shall have the meaning set forth in Section 4.1.
     “Global Debenture” shall have the meaning set forth in Section 2.4(a).
     “Holder” means any person in whose name at the time a Debenture is registered on the Security Register.
     “Interest Payment Date” shall have the meaning set forth in Section 2.5(a).
     “Interest Period” means the period beginning on (and including) the date of issue and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) the Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date.
     “Non Book-Entry Capital Securities” shall have the meaning set forth in Section 2.4(a).
     “Redemption Price” shall have the meaning set forth in Section 3.1.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
     Section 2.1 Designation and Principal Amount.
     There is hereby authorized a series of Debt Securities designated as the “Fixed Rate Perpetual Junior Subordinated Debentures, Series A”, in aggregate principal amount of $69,100,000.
     Section 2.2 No Maturity.
     The Debentures shall be perpetual, but shall be redeemable as provided in Article III and subject to acceleration as provided in Article V of the Indenture.
     Section 2.3 Form and Payment.
     Except as provided in Section 2.4, the Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form will be payable, the transfer of such Debentures will be registrable and such Debentures will be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee in Birmingham, Alabama; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Holder entitled thereto at such address as shall appear in the Security Register or by wire transfer to an account appropriately designated by the Holder entitled thereto. Notwithstanding the foregoing, so long as the Holder of any Debentures is the Property Trustee, the payment of the principal of and

3


 

interest (including Compound Interest and Additional Interest, if any) on such Debentures held by the Property Trustee will be made at such place and to such account as may be designated by the Property Trustee.
     Section 2.4 Global Debenture.
     (a) In connection with a Dissolution Event,
     (i) the Debentures in certificated form may be presented to the Trustee by the Property Trustee in exchange for a global Debenture in an aggregate principal amount equal to the aggregate principal amount of all outstanding Debentures (a “Global Debenture”), to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Administrative Trustees. The Company upon any such presentation shall execute a Global Debenture in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. Payments on the Debentures issued as a Global Debenture will be made to the Depositary; and
     (ii) if any Capital Securities are held in non book-entry certificated form (Non Book-Entry Capital Securities”), the Debentures in certificated form may be presented to the Trustee by the Property Trustee and any Capital Security Certificate which represents Non Book-Entry Capital Securities will be deemed to represent beneficial interests in Debentures presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non Book-Entry Capital Securities until such Capital Security Certificates are presented to the Security registrar for transfer or reissuance, at which time such Non Book-Entry Capital Security Certificates will be canceled and a Debenture, registered in the name of the holder of the Capital Security Certificate or the transferee of the holder of such Capital Security Certificate, as the case may be, with an aggregate principal amount equal to the aggregate liquidation amount of the Capital Security Certificate canceled, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. Any Debentures exchanged for Capital Securities represented by a Capital Securities Certificate bearing the legend set forth in Section 5.4 of the Declaration shall bear such legend and the last paragraph of such Section 5.4 shall apply, mutatis mutandis, to such Debentures. On issue of such Debentures, Debentures with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been canceled.
     (b) A Global Debenture may be transferred, in whole but not in part, only by the Depositary to another nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary, or to a successor Depositary selected or approved by the Company or to a nominee of such successor Depositary. The Depositary shall initially be The Depository Trust Company, New York, New York.
     (c) Except as otherwise provided in or pursuant to this First Supplemental Indenture, a Global Debenture shall be exchangeable for Debentures in definitive registered form only if

4


 

(i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary and a successor Depositary is not appointed by the Company within 90 days of the date the Company is so informed in writing or becomes aware of such condition, (ii) the Depository ceases to be registered as a “clearing agency” under the Securities Exchange Act of 1934, as amended, (iii) an Event of Default, as defined in the Indenture, has occurred and is continuing with respect to the Debentures, or (iv) the Company, in its sole discretion, determines that the Debentures shall no longer be represented by such Global Debenture. Upon the occurrence of any of (i) through (iv) above, the Company shall execute and, subject to Article II of the Indenture, the Trustee, upon written notice from the Company, shall authenticate and deliver the Debentures in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debenture in exchange for such Global Debenture. In the event the Company determines that the Debentures shall no longer be represented by a Global Debenture pursuant to clause (iv) above, the Company shall execute and, subject to Section 3.05 of the Indenture, the Trustee, upon receipt of an Officers’ Certificate evidencing such determination by the Company, shall authenticate and deliver the Debentures in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debenture in exchange for such Global Debenture. Upon the exchange of the Global Debenture for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debenture shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for the Global Debenture shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debt Securities to the Depositary for delivery to the Persons in whose names such Debt Securities are so registered.
     Section 2.5 Interest.
     (a) Each Debenture will bear interest at a rate of (A) 5.00% per annum for the period from and including December 11, 2009 to but excluding February 15, 2014, and (B) 9.00% per annum thereafter (the “Coupon Rate”) until the principal thereof is paid or made available for payment, and to the extent that payment of such interest is enforceable under applicable law, on any overdue installment of interest at the applicable Coupon Rate, compounded quarterly, payable quarterly in arrears on each February 15, May 15, August 15 and November 15 (each, an “Interest Payment Date”), commencing on February 15, 2010, to the Person in whose name such Debenture or any predecessor Debenture is registered at the close of business on the relevant record date, which will be, as long as the Capital Securities are in book-entry form (or, if no Capital Securities remain outstanding, as long as the Debentures remain in book-entry form), one Business Day prior to the relevant Interest Payment Date and, in the event the Capital Securities are not in book-entry form (or, if no Capital Securities remain outstanding, in the event the Debentures are not in book-entry form), the last day of the month next preceding each Interest Payment Date, except as otherwise provided pursuant to the provisions of Article IV.
     (b) The amount of interest payable for any period less than a full quarterly interest period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual days elapsed in a partial month in such period. The amount of interest payable for any full quarterly interest period shall be computed by dividing the applicable rate per annum by four. In the event that any date on which interest is payable on the Debentures is not a Business Day,

5


 

then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay).
     Section 2.6 Forms of Declaration and Guarantee Agreement.
     The Declaration shall be substantially in the form set forth in Exhibit B and the Guarantee Agreement shall be substantially in the form set forth in Exhibit C.
     Section 2.7 Events of Default
     The Event of Default described in Section 5.1(d) of the Indenture shall not apply to the Debentures.
ARTICLE III
REDEMPTION OF THE DEBENTURES
     Section 3.1 Optional Redemption.
     The Debentures are redeemable at the option of the Company at any time, subject to the approval of the Appropriate Federal Banking Agency, at a redemption price (the “Redemption Price”) equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon (including Compound Interest, if any) to the date of redemption.
     Section 3.2 Redemption Procedures.
     Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Debentures to be prepaid at its registered address. Unless the Company defaults in payment of the Redemption Price, on and after the redemption date interest shall cease to accrue on such Debentures called for redemption. If the Debentures are only partially redeemed pursuant to Section 3.1, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided that if at the time of redemption the Debentures are registered as a Global Debenture, the Depositary shall determine, in accordance with its procedures, the principal amount of such Debentures held by each Depositary participant to be redeemed. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines; provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid.
     Section 3.3 No Sinking Fund.
     The Debentures are not entitled to the benefit of any sinking fund.

6


 

ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
     This Article IV and the provisions set forth in the form of Debenture, but not the provisions of Section 3.13 of the Indenture, shall apply to the deferral of interest on the Debentures:
     Section 4.1 Extension of Interest Payment Period.
     Provided that no Event of Default has occurred and is continuing, the Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of such Debentures for a period not exceeding 20 consecutive quarterly periods (the “Extended Interest Payment Period”), during which Extended Interest Payment Period no interest shall be due and payable. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, will bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period (“Compound Interest”). At the end of the Extended Interest Payment Period, the Company shall pay all interest accrued and unpaid on the Debentures, including any Compound Interest (together, “Deferred Interest”) that shall be payable to the Holders in whose names the Debentures are registered in the Security Register on the record date for the first Interest Payment Date after the end of the Extended Interest Payment Period. Before the termination of any Extended Interest Payment Period, the Company may further extend such period, provided that such period together with all such previous or further extensions thereof shall not exceed 20 consecutive quarterly periods. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extended Interest Payment Period.
     Section 4.2 Notice of Extension.
     (a) If the Property Trustee is the only registered Holder at the time the Company selects an Extended Interest Payment Period, the Company shall give written notice to the Property Trustee and the Trustee of its selection of such Extended Interest Payment Period one Business Day before the earlier of (i) the next succeeding date on which Distributions on the Trust Securities issued by the Trust are payable, or (ii) if the Debentures are then listed on the Nasdaq National Market or other national securities exchange, the date the Company is required to give notice of the record date, or the date such Distributions are payable to such organization or to holders of the Capital Securities issued by the Trust.
     (b) If the Property Trustee is not the only Holder at the time the Company selects an Extended Interest Payment Period, the Company shall give the Holders of the Debentures notice of its election of such Extended Interest Payment Period not later than the tenth Business Day prior to the next succeeding Interest Payment Date; provided that if the Debentures are then

7


 

listed on the Nasdaq National Market or other national securities exchange and the Company is required to give notice of the record date or the Interest Payment Date to such organization or to Holders of the Debentures prior to such date, the Company shall give notice of its election at least one Business Day prior to the date it is required to give such notice of the record date.
     (c) The quarterly period in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20 quarterly periods permitted in the maximum Extended Interest Payment Period permitted under Section 4.1.
     Section 4.3 Limitation of Transactions.
     If the Company shall exercise its right to defer payment of interest as provided in Section 4.1 and the Extended Interest Payment Period is continuing, the Company shall be subject to the limitations set forth in Section 10.8 of the Indenture.
ARTICLE V
EXPENSES
     Section 5.1 Payment of Expenses.
     In connection with the offering, sale and issuance of the Debentures to the Property Trustee and in connection with the sale of the Trust Securities by the Trust (including the exchange of the Capital Securities for the Series A Preferred Stock), the Company, in its capacity as borrower with respect to the Debentures, shall:
     (a) pay all costs and expenses relating to the offering, sale and issuance of the Trust Securities and the Debentures, including any exchange fees payable pursuant to the Exchange Agreement and compensation of the Trustee under the Indenture in accordance with the provisions of Section 6.7 of the Indenture;
     (b) be responsible for and shall pay all debts and obligations (other than with respect to the Trust Securities) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust, the fees and expenses (including reasonable counsel fees and expenses) of the Property Trustee, the Delaware Trustee and the Administrative Trustees (including any amounts payable under Article VIII of the Declaration), the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), exchange rate agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing and disposition of Trust assets and the enforcement by the Property Trustee of the rights of the holders of the Capital Securities issued by the Trust);
     (c) be liable for any indemnification obligations arising with respect to the Declaration; and

8


 

     (d) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust.
     The Company’s obligations under this Section 5.1 shall be for the benefit of, and shall be enforceable by, any Person to whom such debts, obligations, costs, expenses and taxes are owed (a “Creditor”) whether or not such Creditor has received notice hereof. Any such Creditor may enforce the Company’s obligations under this Section 5.1 directly against the Company and the Company irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other Person before proceeding against the Company. The Company agrees to execute such additional agreements as may be necessary or desirable in order to give full effect to the provisions of this Section 5.1.
     The provisions of this Section shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this First Supplemental Indenture.
     Section 5.2 Payment Upon Resignation or Removal.
     Upon termination of this First Supplemental Indenture or the Indenture or the removal or resignation of the Trustee, unless otherwise stated, the Company shall pay to the Trustee all amounts accrued to the date of such termination, removal or resignation that are payable pursuant to Section 6.7 of the Indenture. Upon termination of the Declaration or the removal or resignation of the Delaware Trustee or the Property Trustee, as the case may be, pursuant to Section 8.10 of the Declaration, the Company shall pay to the Delaware Trustee or the Property Trustee, as the case may be, all amounts accrued to the date of such termination, removal or resignation.
ARTICLE VI
COVENANT TO LIST ON EXCHANGE
     Section 6.1 Listing on an Exchange.
     If the Debentures are distributed to the holders of the Trust Securities issued by the Trust, and the Capital Securities are then so listed, the Company will use its commercially reasonable efforts to list such Debentures on the Nasdaq National Market or with another organization on which the Capital Securities of the Trust are then listed.

9


 

ARTICLE VII
FORM OF DEBENTURE
     Section 7.1 Form of Debenture.
     The Debentures, and the Trustee’s Certificate of Authentication to be endorsed thereon, are to be substantially in the forms attached hereto as Exhibit A.
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
     Section 8.1 Original Issue of Debentures.
     Debentures in the aggregate principal amount of $69,100,000, may, upon execution of this First Supplemental Indenture or upon any written order of the Company setting forth the amount therefor, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its Chairman of the Board, its President, any Senior Executive Vice President, any Executive Vice President or any Senior Vice President and its Secretary or any Assistant Secretary, without any further action by the Company.
ARTICLE IX
MISCELLANEOUS
     Section 9.1 Ratification of Indenture.
     The Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided.
     Section 9.2 Trustee Not Responsible for Recitals.
     The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture.
     Section 9.3 Governing Law.
     This First Supplemental Indenture and each Debenture shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of such State without regard to conflicts of laws principles.

10


 

     Section 9.4 Separability.
     In case any one or more of the provisions contained in this First Supplemental Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this First Supplemental Indenture or of the Debentures, but this First Supplemental Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.
     Section 9.5 Counterparts.
     This First Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

11


 

     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.
             
    SUPERIOR BANCORP    
 
           
 
  By:
Name:
  /s/ James A. White
 
James A. White
   
 
  Title:   Chief Financial Officer    
         
  THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A.,
as Trustee
 
 
  By:   /s/ Charles S. Northen IV    
    Name:   Charles S. Northen IV   
    Title:   Authorized Signatory   
 

12


 

EXHIBIT A
(FORM OF FACE OF DEBENTURE)
     The following legend applies if this Security is a Global Security: Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to the Issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
     This Security is not a deposit or other obligation of a depository institution and is not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
CUSIP NO.                                                                                                                                 PRINCIPAL AMOUNT: $
REGISTERED NO.
SUPERIOR BANCORP
Fixed Rate Perpetual Junior Subordinated Debentures, Series A
     Superior Bancorp, a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the “Company,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ,                 , or registered assigns, interest on the principal sum of                Dollars ($                ) from December 11, 2009 or from the most recent Interest Payment Date to which interest has been paid or duly provided for quarterly (subject to deferral as set forth herein) on February 15, May 15, August 15 and November 15 of each year commencing February 15, 2010, at a rate of (A) 5.00% per annum for the period from and including December 11, 2009 to but excluding February 15, 2014, and (B) 9.00%per annum thereafter (the “Coupon Rate”), together with Additional Sums, if any, as provided in Section 10.7 of the Indenture, until the principal hereof is paid or made available for payment; provided, however, that any overdue installment of interest (after giving effect to any Extension Period permitted by this Security) shall bear Additional Interest at the Coupon Rate (to the extent that the payment of such interest shall be legally enforceable), compounded quarterly, from the date such installment was due until it is paid or made available for payment. The amount of interest payable for any period less than a full quarterly interest period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual days elapsed in a partial month in such period. The amount of interest payable for any full quarterly interest period shall be computed by dividing the applicable rate per annum by four. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the last calendar day (whether or not a Business Day, as defined below) of the month next preceding such Interest Payment Date. If an

A-1


 

Interest Payment Date is not a Business Day, interest on this Security shall be payable on the next day that is a Business Day, with the same force and effect as if made on such Interest Payment Date, and without any interest or other payment with respect to the delay. “Business Day” as used hereinabove is a day other than a Saturday, a Sunday or any other day on which banking institutions in Birmingham, Alabama or New York, New York are authorized or required by law, regulation or executive order to remain closed or are customarily closed.
     Any interest not punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.
     So long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of this Security, from time to time to defer the payment of interest on this Security for up to 20 consecutive quarterly interest payment periods with respect to each deferral period (each an “Extension Period”), during which Extension Period the Company shall have the right to make a partial payment of interest on any Interest Payment Date, at the end of which the Company shall pay all interest then accrued and unpaid including any Additional Interest, as provided below; provided, however, that no Extension Period may end other than at the end of a full quarterly interest period; and provided, further, however, that during any such Extension Period, the Company shall not (i) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to this Security (except for any partial payments of interest with respect to and permitted under the Securities of this series), or (ii) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company’s capital stock (other than (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors, consultants or independent contractors, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of an exchange, redemption or conversion of any class or series of the Company’s capital stock (or any capital stock of a subsidiary of the Company) for any other class or series of the Company’s capital stock or of any class or series of the Company’s indebtedness for any class or series of the Company’s capital stock, (c) the purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any Rights Plan, or the issuance of rights, stock or other property under any Rights Plan, or the redemption or repurchase of rights pursuant thereto, (e) payments by the Company under the Guarantee Agreement, or (f) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the
A-2

 


 

stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock). Prior to the termination of any such Extension Period, the Company may extend such Extension Period and further defer the payment of interest, provided that no Extension Period shall exceed 20 consecutive quarterly interest payment periods or end other than at the end of a full quarterly interest period. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above conditions. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest (to the extent that the payment of such interest shall be legally enforceable) at the Coupon Rate, compounded quarterly and calculated as set forth in the first paragraph of this Security, from the dates on which amounts would otherwise have been due and payable until paid or made available for payment. The Company shall give the Holder of this Security and the Trustee notice of its election to begin any Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on this Security would be payable but for such deferral or, so long as such Securities are held by or on behalf of Superior Capital Trust II, at least one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Capital Securities of such Issuer Trust would be payable but for such deferral, and (ii) the date on which the Property Trustee of such Issuer Trust is required to give notice to holders of such Capital Securities of the record date or the date such Distributions are payable.
     Payment of interest, including Additional Interest, on this Security will be made in immediately available funds at the office or agency of the Company maintained for that purpose in the City of Birmingham, Alabama, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, payment of interest may be paid by check mailed to the Person entitled thereto at such Person’s last address as it appears in the Security Register or, upon written request of a Holder of $1,000,000 or more in aggregate principal amount of Securities of this series not less than 15 calendar days prior to the applicable Interest Payment Date, by wire transfer to such account as may have been designated by such Person. Payment of principal of and interest, including Additional Interest, on this Security upon its redemption will be made against presentation of this Security at the office or agency of the Company maintained for that purpose in the City of Birmingham, Alabama.
     Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
     Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature or its duly authorized agent under the Indenture referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
A-3

 


 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
DATED:
             
    SUPERIOR BANCORP    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:        
[SEAL]
         
Attest:
       
 
 
 
Secretary
   
A-4

 


 

TRUSTEE’S CERTIFICATE
OF AUTHENTICATION
     This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
     Dated:                     
             
    THE BANK OF NEW YORK MELLON TRUST    
    COMPANY, N.A., as Trustee    
 
           
 
  By:        
 
     
 
Authorized Signatory
   
 
           
 
  OR        
 
           
      ,    
    as Authenticating Agent for the Trustee    
 
           
 
  By:        
 
     
 
Authorized Signatory
   
[Reverse of Debenture]
SUPERIOR BANCORP
FIXED RATE JUNIOR SUBORDINATED DEBENTURES, SERIES A
     This Security is one of a duly authorized issue of junior subordinated securities of the Company (herein called the “Securities”), issued and to be issued in one or more series under an indenture dated as of December 11, 2009, as amended or supplemented from time to time (herein called the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A. (herein called the “Trustee,” which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $69,100,000. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture unless otherwise defined in this Security.
     The Securities are redeemable at the option of the Company at any time, subject to the approval of the Appropriate Federal Banking Agency, at a redemption price (the “Redemption Price ”) equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon (including Compound Interest, if any) to the date of redemption.
A-5

 


 

     The Securities of this series are not subject to repayment at the option of the Holder hereof. The Securities of this series will not be entitled to any sinking fund.
     The indebtedness evidenced by the Securities of this series is, to the extent and in the manner set forth in the Indenture, subordinate and subject in right of payment to the prior payment in full of the principal of and premium, if any, and interest on all Senior Debt of the Company, and each Holder of the Securities of this series, by accepting the same, agrees to and shall be bound by the provisions of the Indenture with respect hereto. The Securities of this series shall rank on a parity with all Trust Related Securities, including, without limitation, the Guarantee Agreement related to the Fixed Rate Capital Securities of Superior Capital Trust II.
     If an Event of Default, as defined in the Indenture, with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of all series to be affected, acting together. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of all series at the time Outstanding affected by certain provisions of the Indenture, acting together, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with those provisions of the Indenture. Certain past defaults under the Indenture and their consequences may be waived under the Indenture by the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series. All of the rights of the Holders set forth in this paragraph are subject to the rights of the holders of Capital Securities as set forth in the Indenture. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
     The provisions contained in Sections 4.1 and 4.3 and Article XVII of the Indenture for defeasance of the entire indebtedness on this Security and certain restrictive covenants and certain Events of Default do not apply to this Security.
     Upon due presentment for registration of transfer of this Security at the office or agency of the Company in the City of Birmingham, Alabama, a new Security or Securities of this series in authorized denominations of $1,000 or integral multiples thereof for an equal aggregate principal amount will be issued to the transferee in exchange herefor, as provided in the Indenture and subject to the limitations provided therein and to the limitations described below, without charge except for any tax or other governmental charge imposed in connection therewith.
     If this Security is a Global Security, this Security is exchangeable for definitive Securities in registered form only if (x) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for this Security or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and a successor
A-6

 


 

depositary is not appointed within 90 days, (y) the Company in its sole discretion determines that this Security shall no longer be represented by Global Securities, or (z) an Event of Default with respect to the Securities represented hereby has occurred and is continuing. If this Security is exchangeable pursuant to the preceding sentence, it shall be exchangeable for definitive Securities in registered form, bearing interest, including Additional Interest, at the same rate, having the same date of issuance, redemption provisions and other terms and of authorized denominations aggregating a like amount.
     If this Security is a Global Security, this Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor of the Depositary or a nominee of such successor. Except as provided above, owners of beneficial interests in this global Security will not be entitled to receive physical delivery of Securities in definitive form and will not be considered the Holders hereof for any purpose under the Indenture.
     Subject to the rights of holders of Senior Debt of the Company set forth in this Security and the Indenture referred to above, no reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest, including any Additional Interest, on this Security at the times, place and rate, and in the coin or currency, herein prescribed, except as otherwise provided in this Security.
     Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
     No recourse shall be had for the payment of the principal of or the interest, including Additional Interest, on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released.
A-7

 


 

ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM — as tenants in common
TEN ENT — as tenants by the entireties
JT TEN — as joint tenants with right of survivorship and not as tenants in common
                     
UNIF GIFT MIN ACT —
          Custodian        
 
 
 
(Cust)
         
 
(Minor)
   
         
Under Uniform Gifts to Minors Act    
 
       
(State)
       
     Additional abbreviations may also be used though not in the above list.
     FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto
Please Insert Social Security or Other
Identifying Number of Assignee
             
         
 
           
         
 
           
         
(Please print or type name and address including postal zip code of Assignee)  
the within Security of Superior Bancorp and does hereby irrevocably constitute and appoint                attorney to transfer the said Security on the books of the Company, 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 within instrument in every particular, without alteration or enlargement or any change whatever.
A-8

 

EX-4.26 5 g22315exv4w26.htm EX-(4)-26 exv4w26
Exhibit (4) - 26
GUARANTEE AGREEMENT
by and between
SUPERIOR BANCORP,
as Guarantor
and
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Guarantee Trustee
relating to
SUPERIOR CAPITAL TRUST II
Dated as of December 11, 2009

 


 

TABLE OF CONTENTS
         
    Page  
ARTICLE I
 
       
DEFINITIONS
 
       
Section 1.1 Definitions
    1  
 
       
ARTICLE II
 
       
TRUST INDENTURE ACT
 
       
Section 2.1 Trust Indenture Act; Application
    4  
Section 2.2 List of Holders
    4  
Section 2.3 Reports by the Guarantee Trustee
    4  
Section 2.4 Periodic Reports to the Guarantee Trustee
    4  
Section 2.5 Evidence of Compliance with Conditions Precedent
    5  
Section 2.6 Events of Default; Waiver
    5  
Section 2.7 Event of Default; Notice
    5  
Section 2.8 Conflicting Interests
    5  
 
       
ARTICLE III
 
       
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
 
       
Section 3.1 Powers and Duties of the Guarantee Trustee
    5  
Section 3.2 Certain Rights of Guarantee Trustee
    6  
Section 3.3 Compensation; Indemnity; Fees
    8  
 
       
ARTICLE IV
 
       
GUARANTEE TRUSTEE
 
       
Section 4.1 Guarantee Trustee; Eligibility
    8  
Section 4.2 Appointment, Removal and Resignation of the Guarantee Trustee
    9  
 
       
ARTICLE V
 
       
GUARANTEE
 
       
Section 5.1 Guarantee
    9  
Section 5.2 Waiver of Notice and Demand
    9  
Section 5.3 Obligations Not Affected
    10  
Section 5.4 Rights of Holders
    10  
Section 5.5 Guarantee of Payment
    10  
Section 5.6 Subrogation
    10  
Section 5.7 Independent Obligations
    11  

i


 

         
    Page  
ARTICLE VI
       
 
       
COVENANTS AND SUBORDINATION
       
 
       
Section 6.1 Subordination
    11  
Section 6.2 Pari Passu Guarantees
    11  
 
       
ARTICLE VII
       
 
       
TERMINATION
       
 
       
Section 7.1 Termination
    11  
 
       
ARTICLE VIII
       
 
       
MISCELLANEOUS
       
 
       
Section 8.1 Successors and Assigns
    12  
Section 8.2 Amendments
    12  
Section 8.3 Notices
    12  
Section 8.4 Benefit
    13  
Section 8.5 Governing Law
    13  
Section 8.6 Counterparts
    13  
Section 8.7 Incorporation by Reference
    13  
Section 8.8 Waiver of Jury Trial
    13  
Section 8.9 Force Majeure
    13  
ii

 


 

     GUARANTEE AGREEMENT, dated as of December 11, 2009, between SUPERIOR BANCORP, a Delaware corporation (the “Guarantor”), having its principal office at 17 North Twentieth Street, Birmingham, Alabama 35203, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association, as trustee (the “Guarantee Trustee”), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of SUPERIOR CAPITAL TRUST II, a Delaware statutory trust (the “Issuer Trust”).
RECITALS
     WHEREAS, pursuant to an Amended and Restated Declaration of Trust and Trust Agreement, of even date herewith (the “Trust Agreement”), among Superior Bancorp, as Depositor, the Property Trustee, the Delaware Trustee, and the Administrative Trustees (each as named therein) and the holders from time to time of undivided beneficial interests in the assets of the Issuer Trust, the Issuer Trust is issuing $69,000,000.00 aggregate Liquidation Amount (as defined in the Trust Agreement) of its Fixed Rate Trust Preferred Securities (liquidation amount $1,000 per capital security) (the “Capital Securities”), representing preferred undivided beneficial interests in the assets of the Issuer Trust and having the terms set forth in the Trust Agreement; and
     WHEREAS, the Capital Securities will be issued by the Issuer Trust, and the proceeds thereof, together with the proceeds from the issuance of the Issuer Trust’s Common Securities (as defined herein), will be used to purchase the Debentures of the Guarantor, which Debentures will be deposited with The Bank of New York Mellon Trust Company, N.A., as Property Trustee under the Trust Agreement, as trust assets; and
     WHEREAS, as an incentive for the Holders to purchase Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth herein, to pay to the Holders of the Capital Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein.
     NOW, THEREFORE, in consideration of the purchase of Capital Securities by each Holder, which purchase the Guarantor hereby acknowledges shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time.
ARTICLE I
DEFINITIONS
     Section 1.1 Definitions
     For all purposes of this Guarantee Agreement, except as otherwise expressly provided or unless the context otherwise requires:
     (a) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
     (b) All other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
     (c) The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation”;
     (d) All accounting terms used but not defined herein have the meanings assigned to them in accordance with United States generally accepted accounting principles;
     (e) Unless the context otherwise requires, any reference to an “Article” or a “Section” refers to an Article or a Section, as the case may be, of this Guarantee Agreement; and

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     (f) The words “hereby,” “herein,” “hereof” and “hereunder” and other words of similar import refer to this Guarantee Agreement as a whole and not to any particular Article, Section or other subdivision.
     “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
     “Board of Directors” means the board of directors of the Guarantor or any committee of the board of directors of the Guarantor, comprised of one or more members of the board of directors of the Guarantor or officers of the Guarantor, or both.
     “Capital Securities” has the meaning specified in the recitals to this Guarantee Agreement.
     “Common Securities” means the securities representing common undivided beneficial interests in the assets of the Issuer Trust.
     “Debentures” shall have the meaning specified in the Trust Agreement.
     “Distributions” shall have the meaning specified in the Trust Agreement.
     “Event of Default” means (i) a default by the Guarantor in any of its payment obligations under this Guarantee Agreement or (ii) a default by the Guarantor in any other obligation hereunder that remains unremedied for 30 days.
     “Guarantee Agreement” means this Guarantee Agreement, as modified, amended or supplemented from time to time.
     “Guarantee Payments” means the following payments or distributions, without duplication, with respect to the Capital Securities, to the extent not paid or made by or on behalf of the Issuer Trust: (i) any accumulated and unpaid Distributions required to be paid on the Capital Securities, to the extent the Issuer Trust shall have funds on hand available therefor at such time; (ii) the Redemption Price with respect to any Capital Securities called for redemption by the Issuer Trust, to the extent the Issuer Trust shall have funds on hand available therefor at such time; and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of the Issuer Trust, unless Debentures are distributed to the Holders, the lesser of (a) the Liquidation Distribution with respect to the Capital Securities, to the extent that the Issuer Trust shall have funds on hand available therefor at such time, and (b) the amount of assets of the Issuer Trust remaining available for distribution to Holders on liquidation of the Issuer.
     “Guarantee Trustee” means The Bank of New York Mellon Trust Company, N.A., solely in its capacity as Guarantee Trustee and not in its individual capacity, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Guarantee Trustee.
     “Guarantor” has the meaning specified in the first paragraph of this Guarantee Agreement.
     “Holder” means any Holder (as defined in the Trust Agreement) of any Capital Securities; provided, however, that in determining whether the holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, “Holder” shall not include the Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee Trustee.
     “Indenture” means the Junior Subordinated Indenture, dated as of December 11, 2009, between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented by the First Supplemental Indenture, dated as of December 11, 2009, between Superior Bancorp and The Bank of New York Mellon Trust Company, N.A., as the same may be modified, amended or supplemented from time to time.

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     “Issuer Trust” has the meaning specified in the first paragraph of this Guarantee Agreement.
     “Liquidation Distribution” shall have the meaning specified in the Trust Agreement.
     “List of Holders” has the meaning specified in Section 2.2(a).
     “Majority in Liquidation Amount of the Capital Securities” means, except as provided by the Trust Indenture Act, Capital Securities representing more than 50% of the aggregate Liquidation Amount (as defined in the Trust Agreement) of all Capital Securities then Outstanding (as defined in the Trust Agreement).
     “Officers’ Certificate” means, with respect to any Person, a certificate signed by the Chairman or a Vice Chairman of the Board of Directors of such Person or the President or a Vice President of such Person, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of such Person. Any Officers’ Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include:
     (a) a statement by each officer signing the Officers’ Certificate that such officer has read the covenant or condition and the definitions relating thereto;
     (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officers’ Certificate;
     (c) a statement that such officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and
     (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with.
     “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, business trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature.
     “Redemption Price” shall have the meaning set forth in the Trust Agreement.
     “Responsible Officer” means, with respect to the Guarantee Trustee, any Senior Vice President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any other officer of the Corporate Trust Department of the Guarantee Trustee and also means, with respect to a particular matter, any other officer to whom such matter is referred because of that officer’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Guarantee Agreement.
     “Successor Guarantee Trustee” means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.1.
     “Trust Agreement” means the Amended and Restated Declaration of Trust and Trust Agreement of the Issuer Trust referred to in the recitals to this Guarantee Agreement, as modified, amended or supplemented from time to time.
     “Trust Indenture Act” means the Trust Indenture Act of 1939 as in force at the date as of which this Guarantee Agreement was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “Trust Indenture Act” means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.

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     “Vice President,” when used with respect to the Guarantor, means any duly appointed vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”
ARTICLE II
TRUST INDENTURE ACT
     Section 2.1 Trust Indenture Act; Application.
     (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions.
     (b) Except as otherwise expressly provided herein, if and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control.
     (c) The application of the Trust Indenture Act to this Guarantee Agreement shall not affect the nature of the Capital Securities as equity securities representing undivided beneficial interests in the assets of the Issuer Trust.
     Section 2.2 List of Holders.
     (a) The Guarantor shall furnish or cause to be furnished to the Guarantee Trustee (a) semiannually, on or before January 31 and July 31 of each year, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders (a “List of Holders”) as of a date not more than 15 days prior to the delivery thereof, and (b) at such other times as the Guarantee Trustee may request in writing, within 30 days after the receipt by the Guarantor of any such request, a List of Holders as of a date not more than 15 days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Guarantor and has not otherwise been received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders.
     (b) The Guarantee Trustee shall comply with the requirements of Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
     Section 2.3 Reports by the Guarantee Trustee.
     Not later than [February 28] of each year, commencing in 2010, the Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. If this Guarantee Agreement shall have been qualified under the Trust Indenture Act, the Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act.
     Section 2.4 Periodic Reports to the Guarantee Trustee.
     The Guarantor shall provide to the Guarantee Trustee and the Holders such documents, reports and information, if any, as required by Section 314 of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act, in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act, provided that such documents, reports and information shall be required to be provided to the Securities and Exchange Commission only if this Guarantee Agreement shall have been qualified under the Trust Indenture Act. In such event, delivery of such reports, information and documents to the Guarantee Trustee shall be for informational purposes only and the Guarantee Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Guarantee Trustee shall be entitled to rely exclusively on Officers’ Certificates).

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     Section 2.5 Evidence of Compliance with Conditions Precedent.
     The Guarantor shall provide to the Guarantee Trustee such evidence of compliance with such conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer of the Guarantor pursuant to Section 314(c)(1) may be given in the form of an Officers’ Certificate.
     Section 2.6 Events of Default; Waiver.
     The Holders of at least a Majority in Liquidation Amount of the Capital Securities may, by vote, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default and its consequences. Upon such waiver, any such default or Event of Default shall cease to exist, and any default or Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
     Section 2.7 Event of Default; Notice.
     (a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default known to the Guarantee Trustee, transmit by mail, first class postage prepaid, to the Holders, notice of any such Event of Default known to the Guarantee Trustee, unless such Event of Default has been cured before the giving of such notice, provided that, except in the case of a default in the payment of a Guarantee Payment, the Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders.
     (b) The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice, or a Responsible Officer charged with the administration of this Guarantee Agreement shall have obtained written notice, of such Event of Default.
     Section 2.8 Conflicting Interests.
     The Trust Agreement and the Indenture shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
     Section 3.1 Powers and Duties of the Guarantee Trustee.
     (a) This Guarantee Agreement shall be held by the Guarantee Trustee for the benefit of the Holders, and the Guarantee Trustee shall not transfer this Guarantee Agreement to any Person except to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Guarantee Trustee hereunder. The right, title and interest of the Guarantee Trustee, as such, hereunder shall automatically vest in any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment hereunder, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee.
     (b) If an Event of Default has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
     (c) The Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement (including pursuant to Section 2.1), and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. If an Event of Default has occurred (that has not been cured or

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waived pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
     (d) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
     (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
     (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement (including pursuant to Section 2.1), and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement (including pursuant to Section 2.1); and
     (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement (but in the case of any such certificates or opinions that by any provision hereof or of the Trust Indenture Act are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement);
     (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
     (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in Liquidation Amount of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and
     (iv) subject to Section 3.1(b), no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it.
     Section 3.2 Certain Rights of Guarantee Trustee.
     (a) Subject to the provisions of Section 3.1:
     (i) The Guarantee Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties.
     (ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by an Officers’ Certificate unless otherwise prescribed herein.
     (iii) Whenever, in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting to take

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any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers’ Certificate which, upon receipt of such request from the Guarantee Trustee, shall be promptly delivered by the Guarantor.
     (iv) The Guarantee Trustee may consult with legal counsel of its section, and the advice or opinion of such legal counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or opinion. Such legal counsel may be legal counsel to the Guarantor or any of its Affiliates and may be one of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction.
     (v) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder unless such Holder shall have provided to the Guarantee Trustee such security and indemnity reasonably satisfactory to the Guarantee Trustee against the costs, expenses (including attorneys’ fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided that nothing contained in this Section 3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement.
     (vi) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Guarantee Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole expense of the Company and shall incur no liability of any kind by reason of such inquiry or investigation.
     (vii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care hereunder.
     (viii) Whenever in the administration of this Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request instructions from the Holders, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in acting in accordance with such instructions.
     (ix) The Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement.
     (x) In no event shall the Guarantee Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Guarantee Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
     (xi) The Guarantee Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Guarantee Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Guarantee Trustee at the Corporate Trust Office of the Guarantee Trustee, and such notice references the Capital Securities and this Guarantee Agreement.

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     (xii) The rights, privileges, protections, immunities and benefits given to the Guarantee Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Guarantee Trustee and each agent and other Person employed to act hereunder.
     (xiii) The Guarantee Trustee may request that the Guarantor deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Guarantee Agreement.
     (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty to act in accordance with such power and authority.
     Section 3.3 Compensation; Indemnity; Fees.
     The Guarantor agrees:
     (a) to pay to the Guarantee Trustee from time to time such compensation for all services rendered by it hereunder as may be agreed in writing by the Guarantor and the Guarantee Trustee from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
     (b) except as otherwise expressly provided herein, to reimburse the Guarantee Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Guarantee Trustee in accordance with any provision of this Guarantee Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
     (c) to indemnify the Guarantee Trustee, any Affiliate of the Guarantee Trustee and any officer, director, shareholder, employee, representative or agent of the Guarantee Trustee (each, an “Indemnified Person”) for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or willful misconduct on the part of the Indemnified Person, arising out of or in connection with the acceptance or administration of this Guarantee Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.
     The Guarantee Trustee will not claim or exact any lien or charge on any Guarantee Payments as a result of any amount due to it under this Guarantee Agreement.
     The provisions of this Section 3.3 shall survive the termination of this Guarantee Agreement or the resignation or removal of the Guarantee Trustee.
ARTICLE IV
GUARANTEE TRUSTEE
     Section 4.1 Guarantee Trustee; Eligibility.
     (a) There shall at all times be a Guarantee Trustee which shall:
     (i) not be an Affiliate of the Guarantor; and
     (ii) be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000, and shall be a corporation meeting the requirements

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of Section 310(a) of the Trust Indenture Act. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then, for the purposes of this Section 4.1 and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
     (b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2.
     (c) If the Guarantee Trustee has or shall acquire any “conflicting interest” within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act.
     Section 4.2 Appointment, Removal and Resignation of the Guarantee Trustee.
     (a) Subject to Section 4.2(c), the Guarantee Trustee may be appointed or removed at any time (i) by the Guarantor with or without cause at any time when an Event of Default has not occurred and is continuing, or (ii) by the action of the Holders of a Majority in Liquidation Amount of the Capital Securities delivered to the Guarantee Trustee and the Guarantor (x) for cause or (y) if a Debenture Event of Default (as defined in the Trust Agreement) shall have occurred and be continuing at any time.
     (b) Subject to Section 4.2(c), the Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by giving written notice thereof to the Holders and the Guarantor.
     (c) The Guarantee Trustee appointed hereunder shall hold office until a Successor Guarantee Trustee shall have been appointed and shall have accepted such appointment. No removal or resignation of a Guarantee Trustee shall be effective until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor and, in the case of any resignation, the resigning Guarantee Trustee.
     (d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Holders and the Guarantor of a notice of resignation, the resigning Guarantee Trustee may petition, at the expense of the Guarantor, any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.
ARTICLE V
GUARANTEE
     Section 5.1 Guarantee.
     The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Issuer Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer Trust may have or assert, except the defense of payment. The Guarantor’s obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer Trust to pay such amounts to the Holders.
     Section 5.2 Waiver of Notice and Demand.
     The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Guarantee Trustee, the Issuer Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.

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     Section 5.3 Obligations Not Affected.
     The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
     (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer Trust of any express or implied agreement, covenant, term or condition relating to the Capital Securities to be performed or observed by the Issuer Trust;
     (b) the extension of time for the payment by the Issuer Trust of any portion of the Distributions (other than an extension of time for payment of Distributions that results from the extension of any interest payment period on the Debentures as provided in the Indenture), Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Capital Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Capital Securities;
     (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer Trust granting indulgence or extension of any kind;
     (d) the voluntary or involuntary liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer Trust or any of the assets of the Issuer Trust;
     (e) any invalidity of, or defect or deficiency in, the Capital Securities;
     (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
     (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor (other than payment of the underlying obligation), it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
     There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing.
     Section 5.4 Rights of Holders.
     The Guarantor expressly acknowledges that: (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) the Holders of a Majority in Liquidation Amount of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) any Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement without first instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust or any other Person.
     Section 5.5 Guarantee of Payment.
     This Guarantee Agreement creates a guarantee of payment and not of collection. This Guarantee Agreement will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer Trust) or upon the distribution of Debentures to Holders as provided in the Trust Agreement.
     Section 5.6 Subrogation.
     The Guarantor shall be subrogated to all rights (if any) of the Holders against the Issuer Trust in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement; provided, however, that the

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Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
     Section 5.7 Independent Obligations.
     The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer Trust with respect to the Capital Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
COVENANTS AND SUBORDINATION
     Section 6.1 Subordination.
     The obligations of the Guarantor under this Guarantee Agreement will constitute unsecured obligations of the Guarantor and will rank subordinate and junior in right of payment to all Senior Debt (as defined in the Indenture) of the Guarantor to the extent and in the manner set forth in the Indenture with respect to the Debentures, and the provisions of Article Eighteen of the Indenture will apply, mutatis mutandis, to the obligations of the Guarantor hereunder. The obligations of the Guarantor hereunder do not constitute Senior Debt (as defined in the Indenture) of the Guarantor.
     Section 6.2 Pari Passu Guarantees.
     The obligations of the Guarantor under this Guarantee Agreement shall rank pari passu with the obligations of the Guarantor under (i) any similar guarantee agreements issued by the Guarantor on behalf of the holders of preferred or capital securities issued by any statutory trust, (ii) the Indenture and the Debt Securities (as defined therein) issued thereunder; (iii) any expense agreements entered into by the Guarantor in connection with the offering of preferred or capital securities by any statutory trust, and (iv) any other security, guarantee or other agreement or obligation that is expressly stated to rank pari passu with the obligations of the Guarantor under this Guarantee Agreement or with any obligation that ranks pari passu with the obligations of the Guarantor under this Guarantee Agreement.
ARTICLE VII
TERMINATION
     Section 7.1 Termination.
     This Guarantee Agreement shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all Capital Securities, (ii) the distribution of Debentures to the Holders in exchange for all of the Capital Securities or (iii) full payment of the amounts payable in accordance with Article IX of the Trust Agreement upon liquidation of the Issuer Trust. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder is required to repay any sums paid with respect to Capital Securities or this Guarantee Agreement.

11


 

ARTICLE VIII
MISCELLANEOUS
     Section 8.1 Successors and Assigns.
     All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding. Except in connection with a consolidation, merger or sale involving the Guarantor that is permitted under Article Eight of the Indenture and pursuant to which the successor or assignee agrees in writing to perform the Guarantor’s obligations hereunder, the Guarantor shall not assign its obligations hereunder, and any purported assignment other than in accordance with this provision shall be void.
     Section 8.2 Amendments.
     Except with respect to any changes that do not adversely affect the rights of the Holders in any material respect (in which case no consent of the Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of not less than a Majority in Liquidation Amount of the Capital Securities. The provisions of Article VI of the Trust Agreement concerning meetings of the Holders shall apply to the giving of such approval.
     Section 8.3 Notices.
     Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows:
     (a) if given to the Guarantor, to the address or telecopy number set forth below or such other address or telecopy number as the Guarantor may give notice to the Guarantee Trustee and the Holders:

Superior Bancorp
17 North Twentieth Street
Birmingham, Alabama 35203
Attention: James A. White
Telecopy: (205) 488-3335
     (b) if given to the Guarantee Trustee, to the address or telecopy number set forth below or such other address or telecopy number as the Guarantee Trustee may give notice to the Guarantor and Holders:

The Bank of New York Mellon Trust Company, N.A.
505 North Twentieth Street, Suite 950
Birmingham, Alabama 35203
Attention: Corporate Trust Administration
Telecopy: (205) 328-7169
with a copy to:

Superior Capital Trust II
c/o Superior Bancorp
17 North Twentieth Street
Birmingham, Alabama 35203
Attention: James A. White
Telecopy: (205) 488-3335
     (c) if given to any Holder, at the address set forth on the books and records of the Issuer Trust.

12


 

     All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.
     Section 8.4 Benefit.
     This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Capital Securities.
     Section 8.5 Governing Law.
     THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
     Section 8.6 Counterparts.
     This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
     Section 8.7 Incorporation by Reference.
     In connection with its appointment and acting hereunder, the Guarantee Trustee is entitled to all rights, privileges, protections, benefits, immunities and indemnities provided to it as Property Trustee under the Trust Agreement.
     Section 8.8 Waiver of Jury Trial.
     EACH OF THE GUARANTOR AND THE GUARANTEE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE AGREEMENT, THE CAPITAL SECURITIES OR THE TRANSACTION CONTEMPLATED HEREBY.
     Section 8.9 Force Majeure.
     In no event shall the Guarantee Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Guarantee Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

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     IN WITNESS WHEREOF, the parties hereto have executed this Guarantee Agreement as of the day and year first above written.
             
    SUPERIOR BANCORP,    
    as Guarantor    
 
           
 
  By:   /s/ James A. White
 
   
 
  Name:   James A. White    
 
  Title:   Chief Financial Officer    
 
           
    THE BANK OF NEW YORK MELLON TRUST    
    COMPANY, N.A., as Guarantee Trustee    
 
           
 
  By:   /s/ Charles S. Northen IV
 
   
 
      Authorized Signature    

14

EX-10.29 6 g22315exv10w29.htm EX-(10)-29 exv10w29
Exhibit (10) - 29
EXCHANGE AGREEMENT
by and among
SUPERIOR BANCORP,
SUPERIOR CAPITAL TRUST II
AND
THE UNITED STATES DEPARTMENT OF THE TREASURY
Dated as of December 11, 2009

 


 

TABLE OF CONTENTS
         
    Page  
ARTICLE I
 
       
THE CLOSING; THE EXCHANGE OF CAPITAL SECURITIES FOR SERIES PREFERRED STOCK
 
       
Section 1.1 The Capital Securities
    1  
Section 1.2 The Closing
    1  
Section 1.3 Interpretation
    3  
 
       
ARTICLE II
 
       
EXCHANGE
 
       
Section 2.1 Exchange
    3  
Section 2.2 Exchange Documentation
    4  
 
       
ARTICLE III
 
       
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
       
Section 3.1 Existence and Power
    4  
Section 3.2 Authorization and Enforceability
    4  
Section 3.3 Valid Issuance of Capital Securities and Debentures
    4  
Section 3.4 Non-Contravention
    5  
Section 3 5 Representations and Warranties Regarding the Trust
    6  
Section 3.6 No Company Material Adverse Effect
    6  
Section 3.7 Offering of Securities
    6  
Section 3.8 Brokers and Finders
    6  
 
       
ARTICLE IV
 
       
COVENANTS
 
       
Section 4.1 Commercially Reasonable Efforts
    6  
Section 4.2 Expenses
    7  
Section 4.3 Exchange Listing
    7  
Section 4.4 Access, Information and Confidentiality
    7  
Section 4.5 Executive Compensation
    7  
Section 4.6 Certain Notifications Until Closing
    8  
Section 4.7 Tax Status of Debentures
    8  
Section 4.8 TIA Qualification
    8  
Section 4.9 Monthly Lending Reports
    9  
Section 4.10 Recapitalization
    9  

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    Page  
ARTICLE V
       
 
       
ADDITIONAL AGREEMENTS
       
 
       
Section 5.1 Unregistered Capital Securities
    9  
Section 5.2 Legend
    10  
Section 5.3 Certain Transactions
    10  
Section 5.4 Transfer of Capital Securities
    10  
Section 5.5 Registration Rights
    10  
Section 5.6 Restriction on Dividends and Repurchases
    11  
Section 5.7 Repurchase of Investor Securities
    12  
Section 5.8 Qualified Equity Offering
    12  
Section 5.9 Bank or Thrift Holding Company Status
    12  
Section 5.10 Compliance with Employ American Workers Act
    12  
 
       
ARTICLE VI
       
 
       
MISCELLANEOUS
       
 
       
Section 6.1 Termination
    12  
Section 6.2 Survival of Representations and Warranties
    13  
Section 6.3 Amendment
    13  
Section 6.4 Waiver of Conditions
    13  
Section 6.5 Governing Law Submission to Jurisdiction, Etc.
    13  
Section 6.6 Notices
    13  
Section 6.7 Definitions
    14  
Section 6.8 Assignment
    15  
Section 6.9 Severability
    15  
Section 6.10 No Third-Party Beneficiaries
    15  
Section 6.11 Entire Agreement, Etc.
    16  
Section 6.12 Counterparts and Facsimile
    16  
ii

 


 

     
Defined Terms
   
 
   
Affiliate
  Section 6.7(b)
Agreement
  Preamble
Bank
  Section 1.2(d)(iii)
Base Indenture
  Section 1.2(d)(iii)
Benefit Plans
  Section 1.2(d)(vii)
Capital Securities
  Recitals
Capitalization Date
  Section 3.1(b)
Closing
  Section 1.2(a)
Closing Date
  Section 1.2(a)
Common Securities
  Recitals
Common Stock
  Section 4.10
Company
  Preamble
Company Material Adverse Effect
  Section 6.7(c)
Company Subsidiaries
  Section 4.4(a)
Compensation Regulations
  Section 1.2(d)(vii)
Debentures
  Recitals
Delaware Statutory Trust Act
  Preamble
EAWA
  Section 5.10
EESA
  Section 1.2(d)(vii)
Exchange
  Recitals
First Supplemental Indenture
  Section 1.2(d)(iii)
Governing Agreements
  Section 1.2(d)(iii)
Governmental Entities
  Section 1.2(c)
Guarantee Agreement
  Section 1.2(d)(iii)
Indenture
  Section 1.2(d)(iii)
Information
  Section 4.4(c)
Investor
  Preamble
Junior Stock
  Section 5.6(c)
Parity Stock
  Section 5.6(c)
Permitted Repurchases
  Section 5.6(a)(ii)
Previously Disclosed
  Section 6.7(d)
Relevant Period
  Section 1.2(d)(vii)
SEC
  Section 4.10
Section 4.5 Employee
  Section 4.5(b)
Securities Purchase Agreement
  Recitals
Senior Executive Officers
  Section 1.2(d)(vii)
Series A Preferred Stock
  Recitals
Series A Shares
  Section 2.1
Share Dilution Amount
  Section 5.6(a)(ii)
Targeted Completion Date
  Section 4.10
Transfer
  Section 5.4
Trust
  Preamble
Trust Agreement
  Section 1.2(d)(iii)
Trust Indenture Act
  Section 4.9
iii

 


 

     EXCHANGE AGREEMENT, dated as of December 11, 2009 (this “Agreement”) by and among Superior Bancorp, a Delaware corporation (the “Company”), Superior Capital Trust II (the “Trust”), a Delaware statutory trust created under the Delaware Statutory Trust Act (as defined in the Trust Agreement), and the United States Department of the Treasury (the “Investor”). All capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Securities Purchase Agreement.
BACKGROUND
     WHEREAS, the Investor is, as of the date hereof, the beneficial owner of 69,000 shares of the Company’s preferred stock designated as “Fixed Rate Cumulative Perpetual Preferred Stock, Series A”, having a liquidation amount of $1,000 per share (the “Series A Preferred Stock”);
     WHEREAS, the Company issued the Series A Preferred Stock pursuant to a Securities Purchase Agreement, dated December 5, 2008 (the “Securities Purchase Agreement”), between the Company and the Investor;
     WHEREAS, the Company, the Trust and the Investor desire to exchange 69,000 newly issued capital securities of the Trust (the “Capital Securities”), with a liquidation amount of $1,000 per capital security, for the 69,000 shares of the Series A Preferred Stock beneficially owned and held by the Investor, on the terms and subject to the conditions set forth herein (the “Exchange”); and
     WHEREAS, in connection with the Exchange, the Trust proposes to use the Series A Preferred Stock, together with the proceeds of the issuance and sale by the Trust to the Company of $ 100,000 aggregate liquidation amount of its Fixed Rate Common Securities (the “Common Securities”), to purchase $69,100,000 aggregate principal amount of the Debentures (as defined in the First Supplemental Indenture).
     NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows:
ARTICLE I
THE CLOSING; THE EXCHANGE OF CAPITAL SECURITIES FOR SERIES PREFERRED STOCK
     Section 1.1 The Capital Securities.
     The Capital Securities are being issued to the Investor in the Exchange pursuant to Article II hereof. The shares of Series A Preferred Stock exchanged for the Capital Securities pursuant to Article II hereof are being reacquired by the Company and shall have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company; provided that such shares shall not be reissued as shares of Series A Preferred Stock.
     Section 1.2 The Closing.
     (a) The closing of the Exchange (the “Closing”) will take place at the offices of Haskell Slaughter Young & Rediker, LLC, 1400 Park Place Tower, 2001 Park Place North, Birmingham, Alabama 35203, at 9:00 a.m., CST on the business day after the day on which all of the conditions set forth in Sections 1.2(c) and (d) are satisfied or waived (other than those conditions that by their terms must be satisfied on the Closing Date, but subject to the satisfaction or waiver of those conditions), or at such other place, time and date as shall be agreed between the Company and the Investor. The time and date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

1


 

     (b) Subject to the fulfillment or waiver of the conditions to the Closing in this Section 1.2, at the Closing (i) the Trust will deliver the Capital Securities to the Investor, as evidenced by one or more certificates dated the Closing Date and registered in the name of the Investor or its designee(s), (ii) the Investor will deliver the certificate representing the Series A Shares to the Trust, (iii) the Trust will use the Series A Shares, together with the proceeds of the issuance and sale by the Trust to the Company of $100,000 aggregate liquidation amount of Common Securities to purchase $69,100,000 aggregate principal amount of the Debentures and (iv) the Company will deliver to the Trust Debentures having an aggregate principal amount of $69,100,000.
     (c) The respective obligations of each of the Investor, the Trust and the Company to consummate the Exchange are subject to the fulfillment (or waiver by the Company, the Trust and the Investor, as applicable) prior to the Closing of the conditions that (i) any approvals or authorizations of all United States and other governmental, regulatory or judicial authorities (collectively, “Governmental Entities”) required for the consummation of the Exchange shall have been obtained or made in form and substance reasonably satisfactory to each party and shall be in full force and effect and all waiting periods required by United States and other applicable law, if any, shall have expired and (ii) no provision of any applicable United States or other law and no judgment, injunction, order or decree of any Governmental Entity shall prohibit consummation of the Exchange as contemplated by this Agreement.
     (d) The obligation of the Investor to consummate the Exchange is also subject to the fulfillment (or waiver by the Investor) at or prior to the Closing of each of the following conditions:
     (i) (A) the representations and warranties of the Company set forth in (x) Sections 3.4 and 3.6 of this Agreement shall be true and correct in all respects as though made on and as of the Closing Date and (y) Sections 3.1, 3.2, 3.3, 3.5, 3.7 and 3.8 of this Agreement shall be true and correct in all material respects as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct in all material respects as of such other date) and (B) the Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing;
     (ii) the Investor shall have received a certificate signed on behalf of the Company by a senior executive officer certifying to the effect that the conditions set forth in Section 1.2(d)(i) have been satisfied;
     (iii) the Investor shall have received an amount equal to all accrued and unpaid dividends on the Series A Shares to, but excluding, the Closing Date in cash to an account designated by the Investor;
     (iv) the Company shall have delivered to the Investor the Amended and Restated Declaration of Trust and Trust Agreement, in substantially the form attached hereto as Annex A (the “Trust Agreement”), among the Company, The Bank of New York Mellon Trust Company, N.A., a national banking association, as property trustee (the “Bank”), BNY Mellon Trust of Delaware, a Delaware banking corporation, as Delaware trustee, and James A. White, an individual, and William H. Caughran, an individual, as administrative trustees, and the several Holders (as defined in the Trust Agreement), the Guarantee Agreement, in substantially the form attached hereto as Annex B (the “Guarantee Agreement”), between the Company and the Bank, as guarantee trustee, and the First Supplemental Indenture, in substantially the form attached hereto as Annex C (the “First Supplemental Indenture”), between the Company and the Bank, as trustee, which amends and supplements the Indenture in substantially the form attached hereto as Annex C (the “Base Indenture”), between the Company and the Bank; the Base Indenture and the First Supplemental Indenture are together referred to herein as the “Indenture”; the Trust Agreement, the Guarantee Agreement and the Indenture are collectively referred to herein as the “Governing Agreements”;
     (v) the Trust shall have delivered certificates in proper form or, with the prior consent of the Investor, evidence in book-entry form, evidencing the Capital Securities to the Investor or its designee(s);
     (vi) the Company shall have delivered to the Investor written opinions from outside counsel to the Company, addressed to the Investor and dated as of the Closing Date, in substantially the forms attached hereto as Annexes D-1 and D-2; and

2


 

     (vii) (A) the Company shall have effected such changes to its compensation, bonus, incentive and other benefit plans, arrangements and agreements (including golden parachute, severance and employment agreements) (collectively, “Benefit Plans”) with respect to its Senior Executive Officers (and to the extent necessary for such changes to be legally enforceable, each of its Senior Executive Officers shall have duly consented in writing to such changes), as may be necessary, during the period beginning with the Company’s receipt of any “financial assistance” (as such term is defined in the Compensation Regulations), and ending on the last date upon which any obligation of the Company arising from such financial assistance remains outstanding (disregarding any warrants to purchase common stock of the Company that the Investor may be holding) (such period, the “Relevant Period”), in order to comply with Section 111 of the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, or otherwise from time to time (“EESA”), as implemented by any guidance, rule or regulation thereunder, as the same shall be in effect from time to time (collectively, the “Compensation Regulations”) and (B) the Investor shall have received a certificate signed on behalf of the Company by a senior executive officer certifying to the effect that the condition set forth in Section 1.2(d)(vi)(A) has been satisfied; “Senior Executive Officers “ means the Company’s “senior executive officers” as defined in Section 111 of the EESA and the Compensation Regulations issued or to be issued thereunder, including the rules set forth in 31 CFR Part 30 or any rules that replace 31 CFR Part 30.
     Section 1.3 Interpretation.
     When a reference is made in this Agreement to “Recitals,” “Articles,” “Sections,” “Annexes” or “Schedules” such reference shall be to a Recital, Article or Section of, or Annex or Schedule to, this Agreement, unless otherwise indicated. The terms defined in the singular have a comparable meaning when used in the plural, and vice versa. References to “herein”, “hereof”, “hereunder” and the like refer to this Agreement as a whole and not to any particular section or provision, unless the context requires otherwise. The table of contents and headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation.” No rule of construction against the draftsperson shall be applied in connection with the interpretation or enforcement of this Agreement, as this Agreement is the product of negotiation between sophisticated parties advised by counsel. All references to “$” or “dollars” mean the lawful currency of the United States of America. Except as expressly stated in this Agreement, all references to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute, rule or regulation include any successor to the section. References to a “business day” shall mean any day except Saturday, Sunday and any day on which banking institutions in New York, New York, Birmingham, Alabama or Wilmington, Delaware generally are authorized or required by law, regulation or executive order to remain closed or are customarily closed.
ARTICLE II
EXCHANGE
     Section 2.1 Exchange.
     On the terms and subject to the conditions set forth in this Agreement, (a) the Company and the Trust agree to issue the Capital Securities to the Investor in exchange for 69,000 shares of Series A Preferred Stock beneficially owned and held by the Investor (such shares, the “Series A Shares”), and (b) the Investor agrees to deliver to the Trust the Series A Shares in exchange for the Capital Securities.

3


 

     Section 2.2 Exchange Documentation.
     Settlement of the Exchange will take place on the Closing Date, at which time the Investor will cause delivery of the Series A Shares to the Trust or its designated agent and the Company and the Trust will cause delivery of the Capital Securities to the Investor or its designated agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
     Except as Previously Disclosed, the Company represents and warrants to Investor as of the date hereof and as of the Closing Date that:
     Section 3.1 Existence and Power.
     (a) Organization, Authority and Significant Subsidiaries. The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to own, operate and lease its properties and to carry on its business as it is being currently conducted, and except as has not, individually or in the aggregate, had and would not reasonably be expected to have a Company Material Adverse Effect, has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification; each subsidiary of the Company that is a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization. The Charter and bylaws of the Company, copies of which have been provided to the Investor prior to the date hereof, are true, complete and correct copies of such documents as in full force and effect as of the date hereof.
     (b) Capitalization. The authorized capital stock of the Company, and the outstanding capital stock of the Company (including securities convertible into, or exercisable or exchangeable for, capital stock of the Company) as of the most recent fiscal month-end preceding the date hereof (the “Capitalization Date”) is set forth on Schedule A. The outstanding shares of capital stock of the Company have been duly authorized and are validly issued and outstanding, fully paid and nonassessable, and subject to no preemptive rights (and were not issued in violation of any preemptive rights). Except as provided in the Warrant, as of the date hereof, the Company does not have outstanding any securities or other obligations providing the holder the right to acquire Common Stock that is not reserved for issuance as specified on Schedule A, and the Company has not made any other commitment to authorize, issue or sell any Common Stock. Since the Capitalization Date, the Company has not issued any shares of Common Stock other than (i) shares issued upon the exercise of stock options or delivered under other equity-based awards or other convertible securities or warrants which were issued and outstanding on the Capitalization Date and disclosed on Schedule A and (ii) shares disclosed on Schedule A.
     Section 3.2 Authorization and Enforceability.
     (a) The Company has the corporate power and authority to execute and deliver this Agreement and the Governing Agreements and to carry out its obligations hereunder and thereunder.
     (b) The execution, delivery and performance by the Company of this Agreement and the Governing Agreements and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of the Company and, if any, its stockholders, and no further approval or authorization is required on the part of the Company. This Agreement and the Governing Agreements are valid and binding obligations of the Company, enforceable against the Company in accordance with its and their terms, subject to the Bankruptcy Exceptions.
     Section 3.3 Valid Issuance of Capital Securities and Debentures.

4


 

     (a) The Capital Securities have been duly and validly authorized by all necessary action, and, when issued and delivered pursuant to this Agreement, such Capital Securities will be duly and validly issued and fully paid and nonassessable, will not be issued in violation of any preemptive rights, will represent nonassessable undivided beneficial interests in the assets of the Trust, will be entitled to the benefits of the Trust Agreement and the Guarantee Agreement and will not subject the holder thereof to personal liability.
     (b) The Debentures have been duly and validly authorized by the Company and, when issued and delivered pursuant to the Indenture, such Debentures will have been duly executed, authenticated, issued and delivered, will constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to the Bankruptcy Exceptions, will be in the form contemplated by, and entitled to the benefits of, the Indenture, and will have the ranking set forth in the Indenture.
     Section 3.4 Non-Contravention.
     (a) The execution, delivery and performance by the Company of this Agreement, the Governing Agreements, and the consummation of the transactions contemplated hereby and thereby, and compliance by the Company with the provisions hereof and thereof, will not (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Company Subsidiary under any of the terms, conditions or provisions of (i) its organizational documents or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any Company Subsidiary is a party or by which it or any Company Subsidiary may be bound, or to which the Company or any Company Subsidiary or any of the properties or assets of the Company or any Company Subsidiary may be subject, or (B) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the Company or any Company Subsidiary or any of their respective properties or assets except, in the case of clauses (A)(ii) and (B), for those occurrences that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.
     (b) Other than the filing of any current report on Form 8-K required to be filed with the SEC, such filings and approvals as are required to be made or obtained under any state “blue sky” laws and such consents and approvals that have been made or obtained, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any Governmental Entity is required to be made or obtained by the Company in connection with the consummation by the Company of the Exchange except for any such notices, filings, exemptions, reviews, authorizations, consents and approvals the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
     (c) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (A) the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby (including for this purpose the consummation of the Exchange) and compliance by the Company with the provisions hereof will not (1) result in any payment (including any severance payment, payment of unemployment compensation, “excess parachute payment” (within the meaning of the Code), “golden parachute payment” (as defined in the EESA, as implemented by the Compensation Regulations) or forgiveness of indebtedness or otherwise) becoming due to any current or former employee, officer or director of the Company or any Company Subsidiary from the Company or any Company Subsidiary under any benefit plan or otherwise, (2) increase any benefits otherwise payable under any benefit plan, (3) result in any acceleration of the time of payment or vesting of any such benefits, (4) require the funding or increase in the funding of any such benefits or (5) result in any limitation on the right of the Company or any Company Subsidiary to amend, merge, terminate or receive a reversion of assets from any benefit plan or related trust and (B) neither the Company nor any Company Subsidiary has taken, or permitted to be taken, any action that required, and no circumstances exist that will require the funding, or increase in the funding, of any benefits or resulted, or will result, in any limitation on the right of the Company or any Company Subsidiary to amend, merge, terminate or receive a reversion of assets from any benefit plan or related trust.

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     Section 3.5 Representations and Warranties Regarding the Trust.
     (a) The Trust has been duly created, is validly existing in good standing as a statutory trust under the Delaware Statutory Trust Act and is and will be treated as a “grantor trust” for federal income tax purposes under existing law.
     (b) The Trust has the statutory trust power and authority to conduct its business as contemplated by this Agreement and the Trust Agreement and is not required to be authorized to do business in any other jurisdiction.
     (c) The execution, delivery and performance of this Agreement and the Trust Agreement have been duly authorized by the Trust, and this Agreement and the Trust Agreement will constitute valid and legally binding instruments of the Trust, enforceable against the Trust in accordance their terms, subject to the Bankruptcy Exceptions. The Trust is not and will not be a party to or otherwise be bound by any agreement other than the Governing Agreements and those entered into in connection with the issuance of the Capital Securities and the Common Securities.
     (d) The administrative trustees of the Trust are officers of the Company and have been duly authorized by the Company to execute and deliver the Trust Agreement.
     (e) The Trust is not now, nor after giving effect to the transactions contemplated hereby will be, and the Trust is not controlled by, or acting on behalf of any person which is, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
     Section 3.6 No Company Material Adverse Effect.
     Since September 30, 2009, no fact, circumstance, event, change, occurrence, condition or development has occurred that, individually or in the aggregate, has had or would reasonably be likely to have a Company Material Adverse Effect, except as disclosed on Schedule B.
     Section 3.7 Offering of Securities.
     Neither the Company nor any person acting on its behalf has taken any action (including any offering of any securities of the Company under circumstances which would require the integration of such offering with the offering of the Capital Securities under the Securities Act and the rules and regulations of the SEC promulgated thereunder), which might subject the offering, issuance or sale of the Capital Securities to the Investor pursuant to this Agreement to the registration requirements of the Securities Act.
     Section 3.8 Brokers and Finders.
     No broker, finder or investment banker is entitled to any financial advisory, brokerage, finder’s or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon arrangements made by or on behalf of the Company or any Company Subsidiary for which the Investor could have any liability.
ARTICLE IV
COVENANTS
     Section 4.1 Commercially Reasonable Efforts.
     Subject to the terms and conditions of this Agreement, each of the parties will use its commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the Exchange as promptly as practicable and otherwise to enable consummation of the transactions contemplated hereby and shall use commercially reasonable efforts to cooperate with the other party to that end.

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     Section 4.2 Expenses.
     If requested by the Investor, the Company shall pay all reasonable out-of-pocket and documented costs and expenses associated with the Exchange, including (i) the reasonable fees, disbursements and other charges of Venable LLP, as counsel to the Investor, and (ii) the reasonable fees, disbursements and other charges of the trustees for the Capital Securities and the Debentures.
     Section 4.3 Exchange Listing.
     If requested by the Investor, the Company and the Trust shall, at the Company’s expense, cause the Capital Securities, to the extent the Capital Securities comply with applicable listing requirements, and, after distribution thereof, the Debentures, to be listed on the Nasdaq Global Market, subject to official notice of issuance, and shall maintain such listing for so long as any Common Stock is listed on such exchange. At the Investor’s request, the Company agrees to take such action as may be necessary to change the minimum denominations of the Capital Securities to $25 or such other amount as the Investor shall reasonably request.
     Section 4.4 Access, Information and Confidentiality.
     (a) From the date hereof until the date when the Investor no longer holds any debt or equity securities of the Company or an Affiliate of the Company acquired pursuant to this Agreement, the Company will permit the Investor and its agents, consultants, contractors and advisors (i) acting through the Company’s Appropriate Federal Banking Agency, to examine the corporate books and make copies thereof and to discuss the affairs, finances and accounts of the Company and the subsidiaries of the Company (the “Company Subsidiaries”) with the principal officers of the Company, all upon reasonable notice and at such reasonable times and as often as the Investor may reasonably request and (ii) to review any information material to the Investor’s investment in the Company provided by the Company to its Appropriate Federal Banking Agency.
     (b) From the date hereof until the date when the Investor no longer holds any debt or equity securities of the Company or an Affiliate of the Company acquired pursuant to this Agreement, the Company will permit, and will cause the Company Subsidiaries to permit the Investor and its agents, consultants, contractors access to personnel and any books, papers, records or other data, in each case, to the extent relevant to ascertaining compliance with the financing terms and conditions.
     (c) The Investor will use reasonable best efforts to hold, and will use reasonable best efforts to cause its agents, consultants, contractors, advisors, and United States executive branch officials and employees, to hold, in confidence all non-public records, books, contracts, instruments, computer data and other data and information (collectively, “Information”) concerning the Company furnished or made available to it by the Company or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (i) previously known by such party on a non-confidential basis, (ii) in the public domain through no fault of such party or (iii) later lawfully acquired from other sources by the party to which it was furnished (and without violation of any other confidentiality obligation)); provided that nothing herein shall prevent the Investor from disclosing any Information to the extent required by applicable laws or regulations or by any subpoena or similar legal process. The Investor understands that the Information may contain commercially sensitive confidential information entitled to an exception from a Freedom of Information Act request.
     (d) Nothing in this Section shall be construed to limit the authority that the Special Inspector General of the Troubled Asset Relief Program, the Comptroller General of the United States or any other applicable regulatory authority has under law.
     Section 4.5 Executive Compensation.
     (a) Benefit Plans. During the Relevant Period, the Company shall take all necessary action to ensure that its Benefit Plans comply in all respects with Section 111 of the EESA, as implemented by the Compensation Regulations, and shall not adopt any new Benefit Plan (i) that does not comply therewith or (ii) that does not expressly state and require that such Benefit Plan and any compensation thereunder shall be subject to any relevant Compensation Regulations adopted, issued or released on or after the date any such Benefit Plan is adopted. To the

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extent that EESA and/or the Compensation Regulations are amended or otherwise change during the Relevant Period in a manner that requires changes to then-existing Benefit Plans, the Company shall effect such changes to its Benefit Plans as promptly as practicable after it has actual knowledge of such changes in order to be in compliance with this Section 4.5(a) (and shall be deemed to be in compliance for a reasonable period to effect such changes).
     (b) Additional Waivers. After the Closing Date, in connection with the hiring or promotion of a Section 4.5 Employee or otherwise, to the extent any Section 4.5 Employee shall not have executed a waiver with respect to the application to such Section 4.5 Employee of the Compensation Regulations, the Company shall use its best efforts to (i) obtain from such Section 4.5 Employee a waiver in a form satisfactory to the Investor and (ii) deliver such waiver to the Investor as promptly as possible, in each case, within sixty days of the Closing Date or, if later, within sixty days of such Section 4.5 Employee becoming subject to the requirements of this section. “Section 4.5 Employee” means (A) each Senior Executive Officer and (B) each additional highly-compensated employee of the Company or its Affiliates subject to the limitations set forth in subsection 111(b)(3)(D) of the EESA and the Compensation Regulations.
     (c) Clawback. In the event that any Section 4.5 Employee receives a payment in contravention of the provisions of this Section 4.5, the Company shall promptly provide such individual with written notice that the amount of such payment must be repaid to the Company in full within fifteen business days following receipt of such notice or such earlier time as may be required by the Compensation Regulations and shall promptly inform the Investor (i) upon discovering that a payment in contravention of this Section 4.5 has been made and (ii) following the repayment to the Company of such amount and shall take such other actions as may be necessary to comply with the Compensation Regulations.
     (d) Limitation on Deductions. During the Relevant Period, the Company agrees that it shall not claim a deduction for remuneration for federal income tax purposes in excess of $500,000 for each Senior Executive Officer that would not be deductible if Section 162(m)(5) of the Code applied to the Company.
     (e) Amendment to Prior Agreement. The parties agree that, effective as of the date hereof, Section 4.10 of the Securities Purchase Agreement shall be amended in its entirety by replacing such Section 4.10 with the provisions set forth in this Section 4.5 and any terms included in this Section 4.5 that are not otherwise defined in the Securities Purchase Agreement shall have the meanings ascribed to such terms in this Agreement.
     Section 4.6 Certain Notifications Until Closing.
     From the date hereof until the Closing, the Company shall promptly notify the Investor of (i) any fact, event or circumstance of which it is aware and which would reasonably be likely to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate in any material respect or to cause any covenant or agreement of the Company contained in this Agreement not to be complied with or satisfied in any material respect and (ii) except as Previously Disclosed, any fact, circumstance, event, change, occurrence, condition or development of which the Company is aware and which, individually or in the aggregate, has had or would reasonably be likely to have a Company Material Adverse Effect; provided, however, that delivery of any notice pursuant to this Section 4.6 shall not limit or affect any rights of or remedies available to the Investor; provided, further, that a failure to comply with this Section 4.6 shall not constitute a breach of this Agreement or the failure of any condition set forth in Section 1.2 to be satisfied unless the underlying Company Material Adverse Effect or material breach would independently result in the failure of a condition set forth in Section 1.2 to be satisfied.
     Section 4.7 Tax Status of Debentures.
     The Company agrees that, for so long as any Debentures are outstanding, it will not claim a deduction for interest on the Debentures for federal, state, foreign or other income tax purposes.
     Section 4.8 TIA Qualification.
     In connection with any registration pursuant to Section 5.5, the Company agrees to (i) qualify the Governing Agreements under the Trust Indenture Act of 1939, as amended, and the rules and regulations of the SEC

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promulgated thereunder (together, the “Trust Indenture Act”), and (ii) ensure that the Governing Agreements comply in all material respects with the applicable requirements of the Trust Indenture Act.
     Section 4.9 Monthly Lending Reports.
     During the Relevant Period, the Company will detail in monthly reports submitted to the Investor the information required by the CPP Monthly Lending Reports, as published on www.financialstability.gov from time to time.
     Section 4.10 Recapitalization.
     The Company has informed the Investor that the Company intends to pursue certain other transactions described below (the “Other Transactions”) each with a target date for consummation as indicated (a “Targeted Completion Date”):
     (a) the exchange of $12 million in face amount of the outstanding capital securities of Superior Capital Trust I that are privately held for shares of the Company’s common stock, par value per share of $.001 (the “Common Stock”) resulting in the extinguishment of the subordinated debt issued by the Company in connection therewith with a Targeted Completion Date of January 31, 2010;
     (b) the exchange of $10 million in subordinated debt owed by the Company to one creditor for Common Stock with a Targeted Completion Date of January 31, 2010; and
     (c) a follow-on public offering of Common Stock projected to result in net proceeds to the Company of approximately $100 million with a Targeted Completion Date of February 28, 2010 (assuming no review by the Securities and Exchange Commission (“SEC”) of the Company’s Registration Statement on Form S-1) or April 30, 2010 (assuming there is a review by the SEC).
     The Company will use its best efforts to consummate all the Other Transactions by the applicable Targeted Completion Date. Until all the Other Transactions have been consummated (or the Company and Investor agree that one or more of the Other Transactions is no longer susceptible to consummation on terms and conditions that are in the Company’s best interest), the Company shall provide the Investor with a reasonably detailed written report regarding the status of each of the Other Transactions at least once every two weeks and more frequently if reasonably requested by the Investor; provided, however, that if any one or more of the Other Transactions is not consummated by the time of its Targeted Completion Date, the Company shall, with respect to any such non-consummated Other Transaction, (x) within five business days after the Targeted Completion Date for such Other Transaction provide to the Investor a reasonably detailed written description of the status of such Other Transaction including the Company’s best estimate of the steps and timeline to complete such Other Transaction (the “Status Report”) and (y) thereafter, no less frequently than monthly and more frequently if reasonably requested by the Investor until such Other Transactions have been consummated, provide to the Investor an updated version of the Status Report.
ARTICLE V
ADDITIONAL AGREEMENTS
     Section 5.1 Unregistered Capital Securities.
     The Investor acknowledges that the Capital Securities have not been registered under the Securities Act or under any state securities laws. The Investor (a) is acquiring the Capital Securities pursuant to an exemption from registration under the Securities Act solely for investment with no present intention to distribute them to any person in violation of the Securities Act or any applicable U.S. state securities laws, (b) will not sell or otherwise dispose of any of the Capital Securities, except in compliance with the registration requirements or exemption provisions of the Securities Act and any applicable U.S. state securities laws and (c) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of the Exchange and of making an informed investment decision.

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     Section 5.2 Legend.
     (a) The Investor agrees that all certificates or other instruments representing the Capital Securities will bear a legend substantially to the following effect:
     “THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
     THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. ANY TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.”
     (b) In the event that any Capital Securities (i) become registered under the Securities Act or (ii) are eligible to be transferred without restriction in accordance with Rule 144 or another exemption from registration under the Securities Act (other than Rule 144A), the Company shall issue new certificates or other instruments representing such Capital Securities, which shall not contain the applicable legend in Section 5.2(a) above; provided that the Investor surrenders to the Company the previously issued certificates or other instruments.
     Section 5.3 Certain Transactions.
     The Company will not merge or consolidate with, or sell, transfer or lease all or substantially all of its property or assets to, any other party unless the successor, transferee or lessee party (or its ultimate parent entity), as the case may be (if not the Company), expressly assumes the due and punctual performance and observance of each and every covenant, agreement and condition of this Agreement and the Governing Agreements to be performed and observed by the Company.
     Section 5.4 Transfer of Capital Securities.
     Subject to compliance with applicable securities laws, the Investor shall be permitted to transfer, sell, assign or otherwise dispose of (“Transfer”) all or a portion of the Capital Securities at any time, and the Company shall take all steps as may be reasonably requested by the Investor to facilitate the Transfer of the Capital Securities.
     Section 5.5 Registration Rights.

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     The Capital Securities shall be Registrable Securities and, upon their issuance, the provisions of Section 4.5 of the Securities Purchase Agreement shall be applicable to them, including with the benefit, to the extent available, of the tacking of any holding period from the date of issuance of the Series A Preferred Stock.
     Section 5.6 Restriction on Dividends and Repurchases.
     (a) Until such time as the Investor ceases to own any debt or equity securities of the Company or an Affiliate of the Company acquired pursuant to this Agreement, neither the Company nor any Company Subsidiary shall, without the consent of the Investor:
     (i) declare or pay any dividend or make any distribution on the Common Stock (other than (A) regular quarterly cash dividends of not more than the amount of the last quarterly cash dividend per share declared or, if lower, publicly announced an intention to declare, on the Common Stock prior to October 14, 2008, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction, (B) dividends payable solely in shares of Common Stock and (C) dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan); or
     (ii) redeem, purchase or acquire any shares of Common Stock or other capital stock or other equity securities of any kind of the Company, or any trust preferred securities issued by the Company or any Affiliate of the Company, other than (A) redemptions, purchases or other acquisitions of the Capital Securities (which purchases shall be made on a pro rata basis, as provided in Section 5.6(b)), (B) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock, in each case in this clause (B) in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount pursuant to a publicly announced repurchase plan) and consistent with past practice; provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount, (C) purchases or other acquisitions by a broker-dealer subsidiary of the Company solely for the purpose of market-making, stabilization or customer facilitation transactions in trust preferred securities of the Company or an Affiliate of the Company, Junior Stock or Parity Stock in the ordinary course of its business, (D) purchases by a broker-dealer subsidiary of the Company of trust preferred securities or capital stock of the Company or an Affiliate of the Company for resale pursuant to an offering by the Company of such trust preferred securities or capital stock underwritten by such broker-dealer subsidiary, (E) any redemption or repurchase of rights pursuant to any stockholders’ rights plan, (F) the acquisition by the Company or any of the Company Subsidiaries of record ownership in Junior Stock, Parity Stock or trust preferred securities of the Company or an Affiliate of the Company for the beneficial ownership of any other persons (other than the Company or any other Company Subsidiary), including as trustees or custodians, and (G) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock or trust preferred securities of the Company or an Affiliate of the Company for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case set forth in this clause (G), solely to the extent required pursuant to binding contractual agreements entered into prior to the date hereof or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock (clauses (C) and (F), collectively, the “Permitted Repurchases”). “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with GAAP, and as measured from the date of the Company’s most recently filed consolidated financial statements prior to the Closing Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
     (b) Until such time as the Investor ceases to own any Capital Securities, the Company shall not repurchase any Capital Securities from any holder thereof, whether by means of open market purchase, negotiated transaction, or otherwise, other than Permitted Repurchases, unless it offers to repurchase a ratable portion of the Capital Securities then held by the Investor on the same terms and conditions.
     (c) “Junior Stock” means Common Stock and any other class or series of stock of the Company the terms of which expressly provide that it ranks junior to the Capital Securities as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Company. “Parity Stock” means any class or series of stock of the Company the terms of which do not expressly provide that such class or series will rank senior or junior to the

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Capital Securities as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Company (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).
     (d) The parties agree that, effective as of the date hereof, Section 4.8 of the Securities Purchase Agreement shall be amended in its entirety by replacing such Section 4.8 with the provisions set forth in this Section 5.6 and any terms included in this Section 5.6 that are not otherwise defined in the Securities Purchase Agreement shall have the meanings ascribed to such terms in this Agreement.
     Section 5.7 Repurchase of Investor Securities.
     From and after the date of this Agreement, the agreements set forth in Section 4.9 of the Securities Purchase Agreement shall be applicable only following the redemption in whole of the Capital Securities held by the Investor or the Transfer by the Investor of all of the Capital Securities held by the Investor to one or more third parties not affiliated with the Investor.
     Section 5.8 Qualified Equity Offering.
     The Company and the Investor agree, for the avoidance of doubt, that none of the transactions contemplated by this Agreement (including, without limitation, the issuance of the Debentures) shall be deemed a Qualified Equity Offering under the Securities Purchase Agreement or the Warrant.
     Section 5.9 Bank or Thrift Holding Company Status.
     (a) The Company shall maintain its status as a Savings and Loan Holding Company (or, if permitted to become a Bank Holding Company in accordance with Subsection (b), such status) for as long as the Investor owns any debt or equity securities of the Company or an Affiliate of the Company acquired pursuant to this Agreement.
     (b) The Company may become a Bank Holding Company in accordance with the requirements of the Bank Holding Company Act and applicable regulations, provided that it has duly fulfilled any commitments to or other requirements or obligations imposed by the Office of Thrift Supervision.
     Section 5.10 Compliance with Employ American Workers Act.
     Until the Company is no longer deemed a recipient of funding under Title I of EESA or Section 13 of the Federal Reserve Act for purposes of the EAWA, as the same may be determined pursuant to any regulations or other legally binding guidance promulgated under EAWA, the Company shall comply, and the Company shall take all necessary action to ensure that its subsidiaries comply, in all respects with the provisions of the EAWA and any regulations or other legally binding guidance promulgated under the EAWA. “EAWA” means the Employ American Workers Act (Section 1611 of Division A, Title XVI of the American Recovery and Reinvestment Act of 2009), Public Law No. 111-5, effective as of February 17, 2009, as may be amended and in effect from time to time.
ARTICLE VI
MISCELLANEOUS
     Section 6.1 Termination.
     This Agreement may be terminated at any time prior to the Closing:
     (a) by either the Investor or the Company if the Closing shall not have occurred by the 30th calendar day following the date hereof; provided, however, that in the event the Closing has not occurred by such 30th calendar day, the parties will consult in good faith to determine whether to extend the term of this Agreement, it being understood that the parties shall be required to consult only until the fifth day after such 30th calendar day and not be under any obligation to extend the term of this Agreement thereafter; provided further that the right to

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terminate this Agreement under this Section 6.1(a) shall not be available to any party whose breach of any representation or warranty or failure to perform any obligation under this Agreement shall have caused or resulted in the failure of the Closing to occur on or prior to such date;
     (b) by either the Investor or the Company in the event that any Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or
     (c) by the mutual written consent of the Investor and the Company.
     In the event of termination of this Agreement as provided in this Section 6.1, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except that nothing herein shall relieve either party from liability for any breach of this Agreement.
     Section 6.2 Survival of Representations and Warranties.
     The representations and warranties of the Company and the Trust made herein or in any certificates delivered in connection with the Closing shall survive the Closing without limitation.
     Section 6.3 Amendment.
     No amendment of any provision of this Agreement will be effective unless made in writing and signed by an officer or a duly authorized representative of each of the Company and the Investor; provided that the Investor may unilaterally amend any provision of this Agreement to the extent required to comply with any changes after the date hereof in applicable federal statutes. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative of any rights or remedies provided by law.
     Section 6.4 Waiver of Conditions.
     The conditions to each party’s obligation to consummate the Exchange are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. No waiver will be effective unless it is in a writing signed by a duly authorized officer of the waiving party that makes express reference to the provision or provisions subject to such waiver.
     Section 6.5 Governing Law; Submission to Jurisdiction, Etc.
     This Agreement will be governed by and construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each of the parties hereto agrees (a) to submit to the exclusive jurisdiction and venue of the United States District Court for the District of Columbia and the United States Court of Federal Claims for any and all civil actions, suits or proceedings arising out of or relating to this Agreement or the Governing Agreements (except with respect to the Trust Agreement in which case each of the parties hereto agrees to submit to the non-exclusive jurisdiction of such courts) or the Exchange contemplated hereby and (b) that notice may be served upon (i) the Company at the address and in the manner set forth for notices to the Company in Section 6.6 and (ii) the Investor in accordance with federal law. To the extent permitted by applicable law, each of the parties hereto hereby unconditionally waives trial by jury in any civil legal action or proceeding relating to this Agreement or the Governing Agreements or the Exchange contemplated hereby.
     Section 6.6 Notices.
     Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered

13


 

by a recognized next day courier service. All notices hereunder shall be delivered as set forth below or pursuant to such other instructions as may be designated in writing by the party to receive such notice.
If to the Company or the Trust:

Superior Bancorp
17 North Twentieth Street
Birmingham, Alabama 35203
Attention: James A. White
Facsimile: 205-488-3335
email: Jim.white@superiorbank.com
Telephone: (205) 327-3656
Attention: William H. Caughran
Facsimile: 205-488-3335
email: bill.caughran@superiorbank.com
Telephone: (205) 327-3615

With a copy to:

Haskell Slaughter Young & Rediker, LLC
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama 35203
Attention: Robert
E. Lee Garner
Facsimile: (205) 324-1133
email: relg@hsy.com
Telephone: (205) 254-1417
Attention: Kimberly L. Hager
Facsimile: (205) 324-1133
email: klh@hsy.com
Telephone: (205) 254-1473

United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attention: Chief Counsel Office of Financial Stability
Facsimile: (202) 927-9225
email: OFSChiefCounselNotices@do.treas.gov
     Section 6.7 Definitions.
     (a) When a reference is made in this Agreement to a subsidiary of a person, the term “subsidiary” means any corporation, partnership, joint venture, limited liability company or other entity (x) of which such person or a subsidiary of such person is a general partner or (y) of which a majority of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or persons performing similar functions with respect to such entity, is directly or indirectly owned by such person and/or one or more subsidiaries thereof.
     (b) The term “Affiliate” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management and/or policies of such person, whether through the ownership of voting securities by contract or otherwise.

14


 

     (c) The term “Company Material Adverse Effect” means a material adverse effect on (i) the business, results of operation or financial condition of the Company and its consolidated subsidiaries taken as a whole; provided, however, that Company Material Adverse Effect shall not be deemed to include the effects of (A) changes after the date hereof in general business, economic or market conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates and price levels or trading volumes in the United States or foreign securities or credit markets), or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, in each case generally affecting the industries in which the Company and its subsidiaries operate, (B) changes or proposed changes after the date hereof in GAAP or regulatory accounting requirements, or authoritative interpretations thereof, (C) changes or proposed changes after date hereof in securities, banking and other laws of general applicability or related policies or interpretations of Governmental Entities (in the case of each of these clauses (A), (B) and (C), other than changes or occurrences to the extent that such changes or occurrences have or would reasonably be expected to have a materially disproportionate adverse effect on the Company and its consolidated subsidiaries taken as a whole relative to comparable U.S. banking or financial services organizations), or (D) changes in the market price or trading volume of the Common Stock or any other equity, equity-related or debt securities of the Company or its consolidated subsidiaries (it being understood and agreed that the exception set forth in this clause (D) does not apply to the underlying reason giving rise to or contributing to any such change); or (ii) the ability of the Company to consummate the Exchange and the other transactions contemplated by this Agreement and perform its obligations hereunder on a timely basis.
     (d) The term “Previously Disclosed” means information set forth or incorporated in the Company’s Annual Report on Form 10-K for the most recently completed fiscal year of the Company filed with SEC prior to the date hereof or in its other reports and forms filed with or furnished to the SEC under Sections 13(a), 14(a) or 15(d) of the Exchange Act on or after the last day of the most recently completed fiscal year of the Company and prior to the date hereof.
     (e) To the extent any securities issued pursuant to this Agreement or the transactions contemplated hereby are registered in the name of a designee of the Investor pursuant to Sections 1.2 or 6.8(c) or transferred to an Affiliate of the Investor, all references herein to the Investor holding or owning any debt or equity securities of the Company, Capital Securities or Registrable Securities (and any like variations thereof) shall be deemed to refer to the Investor, together with such designees and/or Affiliates, holding or owning any debt or equity securities, Capital Securities or Registrable Securities (and any like variations thereof), as applicable.
     Section 6.8 Assignment.
     Neither this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall be assignable by any party hereto without the prior written consent of each other party, and any attempt to assign any right, remedy, obligation or liability hereunder without such consent shall be void, except (a) an assignment, in the case of a Business Combination where such party is not the surviving entity, or a sale of substantially all of its assets, to the entity which is the survivor of such Business Combination or the purchaser in such sale, (b) as provided in Sections 5.4 and 5.5 and (c) an assignment by the Investor of this Agreement to an Affiliate of the Investor; provided that if the Investor assigns this Agreement to an Affiliate, the Investor shall be relieved of its obligations under this Agreement and all rights and obligations of the Investor hereunder shall be exercised by, and shall be the responsibility of, such Affiliate.
     Section 6.9 Severability.
     If any provision of this Agreement, or the application thereof to any person or circumstance, is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
     Section 6.10 No Third-Party Beneficiaries.

15


 

     Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the Company, the Trust and the Investor any benefit, right or remedies, except that the provisions of Sections 4.4 and 5.5 shall inure to the benefit of the persons holding Capital Securities during any tacked holding period, as contemplated by that Section.
     Section 6.11 Entire Agreement, Etc.
     This Agreement (including the Annexes and Schedules hereto) constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof.
     Section 6.12 Counterparts and Facsimile.
     For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile and such facsimiles will be deemed as sufficient as if actual signature pages had been delivered.

16


 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
             
    SUPERIOR BANCORP    
 
           
 
  By:
Name:
  /s/ James A. White
 
James A. White
   
 
  Title:   Chief Financial Officer    
 
           
    SUPERIOR CAPITAL TRUST II    
 
           
    By: SUPERIOR BANCORP, as Depositor    
 
           
 
  By:
Name:
  /s/ James A. White
 
James A. White
   
 
  Title:   Chief Financial Officer    
 
           
    UNITED STATES DEPARTMENT OF THE TREASURY    
 
           
 
  By:
Name:
  /s/ Herbert M. Allison, Jr.
 
Herbert M. Allison, Jr.
   
 
  Title:   Assistant Secretary for Financial Stability    
[Signature Page of Exchange Agreement]

17


 

SCHEDULE A
CAPITALIZATION
Common Stock
Par value: $0.001
Total Authorized: 200,000,000 Outstanding: 11,667,794
Subject to warrants, options, convertible securities, etc.: 3,849,439
Reserved for benefit plans and other issuances: 0
Remaining authorized but unissued: 184,482,767
Shares issued after Capitalization Date (other than pursuant to warrants, options, convertible securities, etc. as set forth above): None
Preferred Stock
Par value: None
Total Authorized: 5,000,000
Outstanding (by series): Series A 69,000
Reserved for issuance: None
Remaining authorized but unissued: 4,931,000

 


 

SCHEDULE B
Response to Section 3.6: None

 

EX-10.30 7 g22315exv10w30.htm EX-(10)-30 exv10w30
Exhibit (10) - 30
EXCHANGE AGREEMENT
and
PLAN OF REORGANIZATION
by and among
SUPERIOR BANCORP
SUPERIOR HOLDINGS, LLC
AND
CAMBRIDGE SAVINGS BANK
Dated as of January 15, 2010

 


 

TABLE OF CONTENTS
         
    Page  
ARTICLE I
 
THE SHARE EXCHANGE
 
       
Section 1.1 Share Exchange
    1  
Section 1.2 The Closing
    2  
Section 1.3 Interpretation
    3  
 
       
ARTICLE II
 
       
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
 
       
Section 2.1 Status
    4  
Section 2.2 Authorization, Enforceability
    4  
Section 2.3 Ownership
    4  
Section 2.4 Non-Contravention
    4  
Section 2.5 Investor Securities Law Representation
    5  
 
       
ARTICLE III
 
       
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SUBSIDIARY
 
       
Section 3.1 Existence and Power
    6  
Section 3.2 Authorization and Enforceability
    6  
Section 3.3 Valid Issuance of Common Shares
    6  
Section 3.4 Non-Contravention
    6  
Section 3.5 No Company Material Adverse Effect
    7  
Section 3.6 Offering of Securities
    7  
Section 3.7 Brokers and Finders
    7  
Section 3.8 Company Financial Statements
    7  
Section 3.9 Proceedings
    8  
Section 3.10 Compliance with Laws; Permits
    8  
Section 3.11 Reports
    8  
 
       
ARTICLE IV
 
       
COVENANTS
 
       
Section 4.1 Commercially Reasonable Efforts
    9  
Section 4.2 Expenses
    9  
Section 4.3 Exchange Listing and Registration
    9  
Section 4.4 Certain Notifications Until Closing
    9  
Section 4.5 Stockholder’s Meeting
    10  
Section 4.6 Publicity
    10  
Section 4.7 Withholding of Tax
    10  


 

         
    Page  
ARTICLE V
 
       
SECURITIES LAW CONSIDERATIONS
 
       
ARTICLE VI
 
       
MISCELLANEOUS
 
       
Section 6.1 Termination
    11  
Section 6.2 Survival of Representations and Warranties
    11  
Section 6.3 Amendment
    11  
Section 6.4 Waiver of Conditions
    12  
Section 6.5 Governing Law; Submission to Jurisdiction, Etc.
    12  
Section 6.6 Notices
    12  
Section 6.7 Definitions
    13  
Section 6.8 Assignment
    14  
Section 6.9 Severability
    14  
Section 6.10 No Third-Party Beneficiaries
    14  
Section 6.11 Entire Agreement, Etc.
    15  
Section 6.12 Counterparts and Facsimile
    15  
Section 6.13 Federal Income Tax Treatment
    15  

ii 


 

Defined Terms
     
Affiliate
  Section 6.7(b)
Agreement
  Preamble
Bankruptcy or Similar Event
  Section 6.7(c)
Business Combination
  Section 6.8
Capital Securities
  Recitals
Capitalization Date
  Section 3.1(b)
Closing
  Section 1.2(a)
Closing Date
  Section 1.2(a)
Code
  Recitals
Common Securities
  Recitals
Common Shares
  Section 1.1
Common Stock
  Recitals
Company
  Preamble
Company Material Adverse Effect
  Section 6.7(d)
Company 10-K
  Section 3.8
Covered Securities
  Section 4.8
Exchange
  Recitals
Exchange Act
  Section 6.7(g)
Governmental Entities
  Section 1.2(c)
Indenture
  Section 1.2(d)(iii)
Investor
  Preamble
Investor Material Adverse Effect
  Section 2.4
OTS
  Section 3.11
Previously Disclosed
  Section 6.7(e)
Proposals
  Section 4.5
SEC
  Section 4.5
Securities Act
  Section 6.7(f)
Significant Subsidiaries
  Section 3.1
Subsidiary
  Preamble
Transfer
  Section 5.4
Trust
  Recitals
Trust Agreement
  Recitals
Trust Shares
  Recitals

iii 


 

     EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION, dated as of January 15, 2010 (this “Agreement”) by and among Superior Bancorp, a Delaware corporation (the “Company”), Superior Holdings, LLC, an Alabama limited liability company (the “Subsidiary”), and Cambridge Savings Bank, a Massachusetts-chartered savings bank (the “Investor”).
BACKGROUND
     WHEREAS, the Investor is, as of the date hereof, the beneficial owner of 3,500 shares of the Trust’s capital securities designated as “Floating Rate Capital Securities”, having a liquidation amount of $1,000.00 per share (the “Capital Securities”) that were issued pursuant to the Amended and Restated Declaration of Trust of Superior Capital Trust I, a Delaware Statutory Trust (the “Trust”), dated as of July 19, 2007 among the Company, Wilmington Trust Company as the Delaware Trustee and the Institutional Trustee, and the administrators named therein (the “Trust Agreement”);
     WHEREAS, the Company, the Subsidiary and the Investor desire to exchange newly issued shares of the voting common stock par value $.001 of the Company (the “Common Stock”) for the 3,500 shares of the Capital Securities beneficially owned and held by the Investor (the “Trust Shares”), on the terms and subject to the conditions set forth herein, such Trust Shares to be transferred to the Subsidiary (the “Exchange”);
     WHEREAS, the Subsidiary is a wholly-owned subsidiary of the Company; and
     WHEREAS, the Company, the Subsidiary and the Investor intend the Exchange be treated as a reorganization pursuant to Section
368(a)(1)(E) of the Internal Revenue Code of 1981, as amended (the “Code), each of the parties be a party to a reorganization, as that term is defined in Section 368(b) of the Code, and this Agreement constitute and reflect a “plan of reorganization”, as that term is defined in Treasury Regulation § 1.368-2(g).
     NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties do hereby agree as follows:
ARTICLE I
THE SHARE EXCHANGE
     Section 1.1 Share Exchange.
     On the terms and subject to the conditions set forth in this Agreement, (a) the Company agrees to issue and deliver the number of shares of Common Stock to the Investor with an aggregate “market value” equal to seventy-seven percent (77%) of the face value of the Trust Shares with the per share market value of the Common Stock being equal to the lower of (i) the weighted average of the sales price of all newly issued shares of the Common Stock sold after the date hereof and before or simultaneously with the Closing or (ii) the weighted average of the sales price of all newly issued shares of the Common Stock sold simultaneously with or within forty-eight hours prior to the Closing (the “Common Shares”), and (b) the Investor agrees to cause the transfer to the Subsidiary as contemplated by the terms of this Agreement the Trust Shares in exchange for the Common Shares being delivered to the Investor; provided, however, that the foregoing terms of this Section 1.1 shall be amended to reflect (and to provide the Investor with the benefit of) any terms (including pricing terms) that would be more favorable to the Investor that are applicable in another transaction similar to the one contemplated hereby between Superior and another investor that closes after the date hereof but before or simultaneously with the Exchange contemplated hereby.

1


 

     Section 1.2 The Closing.
     (a) The closing of the Exchange (the “Closing”) will take place at the offices of Haskell Slaughter Young & Rediker, LLC, 1400 Park Place Tower, 2001 Park Place North, Birmingham, Alabama 35203, at 9:00 a.m., CST on the business day after the day on which all of the conditions set forth in Sections 1.2(c), (d) and (e) are satisfied or waived (other than those conditions that by their terms must be satisfied on the Closing Date, but subject to the satisfaction or waiver of those conditions), or at such other place, time and date as shall be agreed between the Company, the Subsidiary and the Investor. The time and date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.
     (b) Subject to the fulfillment or waiver of the conditions to the Closing in this Section 1.2, at the Closing (i) the Company will deliver to the Investor the Common Shares, as evidenced by one or more certificates dated the Closing Date and registered in the name of the Investor or its designee(s) which certificate or certificates shall be issued without any restrictive legend, and (ii) the Investor will transfer the Trust Shares, to the Subsidiary as contemplated by the terms of this Agreement.
     (c) The respective obligations of the Investor and the Company to consummate the Exchange are subject to the fulfillment (or waiver by the Company and the Investor, as applicable) prior to the Closing of the following conditions:
     (i) any approvals or authorizations of all United States and other governmental, regulatory or judicial authorities (collectively, “Governmental Entities”) required for the consummation of the Exchange shall have been obtained or made in form and substance reasonably satisfactory to each party and shall be in full force and effect and all waiting periods required by United States or other applicable law, if any, shall have expired;
     (ii) no provision of any applicable United States or other law and no judgment, injunction, order or decree of any Governmental Entity shall prohibit consummation of the Exchange as contemplated by this Agreement; and
     (iii) the Company shall have obtained the consent of its shareholders to issue the Common Shares if such consent is required by NASDAQ (see Section 4.5 hereof).
     (d) The obligation of the Investor to consummate the Exchange is also subject to the fulfillment (or waiver by the Investor) at or prior to the Closing of each of the following conditions:
     (i) completion between the date hereof and June 30, 2010, of the sale (for cash or in an exchange for any of the Company’s then outstanding trust preferred or capital securities or an exchange for any of the Company’s then outstanding debt) of at least $75 million of the Company’s Common Stock in one or more offerings, public or private (including any sale or exchanges that may close simultaneously with the Exchange contemplated hereby);
     (ii) (A) the representations and warranties of the Company set forth in Article III of this Agreement shall be true and correct in all material respects as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct in all material respects as of such other date), except to the extent that the failure of such representations and warranties to be so true and correct (without giving effect to any qualifiers or exceptions relating to materiality or Company Material Adverse Effect (as defined below)), individually or in the aggregate or the failure to comply with such covenants, does not have and would not reasonably be likely to have a Company Material Adverse Effect and (B) the Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing;

2


 

     (iii) the Investor shall have received a certificate signed on behalf of the Company by a senior executive officer of the Company certifying to the effect that the conditions set forth in Section 1.2 (c) and (d)(i) and (ii) have been satisfied;
     (iv) the Investor shall have received an amount equal to all accrued and unpaid distributions on the Trust Shares to, but excluding, the Closing Date in cash to an account designated by the Investor;
     (v) the Company shall have delivered one or more certificates in proper form evidencing the Common Shares to the Investor or its designee(s), which certificate or certificates shall be issued without any restrictive legend;
     (vi) the Company shall have delivered to the Investor written opinions from outside counsel to the Company, addressed to the Investor and dated as of the Closing Date, in substantially the form attached hereto as Annex D; and
     (e) The obligation of the Company and the Subsidiary to consummate the Exchange is also subject to the fulfillment (or waiver by the Company and the Subsidiary) at or prior to the Closing of each of the following conditions: (i) the representations and warranties of the Investor set forth in this Agreement shall be true and correct in all respects as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct in all respects as of such other date) and the covenants of the Investor hereunder shall have been complied with, except to the extent that the failure of such representations and warranties to be so true and correct (without giving effect to any qualifiers or exceptions relating to materiality or Investor Material Adverse Effect (as defined below)), individually or in the aggregate or the failure to comply with such covenants, does not have and would not reasonably be likely to have an Investor Material Adverse Effect and (ii) the Investor shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing.
     Section 1.3 Interpretation.
     When a reference is made in this Agreement to “Recitals,” “Articles,” “Sections,” “Annexes” or “Schedules” such reference shall be to a Recital, Article or Section of, or Annex or Schedule to, this Agreement, unless otherwise indicated. The terms defined in the singular have a comparable meaning when used in the plural, and vice versa. References to “herein”, “hereof”, “hereunder” and the like refer to this Agreement as a whole and not to any particular section or provision, unless the context requires otherwise. The table of contents and headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation.” No rule of construction against the draftsperson shall be applied in connection with the interpretation or enforcement of this Agreement, as this Agreement is the product of negotiation between sophisticated parties advised by counsel. All references to “$” or “dollars” mean the lawful currency of the United States of America. Except as expressly stated in this Agreement, all references to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute, rule or regulation include any successor to the section. References to a “business day” shall mean any day except Saturday, Sunday and any day on which banking institutions in New York, New York, Birmingham, Alabama or Wilmington, Delaware generally are authorized or required by law, regulation or executive order to remain closed or are customarily closed.

3


 

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
     The Investor represents and warrants to the Company as of the date hereof and as of the Closing Date that:
     Section 2.1 Status.
     The Investor is validly existing and continuing to operate under the laws of the Commonwealth of Massachusetts, with the necessary power and authority to own its properties and conduct its business in all material respects as currently conducted.
     Section 2.2 Authorization, Enforceability.
     The Investor has the power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out its obligations hereunder and thereunder. The execution, delivery and performance by the Investor of the Transaction Documents to which it is a party and the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Investor, and no further approval or authorization is required on the part of the Investor. The Transaction Documents to which the Investor is a party are or will be a valid and binding obligation of the Investor enforceable against the Investor in accordance with their respective terms, except as the same may be limited by the Bankruptcy or Similar Exceptions.
     Section 2.3 Ownership.
     (a) The Investor is the record and beneficial owner of the Trust Shares, free and clear of any lien, security interest, charge or encumbrance and any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of the Trust Shares) and will transfer and deliver to the Company at the Closing valid title to the Trust Shares free and clear of any lien, security interest, charge or encumbrance and any such limitation or restriction.
     (b) As of the date hereof, the Investor does not beneficially own any of the outstanding shares of Common Stock. As of the consummation of the Exchange, the Investor will not beneficially own more than 5% of the outstanding shares of Common Stock or voting power of the Company. The Investor does not have an agreement, arrangement or understanding with any person (other than the Company) to acquire, dispose of or vote any securities of the Company.
     Section 2.4 Non-Contravention.
     The execution, delivery and performance by the Investor of this Agreement and the consummation of the transactions contemplated hereby and compliance by the Investor with the provisions hereof, will not (a) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Investor under any of the terms, conditions or provisions of (i) its organizational documents, or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Investor is a party or by which it may be bound, or to which the Investor or any of the properties or assets of the Investor may be subject, or (b) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the Investor or its properties or assets except, in the case of clauses (a)(ii) and (b), for those occurrences that, individually or in the aggregate, have not had and would not be reasonably likely to have an Investor Material Adverse Effect. “Investor Material Adverse Effect” means a material adverse effect on the ability of the Investor to consummate the Exchange and the other transactions contemplated by this Agreement.
     Other than in connection or in compliance with the provisions of the Securities Act and the securities or blue sky laws of the various states, to the Investor’s knowledge, without inquiry, no notice to, filing with, exemption

4


 

or review by, or authorization, consent or approval of, any Governmental Entity is required to be made or obtained by the Investor in connection with the consummation by the Investor of the Exchange and the other transactions contemplated by this Agreement, except as would not reasonably be expected to have a material adverse effect on the ability of the Investor to consummate the Exchange and other transactions contemplated by this Agreement.
     Section 2.5 Investor Securities Law Representation.
     (a) The Investor has knowledge, skill and experience in financial, business and equity investments in entities such as the Company and is capable of evaluating the merits and risks of such investment and protecting the Investor’s interest in connection with the acquisition of the Common Shares. The Investor understands that the acquisition of the Common Shares is a speculative investment and involves substantial risks and that the Investor could lose the Investor’s entire investment in the Common Shares. Further, the Investor has taken full cognizance of and understands all of the risks related to the purchase of the Common Shares. To the extent deemed necessary by the Investor, the Investor has retained, at its own expense, and relied upon, appropriate professional advice regarding the investment, tax and legal merits and consequences of purchasing and owning the Common Shares. The Investor has the ability to bear the economic risks of the Investor’s investment in the Company, including a complete loss of the investment, and the Investor has no need for liquidity in such investment.
     (b) The Investor has been furnished by the Company all information (or provided access to all information) regarding the business and financial condition of the Company, its expected plans for future business activities, the attributes of the Common Shares and the merits and risks of an investment in the Common Shares which the Investor has requested or otherwise believes that the Investor needs in order to evaluate the investment in the Company.
     (c) In making the Investor’s investment decision, the Investor is relying solely on investigations made by the Investor and the Investor’s representative(s), if any. The Company’s offer to exchange the Common Shares was communicated to the Investor in such a manner that the Investor was able to ask questions of and receive answers from the management of the Company concerning the terms and conditions of the Exchange, and that at no time was the Investor presented with or solicited by or through any advertisement, article, leaflet, public promotional meeting, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting or any other form of general or public advertising or solicitation.
     (d) The Investor acknowledges that the Investor has been advised that:
     (i) The Common Shares have not been approved or disapproved by the Securities and Exchange Commission (the “SEC”) or any state securities commission, nor has the SEC or any state securities commission passed upon the accuracy or adequacy of any representations by the Company; and
     (ii) In making an investment decision, the Investor must rely on its own examination of the Company and the terms of the proposed sale to the Investor of the Common Shares, including the merits and risks involved, The Common Shares have not been recommended by any federal or state securities commission or other regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of any representation by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SUBSIDIARY
     Except as Previously Disclosed, the Company and, as applicable, the Subsidiary represent and warrant to Investor as of the date hereof and as of the Closing Date that:

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     Section 3.1 Existence and Power.
     (a) Organization, Authority and Significant Subsidiaries. The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to own, operate and lease its properties and to carry on its business as it is being currently conducted, and except as has not, individually or in the aggregate, had and would not reasonably be expected to have a Company Material Adverse Effect, has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification; each subsidiary of the Company that is a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act (“Significant Subsidiary”) including, but not limited to, the Subsidiary, has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization. The Charter and bylaws of the Company, copies of which have been provided to the Investor prior to the date hereof, are true, complete and correct copies of such documents as in full force and effect as of the date hereof.
     (b) Capitalization. The authorized capital stock of the Company, and the outstanding capital stock of the Company (including securities convertible into, or exercisable or exchangeable for, capital stock of the Company) as of the most recent fiscal month-end preceding the date hereof (the “Capitalization Date”) is set forth on Schedule A. The outstanding shares of capital stock of the Company have been duly authorized and are validly issued and outstanding, fully paid and nonassessable, and subject to no preemptive rights (and were not issued in violation of any preemptive rights). Except as provided in the Warrant (described on Schedule A), as of the date hereof, the Company does not have outstanding any securities or other obligations providing the holder the right to acquire Common Stock that is not reserved for issuance as specified on Schedule A, and the Company has not made any other commitment to authorize, issue or sell any Common Stock. Since the Capitalization Date, the Company has not issued any shares of Common Stock other than (i) shares issued upon the exercise of stock options or delivered under other equity-based awards or other convertible securities or warrants which were issued and outstanding on the Capitalization Date and disclosed on Schedule A and (ii) shares disclosed on Schedule A.
     Section 3.2 Authorization and Enforceability.
     (a) Each of the Company and the Subsidiary has the corporate power and authority to execute and deliver this Agreement and to carry out its obligations hereunder.
     (b) The execution, delivery and performance by each of the Company and the Subsidiary of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of the Company and the Subsidiary and, if any, its respective stockholders or members, and no further approval or authorization is required on the part of the Company or the Subsidiary, subject to the necessity of obtaining stockholder approval if required by NASDAQ. This Agreement and any related transaction documents to which the Company or the Subsidiary is a party are valid and binding obligations of the Company and the Subsidiary, enforceable against the Company and the Subsidiary in accordance with its and their terms, subject to the Bankruptcy or Similar Exceptions.
     Section 3.3 Valid Issuance of Common Shares.
     The Common Shares have been duly and validly authorized and when issued and delivered pursuant to this Agreement, such Common Shares will be duly and validly issued and fully paid and non-assessable and will not be issued in violation of any pre-emptive rights, resale rights, rights of first refusal or similar rights.
     Section 3.4 Non-Contravention.
     (a) The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby, and compliance by the Company with the provisions hereof and thereof, will not (i) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any

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Company subsidiary under any of the terms, conditions or provisions of (A) its organizational documents or (B) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any Company Subsidiary is a party or by which it or any Company Subsidiary may be bound, or to which the Company or any Company Subsidiary or any of the properties or assets of the Company or any Company Subsidiary may be subject, or (ii) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the Company or any Company Subsidiary or any of their respective properties or assets except, in the case of clauses (i)(B) and (ii)(B), for those occurrences that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.
     (b) Other than the filing of any current report on Form 8-K required to be filed with the SEC, such filings and approvals as are required to be made or obtained under any state “blue sky” laws and such consents and approvals that have been made or obtained, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any Governmental Entity is required to be made or obtained by the Company in connection with the consummation by the Company of the Exchange except for any such notices, filings, exemptions, reviews, authorizations, consents and approvals the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
     Section 3.5 No Company Material Adverse Effect.
     Since September 30, 2009, no fact, circumstance, event, change, occurrence, condition or development has occurred that, individually or in the aggregate, has had or would reasonably be likely to have a Company Material Adverse Effect, except as disclosed on Schedule B.
     Section 3.6 Offering of Securities.
     Neither the Company nor any person acting on its behalf has taken any action (including any offering of any securities of the Company under circumstances which would require the integration of such offering with the offering of the Common Shares under the Securities Act and the rules and regulations of the SEC promulgated thereunder), which might subject the offering, issuance or sale of the Common Shares to the Investor pursuant to this Agreement to the registration requirements of the Securities Act.
     Section 3.7 Brokers and Finders.
     No broker, finder or investment banker is entitled to any financial advisory, brokerage, finder’s or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon arrangements made by or on behalf of the Company or any Company Subsidiary for which the Investor could have any liability.
     Section 3.8 Company Financial Statements.
     (a) The consolidated financial statements of the Company and its consolidated subsidiaries included or incorporated by reference in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008 (the “Company 10-K”), present fairly in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated therein and the consolidated results of their operations for the periods specified therein; and except as stated therein, such financial statements were prepared in conformity with GAAP applied on a consistent basis.
     (b) The Company and its subsidiaries do not have any liabilities or obligations (accrued, absolute, contingent or otherwise) of a nature that would be required to be accrued or reflected in a consolidated balance sheet prepared in accordance with GAAP, other than liabilities or obligations (i) reflected on, reserved against, or disclosed in the notes to, the Company’s consolidated balance sheet included in the Company 10-K, (ii) that are reflected or disclosed in any Current Reports on Form 8-K or Quarterly Reports on Form 10-Q or (iii) that otherwise, individually or in the aggregate, would not be reasonably likely to have a Company Material Adverse Effect.

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     Section 3.9 Proceedings.
     (a) As of the date of this Agreement, there is no litigation or similar proceeding pending or, to the Company’s knowledge, threatened to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which the Company’s management believes, individually or in the aggregate, has had or would be reasonably likely to have a Company Material Adverse Effect.
     (b) Neither the Company nor any of its Significant Subsidiaries is a party to any written agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by or is a recipient of any supervisory letter from, or has adopted any board resolutions at the request of, any bank regulatory authority that, in any such case, is currently in effect and has had or would be reasonably expected to have a Company Material Adverse Effect.
     Section 3.10 Compliance with Laws; Permits.
     (a) The Company is a registered thrift holding company and, as of the date hereof, both it and all of its depository institution subsidiaries were deemed to be “well capitalized” under applicable Office of Thrift Supervision statutes and regulations. The Company and each of its subsidiaries have conducted their businesses in compliance with all applicable federal, state and foreign laws, regulations and applicable stock exchange requirements, including all laws and regulations restricting activities of thrift holding companies and thrift organizations, except for any noncompliance that, individually or in the aggregate, has not had and would not be reasonably likely to have a Company Material Adverse Effect.
     (b) The Company and each subsidiary have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, any Governmental Entities that are required in order to carry on their business as presently conducted, except where the failure to have such permits, licenses, authorizations, orders and approvals or the failure to make such filings, applications and registrations, individually or in the aggregate, have not had and would not be reasonably likely to have a Company Material Adverse Effect; and all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the knowledge of the Company, no suspension or cancellation of any of them is threatened, and all such filings, applications and registrations are current, except where such absence, suspension or cancellation, individually or in the aggregate, have not had and would not be reasonably likely to have a Company Material Adverse Effect.
     Section 3.11 Reports.
     (a) Since December 31, 2006, the Company has complied in all material respects with the filing requirements of Sections 13(a), 14(a) and 15(d) of the Exchange Act.
     (b) The Company’s 10-K and any reports or forms (after amendment where applicable) filed with the SEC pursuant to the requirements of the Securities Act or the Exchange Act on or after January 1, 2009, when they were filed or became effective (taking into account, amendments where applicable) with the SEC, as the case may be, conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder, and did not when filed (taking into account, amendments where applicable) with the SEC, 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, in the light of the circumstances in which they were made, not misleading.
     (c) Since December 31, 2006, the Company and each subsidiary have filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with the Office of Thrift Supervision (the “OTS”), the FDIC and any other applicable federal or state securities or banking authorities, except where the failure to file any such report, registration or statement, individually or in the aggregate, has not had and would not be reasonably likely to have a Company Material Adverse Effect. As of their respective dates, each of the foregoing reports complied with all applicable rules and regulations promulgated by the OTS, the FDIC and any other applicable foreign, federal or state securities or banking authorities, as the case may be, except for any failure that, individually or in the aggregate, have not had and would not be reasonably likely to have a Company Material Adverse Effect.

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     (d) The records, systems, controls, data and information of the Company and the subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or the subsidiaries or their accountants (including all means of access thereto and therefrom). The Company (1) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) to ensure that material information relating to the Company and its subsidiaries is made known to the chief executive officer and the chief financial officer of the Company by others within those entities, and (ii) has disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s outside auditors and the audit committee of the Company’s board of directors (A) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. To the knowledge of the Company, there is no reason that its outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next due.
ARTICLE IV
COVENANTS
     Section 4.1 Commercially Reasonable Efforts.
     Subject to the terms and conditions of this Agreement, each of the parties will use its commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the Exchange as promptly as practicable and otherwise to enable consummation of the transactions contemplated hereby and shall use commercially reasonable efforts to cooperate with the other party to that end.
     Section 4.2 Expenses.
     Unless otherwise provided in this Agreement, each of the parties hereto will bear and pay all costs and expenses incurred by it in connection with the transactions contemplated under this Agreement.
     Section 4.3 Exchange Listing and Registration.
     The Company shall, at the Company’s expense, cause, (a) subject to applicable listing rules, the Common Shares to be listed on the NASDAQ Global Market, subject to official notice of issuance, and shall maintain such listing for so long as any Common Stock is listed on such exchange; and (b) if the Common Shares are not freely tradable in the hands of the Investor as contemplated by Article V hereof, the Common Shares to be issued to the Investor pursuant to a registration statement filed with the SEC such that the Common Shares will be immediately tradable in the hands of the Investor.
     Section 4.4 Certain Notifications Until Closing.
     From the date hereof until the Closing, the Company shall promptly notify the Investor of (a) any fact, event or circumstance of which it is aware and which would reasonably be likely to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate in any material respect or to cause any covenant or agreement of the Company contained in this Agreement not to be complied with or satisfied in any material respect and (b) except as Previously Disclosed, any fact, circumstance, event, change, occurrence, condition or development of which the Company is aware and which, individually or in the aggregate, has had or would reasonably be likely to have a Company Material Adverse Effect; provided, however, that delivery of any notice pursuant to this Section 4.4 shall not limit or affect any rights of or remedies available to the Investor.

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     Section 4.5 Stockholder’s Meeting.
     (a) It is currently contemplated by the Company that it may issue a significant number of shares of its Common Stock in other transactions or offerings between the date of this agreement and March 31, 2010. The number of shares of Common Stock issued in such transactions or offerings may be sufficiently great to abrogate any requirement under NASDAQ rules for stockholder approval of the Exchange. If by March 31, 2010, stockholder approval of the Exchange would still be required by applicable NASDAQ rules, the Company shall hold a meeting of its stockholders (which may be its annual meeting or a special meeting) as promptly as practicable to seek approval of the Exchange and the issuance of the Common Shares pursuant to this Agreement (the “Proposals”). The Board of Directors shall recommend to the Company’s stockholders that such stockholders vote in favor of the Proposals. In connection with such meeting, the Company shall prepare (and the Investor will provide information reasonably required by the Company to be included therein) and file with the Securities and Exchange Commission (the “SEC”) as promptly as practicable a preliminary proxy statement. The Company shall use its reasonable best efforts to respond to any comments of the SEC or its staff thereon and to cause a definitive proxy statement related to such stockholders’ meeting or consent to be mailed to the Company’s stockholders, and the Company shall use its reasonable best efforts to solicit proxies for such stockholder approval of the Proposals. Each of the Investor and the Company agrees promptly to correct any information provided by it or on its behalf for use in the proxy statement if and to the extent that such information shall have become false or misleading in any material respect.
     (b) None of the information supplied by the Company for inclusion in any proxy statement in connection with any such stockholders meeting of the Company or consent will, at the date it is filed with the SEC, when first mailed to the Company’s stockholders and at the time of any stockholders meeting, and at the time of any amendment or supplement thereof, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.
     Section 4.6 Publicity. No public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party (which consent shall not be unreasonably withheld or delayed), except as such release or announcement may be required by law or the rules or regulations of any United States or foreign securities exchange, in which case the party required to make the release or announcement shall, to the extent reasonably practicable, allow the other party reasonable time to comment on such release or announcement in advance of such issuance. The provisions of this Section 4.6 shall not restrict the ability of a party hereto to summarize or describe the transactions contemplated by this Agreement in any prospectus or similar offering document or other report required by law, regulation stock exchange or rule so long as the other party is provided a reasonable opportunity to comment on such disclosure in advance.
     Section 4.7 Withholding of Tax. All payments with respect to the Common Stock issued in exchange for, or pursuant to the terms of, any of the foregoing instruments (the “Covered Securities”) shall be subject to withholding and backup withholding to the extent required by law. If, prior to making any payment with respect to Covered Securities held by the Investor, the Company receives from the Investor a duly executed, valid, accurate and properly completed IRS Form W-9 evidencing the entitlement of such entity to an exemption from backup withholding with respect to such payment, and the Company does not know, or have reason to know that such exemption is not available, the Company shall, and shall cause its paying agent to, make such payment with respect to such Covered Securities (including the transfers by the Company pursuant to the Exchange), free and clear of backup withholding of United States federal income tax, as supported by such form.
ARTICLE V
SECURITIES LAW CONSIDERATIONS
     The issuance of the Common Shares upon exchange of the Trust Shares is intended to be exempt from registration pursuant to Section
3(a)(9) of the Securities Act. Since the Investor has held the Trust Shares for a sufficient period of time under Rule 144 promulgated pursuant to the Exchange Act such that the Trust Shares would be freely tradable by the Investor, all the Common Shares issued to the Investor pursuant to this Agreement

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will be freely tradable under U.S. securities laws by such Investor. The Company shall cooperate with the Investor to effect any transfer of the Common Shares by the Investor and to facilitate the timely preparation and delivery of certificates representing Common Shares to be delivered to any transferee of the Investor, which certificates shall be free, to the extent permitted under law, of all restrictive legends, and to enable such Common Shares to be in such denominations and registered in such names as the Investor may reasonably request.
ARTICLE VI
MISCELLANEOUS
     Section 6.1 Termination.
     This Agreement may be terminated at any time prior to the Closing:
     (a) by either the Investor or the Company if the Closing shall not have occurred by June 30, 2010; provided, however, that the right to terminate this Agreement under this Section 6.1(a) shall not be available to any party whose breach of any representation or warranty or failure to perform any obligation under this Agreement shall have caused or resulted in the failure of the Closing to occur on or prior to such date;
     (b) by either the Investor or the Company in the event that any Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable;
     (c) by the mutual written consent of the Investor and the Company; or
     (d) by Investor, if the Company has suffered a Company Material Adverse Effect as defined in Section 6.7(d) hereof;
     In the event of termination of this Agreement as provided in this Section 6.1, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except that nothing herein shall relieve either party from liability for any breach of this Agreement.
     Section 6.2 Survival of Representations and Warranties.
     The representations and warranties of the Company made herein or in any certificates delivered in connection with the Closing shall survive the Closing for a period of one year after Closing; provided that the representations and warranties made in Sections 3.1, 3.2 or 3.3 shall survive Closing until the expiration of the applicable statute of limitations. The representations of the Investor made herein or in any certificates delivered in connection with the Closing shall survive the Closing for a period of one year after the Closing; provided that the representations and warranties made in Sections 2.1, 2.2 and 2.5 shall survive Closing until the expiration of the applicable statute of limitations.
     Section 6.3 Amendment.
     No amendment of any provision of this Agreement will be effective unless made in writing and signed by an officer or a duly authorized representative of each of the Company, the Subsidiary and the Investor; provided that the Investor may unilaterally amend any provision of this Agreement to the extent required to comply with any changes after the date hereof in applicable federal statutes. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative of any rights or remedies provided by law.

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     Section 6.4 Waiver of Conditions.
     The conditions to each party’s obligation to consummate the Exchange are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. No waiver will be effective unless it is in a writing signed by a duly authorized officer of the waiving party that makes express reference to the provision or provisions subject to such waiver.
     Section 6.5 Governing Law; Submission to Jurisdiction, Etc.
     This Agreement will be governed by and construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State. Each of the parties hereto agrees (a) to submit to the jurisdiction and venue of the United States District Court for the Northern District of Alabama for any and all civil actions, suits or proceedings arising out of or relating to this Agreement or the Exchange contemplated hereby and (b) that, to the fullest extent permitted by law, notice may be served upon (i) the Company at the address and in the manner set forth for notices to the Company in Section 6.6 and (ii) the Investor in accordance with applicable law. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY CIVIL LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE EXCHANGE CONTEMPLATED HEREBY.
     Section 6.6 Notices.
     Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall be delivered as set forth below or pursuant to such other instructions as may be designated in writing by the party to receive such notice.
     If to the Company or the Subsidiary:
Superior Bancorp
17 North Twentieth Street
Birmingham, Alabama 35203
Attention: James A. White
Facsimile: 205-488-3335
email: jim.white@superiorbank.com
Telephone: (205) 327-3656
Attention: William H. Caughran
Facsimile: 205-488-3335
email: bill.caughran@superiorbank.com
Telephone: (205) 327-3615
     With a copy to:
Haskell Slaughter Young & Rediker, LLC
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama 35203
Attention: Robert E. Lee Garner
Facsimile: (205) 324-1133
email: relg@hsy.com
Telephone: (205) 254-1417
Attention: Kimberly L. Hager
Facsimile: (205) 324-1133
email: klh@hsy.com
Telephone: (205) 254-1473

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     If to the Investor:
Cambridge Savings Bank
1374 Massachusetts Avenue
Cambridge, MA 02138
Attention: Wayne F. Patenaude, Executive Vice President, Chief Financial Officer and Treasurer
Facsimile: (617) 864-8812
Email: wpatenaude@cambridgesavings.com
Telephone: (617) 441-4183
     With a copy to:
Goodwin Procter LLP
Exchange Place, 53 State Street
Boston, MA-02109
Attention: William P. Mayer, Esq.
Facsimile: (617) 523-1231
email: wmayer@goodwinprocter.com
Telephone: (617) 570-1534
Attention: Eric R. Fischer, Esq.
Facsimile: (617) 523-1231
email: efischer@goodwinprocter.com
Telephone: (617) 570-1522
     Section 6.7 Definitions.
     (a) When a reference is made in this Agreement to a subsidiary of a person, the term “subsidiary” means any corporation, partnership, joint venture, limited liability company or other entity (i) of which such person or a subsidiary of such person is a general partner or (ii) of which a majority of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or persons performing similar functions with respect to such entity, is directly or indirectly owned by such person and/or one or more subsidiaries thereof.
     (b) The term “Affiliate” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management and/or policies of such person, whether through the ownership of voting securities by contract or otherwise.
     (c) The term “Bankruptcy or Similar Exceptions” means as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity.
     (d) The term “Company Material Adverse Effect” means a material adverse effect on (i) the business, results of operation or financial condition of the Company and its consolidated subsidiaries taken as a whole; provided, however, that Company Material Adverse Effect shall not be deemed to include the effects of (A) changes after the date hereof in general business, economic or market conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates and price levels or trading volumes in the United States or foreign securities or credit markets), or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, in each case generally affecting the industries in which the Company and its subsidiaries operate, (B) changes or proposed changes after the date hereof in GAAP or regulatory accounting requirements, or authoritative interpretations thereof, (C) changes or proposed changes after date hereof in securities, banking and other laws of general applicability or related policies or interpretations of Governmental

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Entities (in the case of each of these clauses (A), (B) and (C), other than changes or occurrences to the extent that such changes or occurrences have or would reasonably be expected to have a materially disproportionate adverse effect on the Company and its consolidated subsidiaries taken as a whole relative to comparable U.S. banking or financial services organizations), or (D) changes in the market price or trading volume of the Common Stock or any other equity, equity-related or debt securities of the Company or its consolidated subsidiaries (it being understood and agreed that the exception set forth in this clause (D) does not apply to the underlying reason giving rise to or contributing to any such change); or (ii) the ability of the Company to consummate the Exchange and the other transactions contemplated by this Agreement and perform its obligations hereunder on a timely basis.
     (e) The term “Previously Disclosed” means information set forth or incorporated in the Company’s Annual Report on Form 10-K for the most recently completed fiscal year of the Company filed with SEC prior to the date hereof or in its other reports and forms filed with or furnished to the SEC under Sections 13(a), 14(a) or 15(d) of the Exchange Act on or after the last day of the most recently completed fiscal year of the Company and prior to the date hereof.
  (f)   (i)    The term “Securities Act” means the Securities Act of 1933 as amended.
 
      (ii)    The term “Exchange Act” means the Securities Exchange Act of 1934, as amended.
     (g) the phrase “simultaneously with” an event means anything that occurs within two business days of such event.
     (h) To the extent any securities issued pursuant to this Agreement or the transactions contemplated hereby are registered in the name of a designee of the Investor pursuant to Section 6.8(c) or transferred to an Affiliate of the Investor, all references herein to the Investor holding or owning any debt or equity securities of the Company, Common Shares or Registrable Securities (and any like variations thereof) shall be deemed to refer to the Investor, together with such designees and/or Affiliates, holding or owning any debt or equity securities, Common Shares or Registrable Securities (and any like variations thereof), as applicable.
     Section 6.8 Assignment.
     Neither this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall, to the fullest extent permitted by law, be assignable by any party hereto without the prior written consent of each other party, and any attempt to assign any right, remedy, obligation or liability hereunder without such consent shall be void, except (a) an assignment, in the case of a Business Combination where such party is not the surviving entity, or a sale of substantially all of its assets, to the entity which is the survivor of such Business Combination or the purchaser in such sale, and (c) an assignment by the Investor of this Agreement to an Affiliate of the Investor; provided that if the Investor assigns this Agreement to an Affiliate, the Investor shall be relieved of its obligations under this Agreement and all rights and obligations of the Investor hereunder shall be exercised by, and shall be the responsibility of, such Affiliate. “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s stockholders.
     Section 6.9 Severability.
     If any provision of this Agreement, or the application thereof to any person or circumstance, is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
     Section 6.10 No Third-Party Beneficiaries.
     Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the Company, the Trust and the Investor any benefit, right or remedies, except that the provisions of

14


 

Sections 4.4 and 5.4 shall inure to the benefit of the persons holding Capital Shares during any tacked holding period, as contemplated by that Section.
     Section 6.11 Entire Agreement, Etc.
     This Agreement (including the Annexes and Schedules hereto) constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof.
     Section 6.12 Counterparts and Facsimile.
     For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile and such facsimiles will be deemed as sufficient as if actual signature pages had been delivered.
     Section 6.13 Federal Income Tax Treatment.
     The Company, the Subsidiary and the Investor intend the Exchange be treated as a reorganization pursuant to Section 368(a)(1)(E) of the Code (i.e., a recapitalization of the Company), each of the parties be a party to a reorganization, as that term is defined in Section 368(b) of the Code, and this Agreement constitute and reflect a “plan of reorganization”, as that term is defined in Treasury Regulation § 1.368-2(g).

15


 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
         
  SUPERIOR BANCORP
 
 
  By:   /s/ James A. White    
  Name:  James A. White   
  Title:  Chief Financial Officer   
 
  SUPERIOR HOLDINGS, LLC
 
 
  By:   Superior Bancorp    
  Its:    Member     
     
  By:   /s/ James A. White    
  Name:  James A. White   
  Title:  Chief Financial Officer   
 
  CAMBRIDGE SAVINGS BANK
 
 
  By:   /s/ Wayne F. Patenaude    
  Name:  Wayne F. Patenaude   
  Title:  Executive Vice President and Chief Financial Officer   
 
[Signature Page of Exchange Agreement]

16


 

SCHEDULE A
CAPITALIZATION
     Common Stock
     Par value: $0.001
     Total Authorized: 200,000,000 Outstanding: 11,667,794
     Subject to warrants, options, convertible securities, etc.: 3,849,439
     Reserved for benefit plans and other issuances: 0
     Remaining authorized but unissued: 184,482,767
     Shares issued after Capitalization Date (other than pursuant to warrants, options, convertible securities, etc. as set forth above): None
     Preferred Stock
     Par value: None
     Total Authorized: 5,000,000
     Outstanding (by series): None.
     Reserved for issuance: None
     Remaining authorized but unissued: 4,931,000

 


 

SCHEDULE B
     Response to Section 3.5: [to be completed if applicable]

 


 

ANNEX D
FORM OF OPINION
     (a) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Subsidiary is organized and validly existing under the Laws of the State of Alabama.
     (b) Each of the Company and the Subsidiary has the corporate power and authority to execute and deliver the Exchange Agreement and to carry out its obligations thereunder.
     (c) The execution, delivery and performance by each of the Company and the Subsidiary of the Exchange Agreement, and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary corporate action on the part of the Company and the Subsidiary, and no further approval or authorization is required on the part of the Company and the Subsidiary.
     (d) The Exchange Agreement has been duly executed and delivered by the Company and the Subsidiary and, assuming the due execution and delivery by the other parties thereto, is a valid and binding obligation of each of the Company and the Subsidiary, enforceable against the Company and the Subsidiary in accordance with its terms. The foregoing opinion as to the enforceability of the Exchange Agreement against the Company and the Subsidiary is subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles, regardless of whether such enforceability is considered in a proceeding at law or in equity.
     (e) The Company is not or, after giving effect to the issuance of the Common Shares pursuant to the Exchange Agreement, would be on the date hereof an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended.
     (f) The issuance by the Company of the Common Shares to the Investor upon exchange of the Trust Shares as contemplated by the Exchange Agreement will be exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(9) thereof, and, assuming that the Investor has held the Trust Shares for more than six months, the Common Shares issued to the Investor by the Company will be freely tradable under Rule 144 promulgated pursuant to the Exchange Act.
     (g) The Common Shares to be issued pursuant to the Agreement have been validly authorized and, upon issuance and delivery against consideration therefor as contemplated by the Agreement, will be validly issued, fully paid and non-assessable.

 

EX-10.31 8 g22315exv10w31.htm EX-(10)-31 exv10w31
Exhibit (10) - 31
EXCHANGE AGREEMENT
and
PLAN OF REORGANIZATION
by and among
SUPERIOR BANCORP,
SUPERIOR HOLDINGS, LLC
AND
KBW, INC.
Dated as of January 20, 2010

 


 

TABLE OF CONTENTS
         
    Page  
ARTICLE I
       
 
       
THE SHARE EXCHANGE
 
       
Section 1.1 Share Exchange
    1  
Section 1.2 The Closing
    1  
Section 1.3 Interpretation
    3  
 
       
ARTICLE II
 
       
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
 
       
Section 2.1 Status
    3  
Section 2.2 Authorization, Enforceability
    3  
Section 2.3 Ownership
    4  
Section 2.4 Non-Contravention
    4  
Section 2.5 Investor Securities Law Representation
    4  
 
       
ARTICLE III
 
       
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
       
Section 3.1 Existence and Power
    5  
Section 3.2 Authorization and Enforceability
    6  
Section 3.3 Valid Issuance of Common Shares
    6  
Section 3.4 Non-Contravention
    6  
Section 3.5 No Company Material Adverse Effect
    7  
Section 3.6 Offering of Securities
    7  
Section 3.7 Brokers and Finders
    7  
Section 3.8 Company Financial Statements
    7  
Section 3.9 Proceedings
    7  
Section 3.10 Compliance with Laws; Permits
    7  
Section 3.11 Reports
    8  
 
       
ARTICLE IV
 
       
COVENANTS
 
       
Section 4.1 Commercially Reasonable Efforts
    9  
Section 4.2 Expenses
    9  
Section 4.3 Exchange Listing
    9  
Section 4.4 Certain Notifications Until Closing
    9  
Section 4.5 Stockholder’s Meeting
    9  

i


 

         
    Page  
Section 4.6 Publicity
    10  
Section 4.7 Withholding of Tax
    10  
ARTICLE V
       
 
       
SECURITIES LAW CONSIDERATIONS
       
 
       
ARTICLE VI
       
 
       
MISCELLANEOUS
       
 
       
Section 6.1 Termination
    10  
Section 6.2 Survival of Representations and Warranties
    11  
Section 6.3 Amendment
    11  
Section 6.4 Waiver of Conditions
    11  
Section 6.5 Governing Law; Submission to Jurisdiction, Etc.
    11  
Section 6.6 Notices
    12  
Section 6.7 Definitions
    12  
Section 6.8 Assignment
    13  
Section 6.9 Severability
    14  
Section 6.10 No Third-Party Beneficiaries
    14  
Section 6.11 Entire Agreement, Etc.
    14  
Section 6.12 Counterparts and Facsimile
    14  

ii


 

     
Defined Terms
   
 
   
Affiliate
  Section 6.7(b)
Agreement
  Preamble
Bankruptcy Event
  Section 6.7(c)
Business Combination
  Section 6.8
Capital Securities
  Recitals
Capitalization Date
  Section 3.1(b)
Closing
  Section 1.2(a)
Closing Date
  Section 1.2(a)
Code
  Recitals
Common Securities
  Recitals
Common Shares
  Section 1.1
Common Stock
  Recitals
Company
  Preamble
Company Material Adverse Effect
  Section 6.7(d)
Company 10-K
  Section 3.8
Covered Securities
  Section 4.8
Exchange
  Recitals
Exchange Act
  Section 6.7(g)
Governmental Entities
  Section 1.2(c)
Indenture
  Section 1.2(d)(iii)
Investor
  Preamble
Investor Material Adverse Effect
  Section 2.4
OTS
  Section 3.11
Previously Disclosed
  Section 6.7(e)
Proposals
  Section 4.5
SEC
  Section 4.5
Securities Act
  Section 6.7(f)
Significant Subsidiaries
  Section 3.1
Subsidiary
  Preamble
Transfer
  Section 5.4
Trust
  Recitals
Trust Agreement
  Recitals
Trust Shares
  Section 1.1

iii


 

     EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION, dated as of January 20, 2010 (this “Agreement”) by and among Superior Bancorp, a Delaware corporation (the “Company”), Superior Holdings, LLC, an Alabama limited liability company and wholly-owned subsidiary of the Company (“Subsidiary”) and KBW, Inc. (the “Investor”).
BACKGROUND
     WHEREAS, the Investor is, as of the date hereof, the beneficial owner of 4,000 shares of the Trust’s capital securities designated as “Floating Rate Capital Securities”, having a liquidation amount of $1,000 per share (the “Capital Securities”) that were issued pursuant to the Amended and Restated Declaration of Trust of Superior Capital Trust I, a Delaware Statutory Trust (the “Trust”), dated as of July 19, 2007 among the Company, Wilmington Trust Company as the Delaware Trustee and the Institutional Trustee, and the administrators named therein (the “Trust Agreement”);
     WHEREAS, the Company, the Subsidiary and the Investor desire to exchange newly issued shares of common stock par value $.001 of the Company (the “Common Stock”) for the 4,000 shares of the Capital Securities beneficially owned and held by the Investor, on the terms and subject to the conditions set forth herein such Trust Shares to be transferred to the Subsidiary (the “Exchange”); and
     WHEREAS, the Company, the Subsidiary and the Investor intend the Exchange be treated as a reorganization pursuant to Section
368(a)(1)(E) of the Internal Revenue Code of 1981, as amended (the “Code”), each of the parties be a party to a reorganization, as that term is defined in Section 368(b) of the Code, as this Agreement constitutes and reflect a “plan of reorganization”, as that term is defined in Treasury Regulation § 1.368-1(g).
     NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties do hereby agree as follows:
ARTICLE I
THE SHARE EXCHANGE
     Section 1.1 Share Exchange.
     On the terms and subject to the conditions set forth in this Agreement, (a) the Company agrees to issue and deliver the number of shares of Common Stock to the Investor with a “market value” equal to fifty percent (50%) of the face value of all the Capital Securities held by the Investor with the market value of the Common stock being the greater of (i) the average closing price of the Common Stock for the ten consecutive trading days immediately prior to Closing or (ii) ninety percent (90%) of the volume weighted average price (“VWAP”) as reported on the Bloomberg Professional© VWAP Summary Page for the stock symbol “SUPR” for the ten trading days preceding the Closing for the Capital Securities (the “Common Shares”) in exchange for 4,000 shares of Capital Securities beneficially owned and held by the Investor (such shares, the “Trust Shares”), and (b) the Investor agrees to cause the transfer to the Subsidiary as contemplated by this Agreement the Trust Shares in exchange for the Common Shares being delivered to the Investor. Anything to the contrary above in this Section 1.1 notwithstanding, the parties hereto agree that appropriate anti-dilutive adjustments will be made in the number of shares of Common Stock to be issued hereunder in the event of a dilutive issuance of Common Stock, the effect of which is not captured by the use of the ten-consecutive-trading day-measuring period.
     Section 1.2 The Closing.
     (a) The closing of the Exchange (the “Closing”) will take place at the offices of Haskell Slaughter Young & Rediker, LLC, 1400 Park Place Tower, 2001 Park Place North, Birmingham, Alabama 35203, at 9:00

1


 

a.m., CST on the business day after the day on which all of the conditions set forth in Sections 1.2(c), (d) and (e) are satisfied or waived (other than those conditions that by their terms must be satisfied on the Closing Date, but subject to the satisfaction or waiver of those conditions), or at such other place, time and date as shall be agreed between the Company, the Subsidiary, and the Investor. The time and date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.
     (b) Subject to the fulfillment or waiver of the conditions to the Closing in this Section 1.2, at the Closing (i) the Company will deliver to the Investor the Common Shares, as evidenced by one or more certificates dated the Closing Date and registered in the name of the Investor or its designee(s), and (ii) the Investor will transfer the Trust Shares to the Subsidiary as contemplated by this Agreement or via book entry, in either case, absent restrictions on transfer in accordance with the last sentence of Article V hereof.
     (c) The respective obligations of the Investor, the Subsidiary and the Company to consummate the Exchange are subject to the fulfillment (or waiver by the Company and the Investor, as applicable) prior to the Closing of the following conditions:
     (i) any approvals or authorizations of all United States and other governmental, regulatory or judicial authorities (collectively, “Governmental Entities”) required for the consummation of the Exchange shall have been obtained or made in form and substance reasonably satisfactory to each party and shall be in full force and effect and all waiting periods required by United States or other applicable law, if any, shall have expired;
     (ii) no provision of any applicable United States or other law and no judgment, injunction, order or decree of any Governmental Entity shall prohibit consummation of the Exchange as contemplated by this Agreement; and
     (iii) the Company shall have obtained the consent of its shareholders to issue the Common Shares if such consent is required by NASDAQ (see Section 4.5 hereof).
     (d) The obligation of the Investor to consummate the Exchange is also subject to the fulfillment (or waiver by the Investor) at or prior to the Closing of each of the following conditions:
     (i) (A) the representations and warranties of the Company set forth in Article III of this Agreement shall be true and correct in all material respects as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct in all material respects as of such other date), except to the extent that the failure of such representations and warranties to be so true and correct (without giving effect to any qualifiers or exceptions relating to materiality or Company Material Adverse Effect (as defined below)), individually or in the aggregate, does not have and would not reasonably be likely to have a Company Material Adverse Effect and (B) the Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing;
     (ii) the Investor shall have received a certificate signed on behalf of the Company by a senior executive officer certifying to the effect that the conditions set forth in Section 1.2(d)(i) have been satisfied;
     (iii) the Investor shall have received an amount equal to all accrued and unpaid distributions on the Trust Shares to, but excluding, the Closing Date in cash to an account designated by the Investor;
     (iv) the Company shall have made delivery via book entry or delivered certificates in proper form evidencing the Common Shares to the Investor or its designee(s); and

2


 

     (v) the Company shall have delivered to the Investor written opinions from outside counsel to the Company, addressed to the Investor and dated as of the Closing Date, in substantially the form attached hereto as Annex D.
     (e) The obligation of the Company and the Subsidiary to consummate the Exchange is also subject to the fulfillment (or waiver by the Company and the Subsidiary) at or prior to the Closing of each of the following conditions: (i) the representations and warranties of the Investor set forth in this Agreement shall be true and correct in all respects as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct in all respects as of such other date), except to the extent that the failure of such representations and warranties to be so true and correct (without giving effect to any qualifiers or exceptions relating to materiality or Investor Material Adverse Effect (as defined below)), individually or in the aggregate, does not have and would not reasonably be likely to have an Investor Material Adverse Effect and (ii) the Investor shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing.
     Section 1.3 Interpretation.
     When a reference is made in this Agreement to “Recitals,” “Articles,” “Sections,” “Annexes” or “Schedules” such reference shall be to a Recital, Article or Section of, or Annex or Schedule to, this Agreement, unless otherwise indicated. The terms defined in the singular have a comparable meaning when used in the plural, and vice versa. References to “herein”, “hereof”, “hereunder” and the like refer to this Agreement as a whole and not to any particular section or provision, unless the context requires otherwise. The table of contents and headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation.” No rule of construction against the draftsperson shall be applied in connection with the interpretation or enforcement of this Agreement, as this Agreement is the product of negotiation between sophisticated parties advised by counsel. All references to “$” or “dollars” mean the lawful currency of the United States of America. Except as expressly stated in this Agreement, all references to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute, rule or regulation include any successor to the section. References to a “business day” shall mean any day except Saturday, Sunday and any day on which banking institutions in New York, New York, Birmingham, Alabama or Wilmington, Delaware generally are authorized or required by law, regulation or executive order to remain closed or are customarily closed.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
     The Investor represents and warrants to the Company as of the date hereof and as of the Closing Date that:
     Section 2.1 Status.
     The Investor has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization, with the necessary power and authority to own its properties and conduct its business in all material respects as currently conducted.
     Section 2.2 Authorization, Enforceability.
     The Investor has the power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out its obligations hereunder and thereunder. The execution, delivery and performance by the Investor of the Transaction Documents to which it is a party and the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Investor, and no further approval or authorization is required on the part of the Investor. The Transaction Documents to which the Investor is a party are

3


 

or will be a valid and binding obligation of the Investor enforceable against the Investor in accordance with their respective terms, except as the same may be limited by the Bankruptcy Exceptions.
     Section 2.3 Ownership.
     (a) The Investor is the record and beneficial owner of the Trust Shares, free and clear of any lien, security interest, charge or encumbrance and any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of the Trust Shares) and will transfer and deliver to the Company at the Closing valid title to the Trust Shares free and clear of any lien, security interest, charge or encumbrance and any such limitation or restriction.
     (b) As of the date hereof, the Investor does not beneficially own more than 9.9% of the outstanding shares of Common Stock. As of the consummation of the Exchange, the Investor will not beneficially own more than 9.9% or more of the outstanding shares of Common Stock or voting power of the Company. The Investor does not have an agreement, arrangement or understanding with any person (other than the Company) to acquire, dispose of or vote any securities of the Company.
     Section 2.4 Non-Contravention.
     The execution, delivery and performance by the Investor of this Agreement and the consummation of the transactions contemplated hereby and compliance by the Investor with the provisions hereof, will not (a) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Investor under any of the terms, conditions or provisions of (i) its organizational documents, or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Investor is a party or by which it may be bound, or to which the Investor or any of the properties or assets of the Investor may be subject, or (b) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the Investor or its properties or assets except, in the case of clauses (a)(ii) and (b), for those occurrences that, individually or in the aggregate, have not had and would not be reasonably likely to have an Investor Material Adverse Effect. “Investor Material Adverse Effect “means a material adverse effect on the ability of the Investor to consummate the Exchange and the other transactions contemplated by this Agreement.
     Other than in connection or in compliance with the provisions of the Securities Act and the securities or blue sky laws of the various states, to the Investor’s knowledge, without inquiry, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any Governmental Entity is required to be made or obtained by the Investor in connection with the consummation by the Investor of the Exchange and the other transactions contemplated by this Agreement, except as would not reasonably be expected to have a material adverse effect on the ability of the Investor to consummate the Exchange and other transactions contemplated by this Agreement.
     Section 2.5 Investor Securities Law Representation.
     (a) The Investor has knowledge, skill and experience in financial, business and equity investments in entities such as the Company and is capable of evaluating the merits and risks of such investment and protecting the Investor’s interest in connection with the acquisition of the Common Shares. The Investor understands that the acquisition of the Common Shares is a speculative investment and involves substantial risks and that the Investor could lose the Investor’s entire investment in the Common Shares. Further, the Investor has taken full cognizance of and understands all of the risks related to the purchase of the Common Shares. To the extent deemed necessary by the Investor, the Investor has retained, at its own expense, and relied upon, appropriate professional advice regarding the investment, tax and legal merits and consequences of purchasing and owning the Common Shares. The Investor has the ability to bear the economic risks of the Investor’s investment in the Company, including a complete loss of the investment, and the Investor has no need for liquidity in such investment.

4


 

     (b) The Investor has been furnished by the Company all information (or provided access to all information) regarding the business and financial condition of the Company, its expected plans for future business activities, the attributes of the Common Shares and the merits and risks of an investment in the Common Shares which the Investor has requested or otherwise believes that the Investor needs in order to evaluate the investment in the Company.
     (c) In making the Investor’s investment decision, the Investor is relying solely on investigations made by the Investor and the Investor’s representative(s), if any. The Company’s offer to exchange the Common Shares was communicated to the Investor in such a manner that the Investor was able to ask questions of and receive answers from the management of the Company concerning the terms and conditions of the Exchange, and that at no time was the Investor presented with or solicited by or through any advertisement, article, leaflet, public promotional meeting, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting or any other form of general or public advertising or solicitation.
     (d) The Investor acknowledges that the Investor has been advised that:
  (i)   The Common Shares have not been approved or disapproved by the Securities and Exchange Commission (the “SEC”) or any state securities commission, nor has the SEC or any state securities commission passed upon the accuracy or adequacy of any representations by the Company; and
 
  (ii)   In making an investment decision, the Investor must rely on its own examination of the Company and the terms of the proposed sale to the Investor of the Common Shares, including the merits and risks involved. The Common Shares have not been recommended by any federal or state securities commission or other regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of any representation by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SUBSIDIARY
     Except as Previously Disclosed, the Company and, as applicable, the Subsidiary represents and warrants to Investor as of the date hereof and as of the Closing Date that:
     Section 3.1 Existence and Power.
     (a) Organization, Authority and Significant Subsidiaries. The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to own, operate and lease its properties and to carry on its business as it is being currently conducted, and except as has not, individually or in the aggregate, had and would not reasonably be expected to have a Company Material Adverse Effect, has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification; each subsidiary of the Company that is a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization (“Significant Subsidiary”). The Charter and bylaws of the Company, copies of which have been provided to the Investor prior to the date hereof, are true, complete and correct copies of such documents as in full force and effect as of the date hereof.
     (b) Capitalization. The authorized capital stock of the Company, and the outstanding capital stock of the Company (including securities convertible into, or exercisable or exchangeable for, capital stock of the Company) as of the most recent fiscal month-end preceding the date hereof (the “Capitalization Date”) is set forth

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on Schedule A. The outstanding shares of capital stock of the Company have been duly authorized and are validly issued and outstanding, fully paid and nonassessable, and subject to no preemptive rights (and were not issued in violation of any preemptive rights). Except as provided in the Warrant (described on Schedule A), as of the date hereof, the Company does not have outstanding any securities or other obligations providing the holder the right to acquire Common Stock that is not reserved for issuance as specified on Schedule A, and the Company has not made any other commitment to authorize, issue or sell any Common Stock. Since the Capitalization Date, the Company has not issued any shares of Common Stock other than (i) shares issued upon the exercise of stock options or delivered under other equity-based awards or other convertible securities or warrants which were issued and outstanding on the Capitalization Date and disclosed on Schedule A and (ii) shares disclosed on Schedule A.
     Section 3.2 Authorization and Enforceability.
     (a) Each of the Company and the Subsidiary has the corporate power and authority to execute and deliver this Agreement and to carry out its obligations hereunder.
     (b) The execution, delivery and performance by the Company and the Subsidiary of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of the Company and the Subsidiary and, if any, its stockholders, and no further approval or authorization is required on the part of the Company or the Subsidiary, subject to the necessity of obtaining stockholder approval if required by NASDAQ. This Agreement and any related transaction documents to which the Company is a party are valid and binding obligations of the Company and the Subsidiary, enforceable against the Company and the Subsidiary in accordance with its and their terms, subject to the Bankruptcy Exceptions.
     Section 3.3 Valid Issuance of Common Shares.
     The Common Shares have been duly and validly authorized and when issued and delivered pursuant to this Agreement, such Common Shares will be duly and validly issued and fully paid and non-assessable and will not be issued in violation of any pre-emptive rights, resale rights, rights of first refusal or similar rights.
     Section 3.4 Non-Contravention.
     (a) The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby, and compliance by the Company with the provisions hereof and thereof, will not (i) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Company subsidiary under any of the terms, conditions or provisions of (A) its organizational documents or (B) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any Company subsidiary is a party or by which it or any Company subsidiary may be bound, or to which the Company or any Company subsidiary or any of the properties or assets of the Company or any Company subsidiary may be subject, or (ii) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the Company or any Company subsidiary or any of their respective properties or assets except, in the case of clauses (i)(B), for those occurrences that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.
     (b) Other than the filing of any current report on Form 8-K required to be filed with the SEC, such filings and approvals as are required to be made or obtained under any state “blue sky” laws and such consents and approvals that have been made or obtained, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any Governmental Entity is required to be made or obtained by the Company in connection with the consummation by the Company of the Exchange except for any such notices, filings, exemptions, reviews, authorizations, consents and approvals the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

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     Section 3.5 No Company Material Adverse Effect.
     Since September 30, 2009, no fact, circumstance, event, change, occurrence, condition or development has occurred that, individually or in the aggregate, has had or would reasonably be likely to have a Company Material Adverse Effect, except as disclosed on Schedule B.
     Section 3.6 Offering of Securities.
     Neither the Company nor any person acting on its behalf has taken any action (including any offering of any securities of the Company under circumstances which would require the integration of such offering with the offering of the Common Shares under the Securities Act and the rules and regulations of the SEC promulgated thereunder), which might subject the offering, issuance or sale of the Common Shares to the Investor pursuant to this Agreement to the registration requirements of the Securities Act.
     Section 3.7 Brokers and Finders.
     No broker, finder or investment banker is entitled to any financial advisory, brokerage, finder’s or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon arrangements made by or on behalf of the Company or any Company Subsidiary for which the Investor could have any liability.
     Section 3.8 Company Financial Statements.
     (a) The consolidated financial statements of the Company and its consolidated subsidiaries included or incorporated by reference in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008 (the “Company 10-K”), present fairly in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated therein and the consolidated results of their operations for the periods specified therein; and except as stated therein, such financial statements were prepared in conformity with GAAP applied on a consistent basis.
     (b) The Company and its subsidiaries do not have any liabilities or obligations (accrued, absolute, contingent or otherwise) of a nature that would be required to be accrued or reflected in a consolidated balance sheet prepared in accordance with GAAP, other than liabilities or obligations (i) reflected on, reserved against, or disclosed in the notes to, the Company’s consolidated balance sheet included in the Company 10-K, (ii) that are reflected or disclosed in any Current Reports on Form 8-K or Quarterly Reports on Form 10-Q or (iii) that otherwise, individually or in the aggregate, would not be reasonably likely to have a Company Material Adverse Effect.
     Section 3.9 Proceedings.
     (a) As of the date of this Agreement, there is no litigation or similar proceeding pending or, to the Company’s knowledge, threatened to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which the Company’s management believes, individually or in the aggregate, has had or would be reasonably likely to have a Company Material Adverse Effect.
     (b) Neither the Company nor any of its Significant Subsidiaries is a party to any written agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by or is a recipient of any supervisory letter from, or has adopted any board resolutions at the request of, any bank regulatory authority that, in any such case, is currently in effect and has had or would be reasonably expected to have a Company Material Adverse Effect.
     Section 3.10 Compliance with Laws; Permits.
     (a) The Company is a registered thrift holding company; the Company and each of its subsidiaries have conducted their businesses in compliance with all applicable federal, state and foreign laws, regulations and applicable stock exchange requirements, including all laws and regulations restricting activities of thrift holding

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companies and thrift organizations, except for any noncompliance that, individually or in the aggregate, has not had and would not be reasonably likely to have a Company Material Adverse Effect.
     (b) The Company and each subsidiary have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, any Governmental Entities that are required in order to carry on their business as presently conducted, except where the failure to have such permits, licenses, authorizations, orders and approvals or the failure to make such filings, applications and registrations, individually or in the aggregate, have not had and would not be reasonably likely to have a Company Material Adverse Effect; and all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the knowledge of the Company, no suspension or cancellation of any of them is threatened, and all such filings, applications and registrations are current, except where such absence, suspension or cancellation, individually or in the aggregate, have not had and would not be reasonably likely to have a Company Material Adverse Effect.
     Section 3.11 Reports.
     (a) Since December 31, 2006, the Company has complied in all material respects with the filing requirements of Sections 13(a), 14(a) and 15(d) of the Exchange Act.
     (b) The Company’s 10-K and any reports or forms (after amendment where applicable) filed with the SEC pursuant to the requirements of the Securities Act or the Exchange Act on or after January 1, 2009, when they were filed or became effective (taking into account, amendments where applicable) with the SEC, as the case may be, conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder, and did not when filed (taking into account, amendments where applicable) with the SEC, 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, in the light of the circumstances in which they were made, not misleading.
     (c) Since December 31, 2006, the Company and each subsidiary have filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with the Office of Thrift Supervision (the “OTS”), the FDIC and any other applicable federal or state securities or banking authorities, except where the failure to file any such report, registration or statement, individually or in the aggregate, has not had and would not be reasonably likely to have a Company Material Adverse Effect. As of their respective dates, each of the foregoing reports complied with all applicable rules and regulations promulgated by the OTS, the FDIC and any other applicable foreign, federal or state securities or banking authorities, as the case may be, except for any failure that, individually or in the aggregate, have not had and would not be reasonably likely to have a Company Material Adverse Effect.
     (d) The records, systems, controls, data and information of the Company and the subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or the subsidiaries or their accountants (including all means of access thereto and therefrom). The Company (1) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) to ensure that material information relating to the Company and its subsidiaries is made known to the chief executive officer and the chief financial officer of the Company by others within those entities, and (ii) has disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s outside auditors and the audit committee of the Company’s board of directors (A) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. To the knowledge of the Company, there is no reason that its outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next due.

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ARTICLE IV
COVENANTS
     Section 4.1 Commercially Reasonable Efforts.
     Subject to the terms and conditions of this Agreement, each of the parties will use its commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the Exchange as promptly as practicable and otherwise to enable consummation of the transactions contemplated hereby and shall use commercially reasonable efforts to cooperate with the other party to that end.
     Section 4.2 Expenses.
     Unless otherwise provided in this Agreement, each of the parties hereto will bear and pay all costs and expenses incurred by it in connection with the transactions contemplated under this Agreement.
     Section 4.3 Exchange Listing.
     If requested by the Investor, the Company shall, at the Company’s expense, cause subject to applicable listing rules the Common Shares, to be listed on the NASDAQ Global Market, subject to official notice of issuance, and shall maintain such listing for so long as any Common Stock is listed on such exchange.
     Section 4.4 Certain Notifications Until Closing.
     From the date hereof until the Closing, the Company shall promptly notify the Investor of (a) any fact, event or circumstance of which it is aware and which would reasonably be likely to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate in any material respect or to cause any covenant or agreement of the Company contained in this Agreement not to be complied with or satisfied in any material respect and (b) except as Previously Disclosed, any fact, circumstance, event, change, occurrence, condition or development of which the Company is aware and which, individually or in the aggregate, has had or would reasonably be likely to have a Company Material Adverse Effect; provided, however, that delivery of any notice pursuant to this Section 4.4 shall not limit or affect any rights of or remedies available to the Investor; provided, further, that a failure to comply with this Section 4.4 shall not constitute a breach of this Agreement or the failure of any condition set forth in Section 1.2 to be satisfied unless the underlying Company Material Adverse Effect or material breach would independently result in the failure of a condition set forth in Section 1.2 to be satisfied.
     Section 4.5 Stockholder’s Meeting.
     (a) It is currently contemplated by the Company that it may issue a significant number of shares of its Common Stock in other transactions or offerings between the date of this agreement and March 31, 2010. The number of shares of Common Stock issued in such transactions or offerings may be sufficiently great to abrogate any requirement under NASDAQ rules for stockholder approval of the Exchange. If by March 31, 2010, stockholder approval of the Exchange would still be required by applicable NASDAQ rules, the Company shall hold a meeting of its stockholders (which may be its annual meeting or a special meeting) as promptly as practicable to seek approval of the Exchange and the issuance of the Common Shares pursuant to this Agreement (the “Proposals”). The Board of Directors shall recommend to the Company’s stockholders that such stockholders vote in favor of the Proposals. In connection with such meeting, the Company shall prepare (and the Investor will provide information reasonably required by the Company to be included therein) and file with the Securities and Exchange Commission (the “SEC”) as promptly as practicable a preliminary proxy statement. The Company shall use its reasonable best efforts to respond to any comments of the SEC or its staff thereon and to cause a definitive proxy statement related to such stockholders’ meeting or consent to be mailed to the Company’s stockholders, and the Company shall use its reasonable best efforts to solicit proxies for such stockholder approval of the Proposals. Each of the Investor and the Company agrees promptly to correct any information provided by it or on its behalf for use in the proxy statement if and to the extent that such information shall have become false or misleading in any material respect.

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     (b) None of the information supplied by the Company for inclusion in any proxy statement in connection with any such stockholders meeting of the Company or consent will, at the date it is filed with the SEC, when first mailed to the Company’s stockholders and at the time of any stockholders meeting, and at the time of any amendment or supplement thereof, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.
     Section 4.6 Publicity. No public release or announcement concerning the transactions contemplated hereby shall be issued by either party without the prior consent of the other party (which consent shall not be unreasonably withheld or delayed), except as such release or announcement may be required by law or the rules or regulations of any United States or foreign securities exchange, in which case the party required to make the release or announcement shall, to the extent reasonably practicable, allow the other party reasonable time to comment on such release or announcement in advance of such issuance. The provisions of this Section 4.6 shall not restrict the ability of a party hereto to summarize or describe the transactions contemplated by this Agreement in any prospectus or similar offering document or other report required by law, regulation stock exchange or rule so long as the other party is provided a reasonable opportunity to comment on such disclosure in advance.
     Section 4.7 Withholding of Tax. All payments with respect to the Common Stock issued in exchange for, or pursuant to the terms of, any of the foregoing instruments (the “Covered Securities”) shall be subject to withholding and backup withholding to the extent required by law. If, prior to making any payment with respect to Covered Securities held by the Investor, the Company receives from the Investor a duly executed, valid, accurate and properly completed IRS Form W-9 evidencing the entitlement of such entity to an exemption from backup withholding with respect to such payment, and the Company does not know, or have reason to know that such exemption is not available, the Company shall, and shall cause its paying agent to, make such payment with respect to such Covered Securities (including the transfers by the Company pursuant to the Exchange), free and clear of backup withholding of United States federal income tax, as supported by such form.
ARTICLE V
SECURITIES LAW CONSIDERATIONS
     The issuance of the Common Shares upon exchange of the Trust Shares is intended to be exempt from registration pursuant to Section
3(a)(9) of the Securities Act. Section 3(a)(9) provides an exemption from registration for any security exchanged by an issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. When securities are exchanged for other securities of an issuer under Section 3(a)(9), the securities received, in essence, assume the character of the exchanged securities for purposes of the Securities Act. Since it is the Company’s understanding that the Investor has held the Trust Securities for a sufficient period of time under Rule 144 promulgated pursuant to the Exchange Act such that the Trust Securities would be freely tradable by the Investor, we expect that all the Common Shares issued to the Investor pursuant to this Agreement will be freely tradable under U.S. securities laws by such non-affiliates. The Company will execute such documents as are necessary to remove any restrictive legends on the Common Shares in connection with any sale or other transfer of such shares by KBW, subject to the completion by KBW of customary brokerage forms in connection with any such sale or transfer.
ARTICLE VI
MISCELLANEOUS
     Section 6.1 Termination.
     This Agreement may be terminated at any time prior to the Closing:

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     (a) by either the Investor or the Company if the Closing shall not have occurred by June 30, 2010; provided, however, that the right to terminate this Agreement under this Section 6.1(a) shall not be available to any party whose breach of any representation or warranty or failure to perform any obligation under this Agreement shall have caused or resulted in the failure of the Closing to occur on or prior to such date;
     (b) by either the Investor or the Company in the event that any Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or
     (c) by the mutual written consent of the Investor and the Company.
     In the event of termination of this Agreement as provided in this Section 6.1, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except that nothing herein shall relieve either party from liability for any breach of this Agreement.
     Section 6.2 Survival of Representations and Warranties.
     The representations and warranties of the Company made herein or in any certificates delivered in connection with the Closing shall survive the Closing for a period of one year after Closing; provided that the representations and warranties made in Sections 3.1, 3.2, or 3.3 shall survive Closing under the expiration of the applicable statute of limitations. The representations of the Investor made herein or in any certificates delivered in connection with the Closing shall survive the Closing for a period of one year after Closing; provided that the representations and warranties made in Section 2.1, 2.2, 2.3 or 2.5 shall survive Closing until the expiration of the applicable statute of limitations.
     Section 6.3 Amendment.
     No amendment of any provision of this Agreement will be effective unless made in writing and signed by an officer or a duly authorized representative of each of the Company, the Subsidiary and the Investor; provided that the Investor may unilaterally amend any provision of this Agreement to the extent required to comply with any changes after the date hereof in applicable federal statutes. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative of any rights or remedies provided by law.
     Section 6.4 Waiver of Conditions.
     The conditions to each party’s obligation to consummate the Exchange are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. No waiver will be effective unless it is in a writing signed by a duly authorized officer of the waiving party that makes express reference to the provision or provisions subject to such waiver.
     Section 6.5 Governing Law; Submission to Jurisdiction, Etc.
     This Agreement will be governed by and construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State. Each of the parties hereto agrees (a) to submit to the exclusive jurisdiction and venue of the United States District Court for the Northern District of Alabama for any and all civil actions, suits or proceedings arising out of or relating to this Agreement or the Exchange contemplated hereby and (b) that, to the fullest extent permitted by law, notice may be served upon (i) the Company at the address and in the manner set forth for notices to the Company in Section 6.6 and (ii) the Investor in accordance with applicable law. To the extent permitted by applicable law, each of the parties hereto hereby unconditionally waives trial by jury in any civil legal action or proceeding relating to this Agreement or the Exchange contemplated hereby.

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     Section 6.6 Notices.
     Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall be delivered as set forth below or pursuant to such other instructions as may be designated in writing by the party to receive such notice.
If to the Company or the Subsidiary:
Superior Bancorp
17 North Twentieth Street
Birmingham, Alabama 35203
Attention: James A. White
Facsimile: 205-488-3335
email: jim.white@superiorbank.com
Telephone: (205) 327-3656
Attention: William H. Caughran
Facsimile: 205-488-3335
email: bill.caughran@superiorbank.com
Telephone: (205) 327-3615
With a copy to:
Haskell Slaughter Young & Rediker, LLC
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama 35203
Attention: Robert E. Lee Garner
Facsimile: (205) 324-1133
email: relg@hsy.com
Telephone: (205) 254-1417
Attention: Kimberly L. Hager
Facsimile: (205) 324-1133
email: klh@hsy.com
Telephone: (205) 254-1473
If to the Investor:
KBW, Inc.
787 Seventh Avenue
11th Floor
New York, NY 10019
Attention: Robert Giambrone
Facsimile: 212-541-6668
email: bgiamberone@kbw.com
Telephone: 212-887-6776
     Section 6.7 Definitions.
     (a) When a reference is made in this Agreement to a subsidiary of a person, the term “subsidiary” means any corporation, partnership, joint venture, limited liability company or other entity (i) of which such person or a subsidiary of such person is a general partner or (ii) of which a majority of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or persons performing similar functions with respect to such entity, is directly or indirectly owned by such person and/or one or more subsidiaries thereof.

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     (b) The term “Affiliate” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management and/or policies of such person, whether through the ownership of voting securities by contract or otherwise.
     (c) The term “Bankruptcy Exceptions” means as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity.
     (d) The term “Company Material Adverse Effect” means a material adverse effect on (i) the business, results of operation or financial condition of the Company and its consolidated subsidiaries taken as a whole; provided, however, that Company Material Adverse Effect shall not be deemed to include the effects of (A) changes after the date hereof in general business, economic or market conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates and price levels or trading volumes in the United States or foreign securities or credit markets), or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, in each case generally affecting the industries in which the Company and its subsidiaries operate, (B) changes or proposed changes after the date hereof in GAAP or regulatory accounting requirements, or authoritative interpretations thereof, (C) changes or proposed changes after date hereof in securities, banking and other laws of general applicability or related policies or interpretations of Governmental Entities (in the case of each of these clauses (A), (B) and (C), other than changes or occurrences to the extent that such changes or occurrences have or would reasonably be expected to have a materially disproportionate adverse effect on the Company and its consolidated subsidiaries taken as a whole relative to comparable U.S. banking or financial services organizations), or (D) changes in the market price or trading volume of the Common Stock or any other equity, equity-related or debt securities of the Company or its consolidated subsidiaries (it being understood and agreed that the exception set forth in this clause (D) does not apply to the underlying reason giving rise to or contributing to any such change); or (ii) the ability of the Company to consummate the Exchange and the other transactions contemplated by this Agreement and perform its obligations hereunder on a timely basis.
     (e) The term “Previously Disclosed” means information set forth or incorporated in the Company’s Annual Report on Form 10-K for the most recently completed fiscal year of the Company filed with SEC prior to the date hereof or in its other reports and forms filed with or furnished to the SEC under Sections 13(a), 14(a) or 15(d) of the Exchange Act on or after the last day of the most recently completed fiscal year of the Company and prior to the date hereof.
     (f) The term “Securities Act” means the Securities Act of 1933 as amended.
     (g) The term “Exchange Act” means the Securities Exchange Act of 1934, as amended.
     (h) To the extent any securities issued pursuant to this Agreement or the transactions contemplated hereby are registered in the name of a designee of the Investor pursuant to Section 6.8(c) or transferred to an Affiliate of the Investor, all references herein to the Investor holding or owning any debt or equity securities of the Company, Common Shares or Registrable Securities (and any like variations thereof) shall be deemed to refer to the Investor, together with such designees and/or Affiliates, holding or owning any debt or equity securities, Common Shares or Registrable Securities (and any like variations thereof), as applicable.
     Section 6.8 Assignment.
     Neither this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall, to the fullest extent permitted by law, be assignable by any party hereto without the prior written consent of each other party, and any attempt to assign any right, remedy, obligation or liability hereunder without such consent shall be void, except (a) an assignment, in the case of a Business Combination where such party is not the surviving entity, or a sale of substantially all of its assets, to the entity which is the survivor of such Business Combination or

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the purchaser in such sale, and (c) an assignment by the Investor of this Agreement to an Affiliate of the Investor; provided that if the Investor assigns this Agreement to an Affiliate, the Investor shall be relieved of its obligations under this Agreement and all rights and obligations of the Investor hereunder shall be exercised by, and shall be the responsibility of, such Affiliate. “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s stockholders.
     Section 6.9 Severability.
     If any provision of this Agreement, or the application thereof to any person or circumstance, is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
     Section 6.10 No Third-Party Beneficiaries.
     Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the Company, the Trust and the Investor any benefit, right or remedies, except that the provisions of Sections 4.4 and 5.4 shall inure to the benefit of the persons holding Capital Shares during any tacked holding period, as contemplated by that Section.
     Section 6.11 Entire Agreement, Etc.
     This Agreement (including the Annexes and Schedules hereto) constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof.
     Section 6.12 Counterparts and Facsimile.
     For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile and such facsimiles will be deemed as sufficient as if actual signature pages had been delivered.
     Section 6.13 Federal Income Tax Treatment.
     The Company, the Subsidiary and the Investor intend the Exchange be treated as a reorganization pursuant to Section 368(a)(1)(E) of the Code (i.e., a recapitalization of the Company), each of the parties be a party to a reorganization, as that term is defined in Section 368(b) of the Code, and this Agreement constitute and reflect a “plan or reorganization”, as that term is defined in Treasury Regulations § 1.368-2(g).

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
           
    SUPERIOR BANCORP  
 
         
 
  By:   /s/ James A. White  
 
  Name:   James A. White  
 
  Title:   Chief Financial Officer  
 
         
    SUPERIOR HOLDINGS, LLC  
 
         
 
  By:   Superior Bancorp  
 
  Its:   Member  
 
         
 
  By:   /s/ James A. White  
 
  Name:   James A. White  
 
  Title:   Chief Financial Officer  
 
         
    KBW, INC.  
 
         
 
  By:   /s/ Robert Giambrone  
 
  Name:   Robert Giambrone  
 
  Title:   Executive Vice President and Chief Financial Officer  
[Signature Page of Exchange Agreement]

15


 

SCHEDULE A
CAPITALIZATION
Common Stock
Par value: $0.001
Total Authorized: 200,000,000 Outstanding: 11,667,794
Subject to warrants, options, convertible securities, etc.: 3,849,439
Reserved for benefit plans and other issuances: 0
Remaining authorized but unissued: 184,482,767
Shares issued after Capitalization Date (other than pursuant to warrants, options, convertible securities, etc. as set forth above): None.
Preferred Stock
Par value: None.
Total Authorized: 5,000,000
Outstanding (by series): None.
Reserved for issuance: None.
Remaining authorized but unissued: 4,931,000

 


 

SCHEDULE B
Response to Section 3.6: [to be completed if applicable]

 


 

ANNEX D
FORM OF OPINION
     (a) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Subsidiary is organized and validly existing under the laws of the State of Alabama.
     (b) Each of the Company and the Subsidiary has the corporate power and authority to execute and deliver the Exchange Agreement and to carry out its obligations thereunder.
     (c) The execution, delivery and performance by each of the Company and the Subsidiary of the Exchange Agreement, and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary corporate action on the part of the Company and the Subsidiary, and no further approval or authorization is required on the part of the Company and the Subsidiary.
     (d) The Exchange Agreement has been duly executed and delivered by the Company and the Subsidiary and, assuming the due execution and delivery by the other parties thereto, is a valid and binding obligation of each of the Company and the Subsidiary, enforceable against the Company and the Subsidiary in accordance with its terms. The foregoing opinion as to the enforceability of the Exchange Agreement against the Company and the Subsidiary is subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles, regardless of whether such enforceability is considered in a proceeding at law or in equity.
     (e) The Company is not or, after giving effect to the issuance of the Common Shares pursuant to the Exchange Agreement, would be on the date hereof an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended.
     (f) The Common Shares to be issued pursuant to the Agreement have been validly authorized and, upon issuance and delivery against consideration therefor as contemplated by the Agreement, will be validly issued, fully paid and non-assessable.

 

EX-21 9 g22315exv21.htm EX-21 exv21
Exhibit 21
SUBSIDIARIES OF SUPERIOR BANCORP
     
Name of Subsidiary   State of Organization
Superior Bank
  Federally chartered thrift institution
Superior Financial Management, Inc.
  Alabama
SFS, LLC
  Alabama
Superior Financial Services, LLC
  Alabama
1st Community Credit Corporation
  Alabama
Morris Avenue Management Group, Inc.
  Alabama
Superior Capital Trust I
  Delaware business trust
Superior Capital Trust II
  Delaware business trust
TBC Capital Statutory Trust II
  Connecticut business trust
Peoples Community Statutory Trust I
  Delaware business trust
Community (AL) Capital Trust I
  Delaware business trust

EX-23 10 g22315exv23.htm EX-23 exv23
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 11, 2010, with respect to the consolidated financial statements and regarding the effectiveness of internal control over financial reporting, included in the Annual Report of Superior Bancorp on Form 10-K for the year ended December 31, 2009. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Superior Bancorp on Forms S-8 (File Nos. 333-70953; 333-72747; 333-58170; 333-123397; 333-123398; 333-133050; 333-134561; 333-152462 and 333-161761).
/s/ GRANT THORNTON LLP
Raleigh, North Carolina
March 11, 2010

EX-31 11 g22315exv31.htm EX-31 exv31
Exhibit 31.1
CERTIFICATIONS
     I, C. Stanley Bailey, certify that:
     1. I have reviewed this Annual Report on Form 10-K of Superior Bancorp;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
     (a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: March 11, 2010
         
By
  /s/ C. Stanley Bailey
 
   
 
  C. Stanley Bailey    
 
  Chief Executive Officer    
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to Superior Bancorp and will be retained by Superior Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

 


 

Exhibit 31.2
CERTIFICATIONS
     I, James A. White, certify that:
     1. I have reviewed this Annual Report on Form 10-K of Superior Bancorp;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
     (a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: March 11, 2010
         
By
  /s/ James A. White
 
James A. White
   
 
  Chief Financial Officer    
 
  (Principal Financial Officer)    
A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to Superior Bancorp and will be retained by Superior Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

 

EX-32 12 g22315exv32.htm EX-32 exv32
Exhibit 32.1
SUPERIOR BANCORP
Certification of Periodic Financial Report
Pursuant to 18 U.S.C. Section 1350
     Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Superior Bancorp (the “Company”) certifies that, to his knowledge, the Annual Report on Form 10-K of the Company for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 11, 2010
         
     
  /s/ C. Stanley Bailey    
  C. Stanley Bailey   
  Chief Executive Officer   
 
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Superior Bancorp and will be retained by Superior Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

 


 

Exhibit 32.2
SUPERIOR BANCORP
Certification of Periodic Financial Report
Pursuant to 18 U.S.C. Section 1350
     Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Superior Bancorp (the “Company”) certifies that, to his knowledge, the Annual Report on Form 10-K of the Company for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 11, 2010
         
     
  /s/ James A. White    
  James A. White   
  Chief Financial Officer
(Principal Financial Officer) 
 
 
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Superior Bancorp and will be retained by Superior Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

 

EX-99 13 g22315exv99.htm EX-99 exv99
Exhibit 99.1
CERTIFICATION
I, C. Stanley Bailey, certify, based on my knowledge, that:
(i) The Compensation Committee of Superior Bancorp has discussed, reviewed, and evaluated with senior risk officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after the date of the agreement between Superior Bancorp and Treasury and ending with the last day of Superior Bancorp’s fiscal year containing that date (the applicable period), the senior executive officer (SEO) compensation plans and the employee compensation plans and the risks these plans pose to Superior Bancorp;
(ii) The Compensation Committee of Superior Bancorp has identified and limited during the applicable period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Superior Bancorp, and during that same applicable period has identified any features of the employee compensation plans that pose risks to Superior Bancorp has has limited those features to ensure that Superior Bancorp is not unnecessarily exposed to risks;
(iii) The Compensation Committee has reviewed, at least every six months during the applicable period, the terms of each employee compensation plan and identified any features of the plan that could encourage manipulation of reported earnings of Superior Bancorp to enhance the compensation of an employee, and has limited any such features;
(iv) The Compensation Committee of Superior Bancorp will certify to the review of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;
(v) The Compensation Committee of Superior Bancorp will provide a narrative description of how it limited during any part of the most recently completed fiscal year that included a TARP period the features in
  (A)   SEO compensation plans that could lead SEO’s to take unnecessary and excessive risks that could threaten the value of Superior Bancorp;
 
  (B)   Employee compensation plans that unnecessarily expose Superior Bancorp to risks; and
 
  (C)   Employee compensation plans that could encourage the manipulation of reported earnings of Superior Bancorp to enhance the compensation of an employee;
(vi) Superior Bancorp has required that bonus payments, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;
(vii) Superior Bancorp has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(viii) Superior Bancorp has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(ix) The board of directors of Superior Bancorp has established an excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or ninety days after the closing date of the agreement between Superior Bancorp and Treasury; this policy has been provided to Treasury and its primary regulatory agency; Superior Bancorp and its employees have complied with this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;
(x) Superior Bancorp will permit a non-binding shareholder resolution in compliance with an applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during the

 


 

period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(xi) Superior Bancorp will disclose the amount, nature, and justification for the offering during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);
(xii) Superior Bancorp will disclose whether Superior Bancorp, the board of directors of Superior Bancorp, or the compensation committee of Superior Bancorp has engaged during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;
(xiii) Superior Bancorp has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(xiv) Superior Bancorp has substantially complied with all other requirements related to employee compensation that are provided in the agreement between Superior Bancorp and Treasury, including any amendments;
(xv) Superior Bancorp has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and
(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both (See, for example, 18 U.S.C. 1001).
Dated: March 11, 2010
         
By
  /s/ C. Stanley Bailey
 
C. Stanley Bailey
   
 
  Chief Executive Officer    


 

Exhibit 99.2
CERTIFICATION
I, James A. White, certify, based on my knowledge, that:
(i) The Compensation Committee of Superior Bancorp has discussed, reviewed, and evaluated with senior risk officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after the date of the agreement between Superior Bancorp and Treasury and ending with the last day of Superior Bancorp’s fiscal year containing that date (the applicable period), the senior executive officer (SEO) compensation plans and the employee compensation plans and the risks these plans pose to Superior Bancorp;
(ii) The Compensation Committee of Superior Bancorp has identified and limited during the applicable period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Superior Bancorp, and during that same applicable period has identified any features of the employee compensation plans that pose risks to Superior Bancorp has has limited those features to ensure that Superior Bancorp is not unnecessarily exposed to risks;
(iii) The Compensation Committee has reviewed, at least every six months during the applicable period, the terms of each employee compensation plan and identified any features of the plan that could encourage manipulation of reported earnings of Superior Bancorp to enhance the compensation of an employee, and has limited any such features;
(iv) The Compensation Committee of Superior Bancorp will certify to the review of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;
(v) The Compensation Committee of Superior Bancorp will provide a narrative description of how it limited during any part of the most recently completed fiscal year that included a TARP period the features in
  (D)   SEO compensation plans that could lead SEO’s to take unnecessary and excessive risks that could threaten the value of Superior Bancorp;
 
  (E)   Employee compensation plans that unnecessarily expose Superior Bancorp to risks; and
 
  (F)   Employee compensation plans that could encourage the manipulation of reported earnings of Superior Bancorp to enhance the compensation of an employee;
(vi) Superior Bancorp has required that bonus payments, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;
(vii) Superior Bancorp has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(viii) Superior Bancorp has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(ix) The board of directors of Superior Bancorp has established an excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or ninety days after the closing date of the agreement between Superior Bancorp and Treasury; this policy has been provided to Treasury and its primary regulatory agency; Superior Bancorp and its employees have complied with this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;
(x) Superior Bancorp will permit a non-binding shareholder resolution in compliance with an applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during the

 


 

period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(xi) Superior Bancorp will disclose the amount, nature, and justification for the offering during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);
(xii) Superior Bancorp will disclose whether Superior Bancorp, the board of directors of Superior Bancorp, or the compensation committee of Superior Bancorp has engaged during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;
(xiii) Superior Bancorp has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during the period beginning on the later of the closing date of the agreement between Superior Bancorp and Treasury or June 15, 2009 and ending with the last day of Superior Bancorp’s fiscal year containing that date;
(xiv) Superior Bancorp has substantially complied with all other requirements related to employee compensation that are provided in the agreement between Superior Bancorp and Treasury, including any amendments;
(xv) Superior Bancorp has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and
(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both (See, for example, 18 U.S.C. 1001).
Dated: March 11, 2010
         
By
  /s/ James A. White
 
James A. White
   
 
  Chief Financial Officer    
 
  (Principal Financial Officer)    

 2

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-----END PRIVACY-ENHANCED MESSAGE-----