EX-10.3






Exhibit 10.3








THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (“ACT”), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION INCLUDING, WITHOUT LIMITATION,
ALABAMA, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN ANY
MANNER UNLESS THEY ARE REGISTERED UNDER SUCH ACT AND THE SECURITIES LAWS OF ANY APPLICABLE
JURISDICTIONS OR UNLESS PURSUANT TO AN EXEMPTION THEREFROM.







CONVERTIBLE PROMISSORY NOTE




	 	 	 
	 

	 	Birmingham, Alabama
	$430,000.00

	 	February 24, 2009






     For value received, CapitalSouth Bancorp, a Delaware corporation (the “Company”), promises to
pay to Jake Bowen, an individual resident of the State of Florida (the “Holder”), at such place as
the Holder may designate from time to time in writing, the principal sum of Four Hundred Thirty
Thousand and 00/100 Dollars ($430,000.00) with interest on the unpaid balance thereof from the date
hereof until paid in full. Interest shall accrue on the outstanding principal balance from the date
hereof until paid at a variable per annum rate equal to the LIBOR Rate (as defined herein) plus
2.0%. The interest rate accruing on the principal balance of this Note shall be set as of the date
hereof and adjusted on the first (1st) day of each calendar month thereafter during the
term of this Note (each such day being hereinafter referred to as a “Change Date”). The “LIBOR
Rate” shall mean the London Interbank Offered Rate, as published in The Wall Street Journal for
deposits of United States Dollars. The LIBOR Rate shall be determined by the Holder and shall be
based upon the then applicable one-month LIBOR Rate on each respective Change Date. In the event
that any Change Date falls on a day on which The Wall Street Journal is not published or the LIBOR
Rate is not available, the LIBOR Rate shall be determined from the immediately preceding edition of
The Wall Street Journal in which the LIBOR Rate is available. If the LIBOR Rate is no longer
published in The Wall Street Journal or is no longer available, the Holder will select a new index
that is reasonably determined by the Holder to be comparable to the LIBOR Rate.



     Any and all amounts due under this Note, including but not limited to, any outstanding
principal and accrued but unpaid interest shall be immediately due and payable by the Company on
the earlier of (i) the 1st day of January, 2012, or (ii) the date Bowen receives approval to
purchase the Additional Shares (as defined below) pursuant to a Notice of Change in Control filed
by Bowen with the Board of Governors of the Federal Reserve System (the “FRB”) (the “Maturity
Date”).



     Interest shall be payable on the Maturity Date. The Company may pay in advance the principal
sum of this loan, in whole or in part, with accrued interest to the date of prepayment, without
penalty or fee.



     This Note is “Bowen Note III” contemplated by the Securities Purchase Agreement by and between
the Company and Bowen dated as of the date hereof (the “Securities Purchase Agreement”).
Capitalized terms used in this Note and not otherwise defined shall have the meanings ascribed to
them in the Securities Purchase Agreement unless the context clearly requires otherwise.



 









 





     Upon receipt of approval by the FRB of a Notice in Change in Control filed by Bowen and his
affiliates with respect to the Additional Shares (as defined in the Securities Purchase Agreement),
the then outstanding principal balance of this Note and all accrued but unpaid interest thereon
shall automatically convert into 215,000 shares of common stock of the Company, or if the FRB
approves a lesser amount, the amount of shares of common stock of the Company actually approved by
the FRB (the “Conversion Shares”). Upon conversion of this Note, Bowen shall surrender this Note,
duly endorsed, at the principal office of the Company. The Company will, as soon as practicable
thereafter, issue and deliver to Bowen a certificate for the Conversion Shares. If the FRB
approves an amount of shares to be purchased by Bowen which is less than 215,000 shares, then, in
addition to delivering a new certificate for the Conversion Shares, the Company will deliver a new
promissory note to Bowen in the amount of the difference between (i) $430,000 and (ii) the amount
of the Conversion Shares multiplied by $2.00 per share, on terms mutually agreed upon by the
parties.



     It is hereby agreed that if default is made in the payment of this Note or any part hereof or
any interest hereon and such remains uncured for a period of ten (10) days or more after written
notice from the Holder to the Company, or if the Company shall become bankrupt or insolvent, then,
at the option of the Holder, the entire unpaid principal balance of this Note, with accrued
interest thereon, shall become due and payable in full at the option of the Holder, time being of
the essence of this instrument and thereafter the unpaid principal balance hereof shall bear
interest at a fixed rate of 8% per annum.



     The Company waives demand, presentment, protest, notice of protest, suit and all other
requirements necessary to hold it liable, and the Company agrees that time of payment may be
extended or renewal notes taken or other indulgences granted without notice of, or consent to, such
action, and without release of liability. The Company agrees to pay after default all costs of
collecting or securing or attempting to collect or secure this Note, including reasonable
attorneys’ fees.



     The provisions hereof are binding on the successors and assigns of the Company, and shall
inure to the benefit of the Holder, his heirs, executors, administrators and assigns.



     All rights and remedies of the Holder hereunder and under any statute or rule of law shall be
cumulative and may be exercised successively or concurrently. This Note shall be governed by and
construed in accordance with the laws of the State of Alabama.



     THE CORPORATION HEREBY UNCONDITIONALLY WAIVES CORPORATION’S RIGHT TO A JURY TRIAL ON ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE OF ANY AND ALL DISPUTES THAT MAY BE FILED
IN ANY COURT (INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS, OR MODIFICATIONS TO THIS NOTE. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.



     All actions with respect to this Note 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, as the Holder might elect from time to time,
and by execution and delivery of this Note, Company irrevocably and unconditionally submits to the
jurisdiction (both subject matter and personal) of each such court



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and irrevocably and unconditionally waives: (1) any objection the undersigned 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.




     This Note is given in substitution of, and not in payment or novation of, that certain
Promissory Note, dated September 14, 2007, in the amount of $1,500,000 (the “Original Note”). A
portion of the Original Note has been converted into common stock of the Company and certain
promissory notes, including this Note, have been issued with respect to the remaining balance
thereof.



	 	 	 	 	 
	 

	 	 	 	CAPITALSOUTH BANCORP
	 
	 	 	 	 
	 

	 	By:
	 	/s/ W. Dan Puckett
	 

	 	 	 	 
	 

	 	Name:
	 	W. Dan Puckett
	 

	 	Its:
	 	Chairman and

Chief Executive Officer







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