SECURITIES PURCHASE
AGREEMENT
This SECURITIES
PURCHASE AGREEMENT (this “ Agreement ” )
, dated as of February 24, 2009, is by and between
CapitalSouth Bancorp, a Delaware corporation and a registered bank
holding company (the “ Company ” )
, and James C. Bowen a resident of the State of Florida
(“ Bowen ”) .
A. Prior to
the date hereof, the Company issued to Bowen that certain
Promissory Note in the original principal amount of $1,500,000,
dated September 14, 2007, made by the Company in favor of
Bowen, a copy of which is attached hereto as Exhibit A
(the “ Pledged Note ”).
B. Pursuant
to that certain Restructuring Agreement by and between the Company
and Bowen dated September 30, 2008 (the “
Restructuring Agreement ”), the Company and Bowen
agreed that the outstanding principal balance of the Pledged Note,
and all accrued but unpaid interest thereon, shall be converted
into (i) a new promissory note in the amount of $500,000 to be
made by the Company in favor of Bowen, and (ii) the maximum
number of shares of common stock of the Company which may be
purchased at the subscription price established under the Rights
Offering (as defined below) for $1,000,000, or such lesser amount
which is necessary to cause the total stock holdings of Bowen in
the Company, after such purchase, to equal 9.9% of the outstanding
common stock of the Company.
C. The
effectiveness of the Restructuring Agreement was contingent upon,
among other things, completion of an offering to current
stockholders of the Company of non-transferable subscription rights
to purchase shares of the Company’s common stock (the “
Rights Offering ”). The Rights Offering closed on
January 20, 2009, and the subscription price under the Rights
Offering was $2.00 per share.
NOW THEREFORE, in
consideration of the foregoing and the mutual covenants herein
contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1.
Conversion of Note .
A.
The Company and Bowen hereby agree that the outstanding principal
amount of the Pledged Note, and all accrued but unpaid interest
thereon, is hereby converted into (i) a new promissory note in
the amount of $500,000 to be made by the Company in favor of Bowen
with an interest rate of LIBOR plus two percent (2%), paid
quarterly, in substantially the same form as attached hereto as
Exhibit B (“ Bowen Note II ”),
(ii) 285,000 shares of common stock of the Company, which will
cause the total stock holdings of Bowen in the Company, after such
purchase, to equal 9.9% of the outstanding common stock of the
Company (the “ Conversion Shares ”), and
(iii) a new promissory note in the amount of $430,000 to be
made by
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the Company in
favor of Bowen with an interest rate of LIBOR plus two percent
(2%), paid quarterly, in substantially the same form as attached
hereto as Exhibit C (“ Bowen Note III
”), which represents the difference between the price paid
for the Conversion Shares and $1,000,000.
B.
The Company shall deliver a stock certificate evidencing the
Conversion Shares plus, in lieu of any fractional share of common
stock of the Company to which Bowen would otherwise be entitled,
cash based on the Conversion Price, as soon as practicable
following the date hereof.
C.
The Pledged Note is hereby terminated in its entirety and is null
and void.
Section 2.
Representations and Warranties .
A.
Representations and Warranties of Bowen . Bowen represents
and warrants to the Company as of the date hereof as
follows:
(i) Bowen
is an individual resident in the State of Florida.
(ii) Bowen
has full legal right, power and authority to enter into this
Agreement and has full legal right, power and authority to convert
the outstanding principal amount of the Pledged Note, and all
accrued but unpaid interest thereon, into Bowen Note II, the
Conversion Shares and Bowen Note III.
(iii) There
are no actions, suits, or proceedings (including, without
limitation, any condemnation or bankruptcy proceedings), in law or
equity, pending or threatened against or affecting Bowen or the
Pledged Note which may adversely affect the validity or
enforceability of this Agreement, at law or in equity.
(iv) This
Agreement constitutes the valid and binding obligation of Bowen,
enforceable against Bowen in accordance with its terms, except as
such enforceability may be subject to the laws of general
application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
(v) Bowen
is and reasonably expects to continue to be an “accredited
investor” as that term is defined in Rule 501(a) of
Regulation D promulgated by the U.S. Securities and Exchange
Commission (the “ SEC ”) under the
Act.
(vi) Bowen
is voluntarily converting the outstanding principal amount of the
Pledged Note, and all accrued but unpaid interest thereon, into
Bowen Note II, the Conversion Shares and Bowen Note III.
(vii) In
connection with the conversion contemplated hereby, Bowen has had
an opportunity to read carefully that certain Registration
Statement on Form S-1 filed with the SEC on June 11, 2008,
Registration No. 333-151605, as amended through the date
hereof (the “ Registration Statement ”),
relating to the Company’s Rights Offering, and the exhibits
and annexes thereto, and is fully familiar with the contents
thereof.
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(viii) No
written or oral representations or warranties have been made to
Bowen other than those contained in the Registration Statement and
Bowen has not relied upon any representation or warranty not
contained in the Registration Statement in making the decision to
convert a portion of the outstanding principal amount of the
Pledged Note, and the accrued but unpaid interest thereon, into the
Conversion Shares pursuant to this Agreement.
(ix) Bowen
has such knowledge and experience in financial and business matters
that Bowen is capable of evaluating the merits and risks of the
conversion a portion of the outstanding principal amount of the
Pledged Note, and the accrued but unpaid interest thereon, into the
Conversion Shares pursuant to this Agreement.
(x) Bowen
has consulted with legal counsel, tax advisors or other third
parties of his choice in connection with the conversion of a
portion of the outstanding principal amount of the Pledged Note,
and the accrued but unpaid interest thereon, into the Conversion
Shares pursuant to this Agreement.
(xi) Bowen
is acquiring the Conversion Shares for his own account, with the
intention of holding the Conversion Shares for investment and with
no present intention of participating, directly or indirectly, in a
distribution of the Conversion Shares, and he will not make any
sale, transfer or other disposition of the Securities for a period
of six months from the date he receives the Conversion
Shares.
(xii) Bowen
is familiar with the business in which the Company is engaged, and
based upon his knowledge and experience in financial and business
matters: he is familiar with the investments of the type that he is
undertaking to purchase; he is fully aware of the problems and
risks involved in making an investment of this type, including,
without limitation, the risks described under the heading
“Risk Factors” in the Registration Statement, and that
an investment in the Conversion Shares involves a high degree of
risk ; he is capable of evaluating the merits and risks of this
investment; and he has determined that the purchase of the
Conversion Shares is consistent with his investment
objectives.
(xiii) Bowen
confirms that all documents, records, and books pertaining to the
Company have been made available to Bowen and, to the extent he
desired to do so, he has been given an opportunity to make further
inquiries of the Company and its representatives with respect to
the Company and the conversion contemplated hereby.
B.
Representations and Warranties of the Company . The Company
represents and warrants to Bowen as of the date hereof as
follows:
(i) The
Company has full legal right, power and authority to enter into
this Agreement and has full legal right, power and authority to
issue the Conversion Shares.
(ii) There
are no actions, suits or proceedings (including, without
limitation, any condemnation or bankruptcy proceedings), in law or
equity, pending or threatened against or affecting the Company or
the Conversion Shares which may adversely affect the enforceability
or validity of this Agreement.
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(iii) This
Agreement constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be subject to the laws of
general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
(iv) All
of the Conversion Shares have been duly authorized for issuance,
and, when issued and distributed in accordance with this Agreement,
will be validly issued, fully paid and non-assessable.
(v) The
Company has received approval to enter into the Restructuring
Agreement and the transactions contemplated thereby from the
Federal Reserve Bank of Atlanta and the Alabama State Banking
Department.
C.
Survival or Representations and Warranties and
Acknowledgments . The representations and warranties of the
parties contained in this Section 2 shall survive the
conversion of the outstanding principal amount of the Pledged Note,
and all accrued but unpaid interest thereon, into Bowen Note II,
the Conversion Shares and Bowen Note III pursuant to this
Agreement.
Section 3.
Further Assurances . Each of the parties hereto hereby
agrees to from time to time execute and deliver, or cause to be
executed and delivered, such additional or further instruments, and
do or cause to be done such further acts, as any other party hereto
may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement.
Section 4.
Public Statements . Neither the Company nor Bowen shall
issue any public announcement, statement or other disclosure with
respect to this Agreement or the transactions contemplated hereby
without the prior consent of the other parties hereto, which
consent shall not be unreasonably withheld or delayed, except if
such public announcement, statement or other disclosure is required
by applicable law or applicable stock market regulations
(including, without limitation, any filings required by the SEC),
in which case the disclosing party shall consult in advance with
respect to such disclosure with the other party to the extent
reasonably practicable.
Section 5.
Regulatory Filing . If the Company or Bowen determines a
filing is or may be required under applicable law in connection
with the transactions contemplated hereunder, the Company and Bowen
shall use commercially reasonable efforts to promptly prepare and
file all necessary documentation and to effect all applications
that are necessary or advisable under applicable law with respect
to the transactions contemplated hereunder.
Section 6.
Indemnification .
A.
Bowen Indemnity . Bowen agrees to indemnify and hold
harmless the Company and its respective affiliates, officers,
directors, employees and shareholders (other than Bowen and his
successors in interest), and their successors and assigns from,
against and with respect to any and all losses, claims, shortages,
damages, liabilities, and expenses (including reasonable
attorneys’ fees) (“ Losses ”) arising out
of or in any manner incident, relating or
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attributable to
any breach of, or failure by Bowen to perform or observe in full,
any covenant, agreement or condition to be performed or observed by
Bowen under this Agreement.
B.
Company Indemnity . The Company agrees to indemnify and hold
harmless Bowen and his successors and assigns from, against and
with respect to any and all Losses arising out of or in any manner
incident, relating or attributable any breach of, or failure by the
Company to perform or observe in full, any covenant, agreement or
condition to be performed or observed by the Company under this
Agreement.
Section 7.
Assignment; Binding Effect . This Agreement may not be
assigned by Bowen without the express prior written consent of the
Company. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective heirs, administrators,
executors, personal and legal representatives, successors and
assigns.
Section 8.
Entire Agreement; Amendment . This Agreement represents the
entire understanding and agreement between the parties with respect
to the subject matter hereof and shall supersede any prior
agreements and understandings between the parties with respect to
that subject matter. This Agreement may not be amended, modified or
changed, in whole or in part, except by a written instrument signed
by both of the parties hereto.
Section 9.
Notices . Any notices and other communications hereunder
shall be in writing and shall be deemed given if delivered
personally, sent by overnight courier (providing proof of
delivery), or sent by registered or certified mail, postage
pre-paid, return receipt requested, to the parties at the following
addresses (or at such other address for a party as shall be
specified by like notice):
James C.
Bowen
1108 Ten Mile Rd.
Fitzgerald, GA 31750
CapitalSouth
Bancorp
2340 Woodcrest Place
Birmingham, AL 35209
Attention: W. Dan Puckett
Section 10.
Governing Law . This Agreement shall be governed by and
construed and enforced in accordance with the substantive laws of
the State of Alabama, without regard to principles governing
conflicts of law.
Section 11.
Venue . All actions with respect to this Agreement may be
instituted in the Circuit Courts of the State of Alabama sitting in
Jefferson County, Alabama, or the United States District Court for
the Northern District of Alabama sitting in Birmingham, Alabama,
and by execution and delivery of this Agreement, the parties
irrevocably and unconditionally submit to the jurisdiction (both
subject matter and personal) of each such court and irrevocably
and
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unconditionally
waive: (1) any objection the parties might now or hereafter
have to the venue in any such court; and (2) any claim that
any action or proceeding brought in any such court has been brought
in an inconvenient forum.
Section 12.
WAIVER OF RIGHT TO JURY TRIAL . The parties desire to
avoid the additional time and expense related to a jury trial of
any disputes arising under this Agreement. Accordingly, with
respect to any such dispute, Bowen and the Company each hereby
waive their right to a trial by jury and consent to the granting of
such legal or equitable relief as is deemed appropriate by the
judge of a court of competent jurisdiction. The parties acknowledge
and agree that this waiver is knowingly, freely and voluntarily
given, is made after opportunity to consult with counsel about this
waiver and is in the best interests of each party.
Section 13.
Substitution of Note . This Agreement is made in
substitution of, and not in payment or novation of, the Pledged
Note. A portion of the Pledged Note has been converted into Bowen
Note II, and the remaining balance of the Pledged Note has been
converted into the Conversion Shares and Bowen Note III pursuant to
this Agreement.
Section 14.
Interpretation . In the event of any ambiguity or question
of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption
or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this
Agreement.
Section 15.
Severability . If any provision of this Agreement or
the application thereof to any person or circumstances 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, void or
unenforceable, shall 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 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 16.
Expenses . Each of Bowen and the Company will bear his or
its own costs and expenses (including legal fees and
expens
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