Document:

OPTION ASSUMPTION AGREEMENT

Exhibit 10.7

OPTION ASSUMPTION AGREEMENT

Pursuant to and in accordance with the terms and provisions of Section 2.6 of that certain Plan of Reorganization (the "Reorganization Plan") dated April 23, 2003, between Alliance Bancshares, Inc. ("Bancshares") and Alliance National Bank ("the Bank"), the Incentive Stock Option Award of the undersigned option holder from the Bank (the "Bank Option"), a copy of which is attached hereto as Schedule 2, is hereby assumed by Bancshares in accordance with the terms of the Alliance National Bank 1999 Stock Incentive Plan and the Bank Option. As provided in the Reorganization Plan, from and after the time that the Reorganization is consummated, (i) the Bank Option assumed by Bancshares may be exercised solely for Bancshares $.10 par value common stock (hereinafter "Bancshares Stock"), (ii) the number of shares of Bancshares Stock subject to the Bank Option shall be equal to the same number of shares of Bank Stock subject to such Bank Option immediately prior to the time of consummation of the Reorganization, and (iii) the per share exercise price under the Bank Option after this assumption shall be equal to the exercise price of such Bank Option immediately prior to the time of the consummation of the Reorganization. 

The undersigned holder of the Bank Option acknowledges and agrees that the number of shares of Bancshares Stock subject to the Bank Option of such holder assumed hereunder and the per share exercise price applicable thereto are as set forth on Schedule 1 hereto.

Dated effective as of the 31st day of December, 2003.

	
 
	
ALLIANCE BANCSHARES, INC.

By:___________________________________            Charles Y. Allgood

           Vice Chairman and Chief Executive             Officer

	
 
	
_______________________________(SEAL)

Option Holder

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SCHEDULE 1

TO

OPTION ASSUMPTION AGREEMENT

 

	
Number of option shares of Alliance Bancshares, Inc. common stock:
	
___________________________________

	
 
	
 

	
Exercise price under the Option:
	
___________________________________

 

 

 

 

 

	
_______________________
	
________________________

	
Initials for Alliance Bancshares
	
Initials of Option Holder

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SCHEDULE 2

TO

OPTION ASSUMPTION AGREEMENT

INCENTIVE STOCK OPTION AWARD

PURSUANT TO ALLIANCE NATIONAL BANK

1999 STOCK INCENTIVE PLAN

THIS AWARD is made as of the Grant Date by ALLIANCE NATIONAL BANK (the "Bank") to ________________________(the "Optionee").

Upon and subject to the Terms and Conditions attached hereto and incorporated herein by reference, the Bank hereby awards as of the Grant Date to Optionee an incentive stock option (the "Option"), as described below, to purchase the Option Shares.
A. Grant Date, _____________, __________.

B.Type of Option: Incentive Stock Option.

C.Plan under which granted: Alliance National Bank 1999 Stock Incentive Plan.
D.Option Shares: All or any part ofshares of the Bank's common stock, $1.00 par value per share (the "Common Stock"), subject to adjustment as provided in the attached Terms and Conditions.

E.Exercise Price: $per share, subject to adjustment as provided in the attached Terms and Conditions. The Exercise Price is, in the judgment of the Committee, not less than 100% of the Fair Market Value of a share of Common Stock on the Grant Date or, in the case of an Over 10% Owner, not less than 110% of the Fair Market Value of a share of Common Stock on the Grant Date.

F.Option Period: The Option may be exercised only during the Option Period which commences on the Grant Date and ends, generally, on the earlier of (a) the tenth (10th)anniversary of the Grant Date (unless the Optionee is an Over 10% Owner, in which case the fifth (5th) anniversary of the Grant Date); or (b) 90 days following the date the Optionee ceases to be an employee of the Bank; provided that the Option may be exercised as to no more than the vested Option Shares, determined pursuant to the Vesting Schedule. Note that other limitations to exercising the Option, as described in the attached Terms and Conditions, may apply.

G.Vesting Schedule: The Option Shares shall become vested in accordance with Section 3 of the Terms and Conditions.

IN WITNESS WHEREOF, the Bank has executed and sealed this Award as of the Grant Date set forth above.

	
 
	
ALLIANCE NATIONAL BANK

By:_________________________________

        Title:___________________________

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TERMS AND CONDITIONS

TO THE

INCENTIVE STOCK OPTION AWARD

PURSUANT TO THE ALLIANCE NATIONAL BANK

1999 STOCK INCENTIVE PLAN

1.Exercise of Option. Subject to the provisions provided herein or in the Award made pursuant to the Alliance National Bank 1999 Stock Incentive Plan:

	the Option may be exercised with respect to all or any portion of the vested Option Shares at any time during the Option Period by the delivery to the Bank, at its principal place of business, of a written notice of exercise in substantially the form attached hereto as Exhibit 1, which shall be actually delivered to the Bank no earlier than thirty (30) days and no later than ten (10) days prior to the date upon which Optionee desires to exercise all or any portion of the Option; and
	payment to the Bank of the Exercise Price multiplied by the number of Option Shares being purchased (the "Purchase Price") as provided in Section 2.

Upon acceptance of such notice and receipt of payment in full of the Purchase Price, the Bank shall cause to be issued a certificate representing the Option Shares purchased.

2.Purchase Price. Payment of the Purchase Price for all Option Shares purchased pursuant to the exercise of an Option shall be made in cash or certified check or, alternatively, as follows:

	by delivery to the Bank of a number of shares of Common Stock which have been owned by the Optionee for at least six (6) months prior to the date of the Option's exercise having an aggregate fair market value, as determined under the Plan, on the date of exercise either equal to the Purchase Price or in combination with cash or a certified check to equal the Purchase Price; or

	if and when the Common Stock becomes traded by brokers, whether on a national securities exchange or otherwise, by receipt of the Purchase Price in cash from a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System following delivery by the Optionee to the Committee of instructions in a form acceptable to the Committee regarding delivery to such broker, dealer or other creditor of that number of Option Shares with respect to which the Option is exercised.

3.Vested Option Shares.

(a) The Option Shares shall become vested and exercisable, in twenty percent (20%) increments (a "Vesting Increment"), in accordance with this Section 3. The Optionee shall earn the right to exercise a Vesting Increment in each of the first five (5) full fiscal years beginning with the first full fiscal year commencing after the Grant Date (1) if the Optionee

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continues to be employed by the Bank on the last day of that fiscal year; and (2) if both of the performance goals set forth in Clauses (i) and (ii) below are met for that fiscal year:
(i) the Bank shall meet or exceed 90% of the budgeted net income after tax and 90% of the budgeted deposit growth for the fiscal year based on the annual budget approved by the Board of Directors of the Bank; and

(ii) the Bank shall maintain a regulatory examination rating of Camel 1 or 2 for that fiscal year.

	In the event the performance goals are not satisfied in any fiscal year so that the Optionee fails to earn the right to exercise the Vesting Increment for that fiscal year, the Committee may, in its discretion, permit that Vesting Increment to be earned with respect to the immediately succeeding fiscal year but only if the Optionee earns the right to exercise the Vesting Increment with respect to that immediately succeeding fiscal year. Notwithstanding any other provision herein, no more than two Vesting Increments may become exercisable with respect to any of the first five (5) full fiscal years.

	In the event one or more Vesting Increments have not become exercisable with respect to any prior fiscal year in accordance with Subsections (a) and (b) above, such Vesting Increment(s) shall become fully exercisable on the seventh (7th) anniversary of the Grant Date.

	A Vesting Increment shall become exercisable fifteen (15) days following the close of the fiscal year with respect to which it is earned.

(e)Notwithstanding any other provision herein, if the capital of the Bank falls below minimum requirements, as determined by the Office of the Comptroller of the Currency or any successor federal agency ("OCC") or the Georgia Department of Banking and Finance, the Bank, at the direction of the OCC, may require the Optionee to exercise the Option in whole or in part and, if the Optionee fails to exercise any portion of the Option as so directed, that portion of the Option shall be forfeited.

	Rights as Shareholder. Until the stock certificates reflecting the Option Shares accruing to the Optionee upon exercise of the Option are issued to the Optionee, the Optionee shall have no rights as a shareholder with respect to such Option Shares. The Bank shall make no adjustment for any dividends or distributions or other rights on or with respect to Option Shares for which the record date is prior to the issuance of that stock certificate, except as the Plan or the attached Award otherwise provides.

	Restriction on Transfer of Option and of Option Shares. The Option evidenced hereby is nontransferable other than by will or the laws of descent and distribution and shall be exercisable during the lifetime of the Optionee only by the Optionee (or in the event of his Disability, by his personal representative) and after his death, only by his legatee or the executor of his estate.

6.Changes in Capitalization.

(a) If the number of shares of Common Stock shall be increased or decreased by reason of a subdivision or combination of shares of Common Stock, the payment of a stock

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dividend in shares of Common Stock or any other increase or decrease in the number of shares of Common Stock outstanding effected without receipt of consideration by the Bank, an appropriate adjustment shall be made by the Committee, in a manner determined in its sole discretion, in the number and kind of Option Shares and in the Exercise Price.

	If the Bank shall be the surviving corporation in any merger or consolidation, recapitalization, reclassification of shares or similar reorganization, the Optionee shall be entitled to purchase the number and class of securities to which a holder of the number of shares of Common Stock subject to the Option at the time of the transaction would have been entitled to receive as a result of such transaction, and a corresponding adjustment, where appropriate, shall be made in the Exercise Price. In the event of a Change in Control or other corporate transaction pursuant to which the Bank is not the surviving entity, the Committee may provide for the substitution of a new option in the similar manner as contemplated by the immediately preceding sentence; however, if the surviving entity does not agree to the substitution of the Option, the Committee may elect to terminate the Option Period as of the effective date of the Change in Control in consideration of the payment to the Optionee of the sum of the difference between the then aggregate Fair Market Value of the Common Stock and the aggregate Exercise Price for each vested Option Share which has not been exercised as of the effective date of the Change in Control. A dissolution or liquidation of the Bank shall cause the Option to terminate as to any portion thereof not exercised as of the effective date of the dissolution or liquidation.

	The existence of the Plan and the Option granted pursuant to this Agreement shall not affect in any way the right or power of the Bank to make or authorize any adjustment, reclassification, reorganization or other change in its capital or business structure, any merger or consolidation of the Bank, any issue of debt or equity securities having preferences or priorities as to the Common Stock or the rights thereof, the dissolution or liquidation of the Bank, any sale or transfer of all or any part of its business or assets, or any other corporate act or proceeding. Any adjustment pursuant to this Section may provide, in the Committee's discretion, for the elimination without payment therefor of any fractional shares that might otherwise become subject to any Option.

	Special Limitation on Exercise. No purported exercise of the Option shall be effective without the approval of the Committee, which may be withheld to the extent that the exercise, either individually or in the aggregate together with the exercise of other previously exercised stock options and/or offers and sales pursuant to any prior or contemplated offering of securities, would, in the sole and absolute judgment of the Committee, require the filing of a registration statement with the United States Securities and Exchange Commission or with the securities commission of any state. If a registration statement is not in effect under the Securities Act of 1933 or any applicable state securities law with respect to shares of Common Stock purchasable or otherwise deliverable under the Option, the Optionee (a) shall deliver to the Bank, prior to the exercise of the Option or as a condition to the delivery of Common Stock pursuant to the exercise of an Option exercise, such information, representations and warranties as the Bank may reasonably request in order for the Bank to be able to satisfy itself that the Option Shares are being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and state securities laws and (b) shall agree that the shares of Common Stock so acquired will not be disposed of except pursuant to an effective registration statement, unless the Bank shall have received an opinion of counsel that such disposition is exempt from such requirement under the Securities Act of 1933 and any applicable state securities law.

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       8.  Legend on Stock Certificates. Certificates evidencing the Option Shares, to the extent appropriate at the time, shall have noted conspicuously on the certificates a legend intended to give all persons full notice of the existence of the conditions, restrictions, rights and obligations set forth herein and in the Plan.

     9.  Governing Laws. This Award and the Terms and Conditions shall be construed, administered and enforced according to the laws of the State of Georgia.

     10.  Successors. This Award and the Terms and Conditions shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and permitted assigns of the Optionee and the Bank.

     11.  Notice. Except as otherwise specified herein, all notices and other communications under this Award shall be in writing and shall be deemed to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested, postage prepaid, addressed to the proposed recipient at the last known address of the recipient. Any party may designate any other address to which notices shall be sent by giving notice of the address to the other parties in the same manner as provided herein.

    12.  Severability. In the event that any one or more of the provisions or portion thereof contained in the Award and these Terms and Conditions shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of the Award and these Terms and Conditions, and the Award and these Terms and Conditions shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein.

    13.  Entire Agreement. Subject to the terms and conditions of the Plan, the Award and the Terms and Conditions express the entire understanding of the parties with respect to the Option.

    14.  Violation. Any transfer, pledge, sale, assignment, or hypothecation of the Option or any portion thereof shall be a violation of the terms of the Award or these Terms and Conditions and shall be void and without effect.

    15.  Headings and Capitalized Terms. Section headings used herein are for convenience of reference only and shall not be considered in construing the Award or these Terms and Conditions. Capitalized terms used, but not defined, in either the Award or the Terms and Conditions shall be given the meaning ascribed to them in the Plan.

    16.  Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of the Award and these Terms and Conditions, the party or parties who are thereby aggrieved shall have the right to specific performance and injunction in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative.

    17.  No Right to Continued Retention. Neither the establishment of the Plan nor the award of Option Shares hereunder shall be construed as giving the Optionee the right to continued employment with the Bank.

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      18. Qualified Status of Option. In accordance with Section 2.4 of the Plan, the aggregate Fair Market Value (determined as of the date an Incentive Stock Option is granted) of the Option Shares which become exercisable for the first time by an individual during any calendar year shall not exceed $100,000. If the foregoing limitation is exceeded with respect to any portion of the Option Shares, that portion of the Option Shares which cause the limitation to be exceeded shall be treated as granted under a Non-Qualified Stock Option.

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EXHIBIT 1
NOTICE OF EXERCISE OF STOCK OPTION TO PURCHASE

COMMON STOCK OF ALLIANCE NATIONAL BANK

Name ____________________________

Address___________________________

___________________________
Date_______________________

Alliance National Bank

209 West Cuyler Street

Dalton, Georgia 30720

Attn: Corporate Secretary

Re: Exercise of Incentive Stock Option Gentlemen:

Subject to acceptance hereof by Alliance National Bank (the "Bank") and pursuant to the provisions of the Alliance National Bank 1999 Stock Incentive Plan (the "Plan"), I hereby give notice of my election to exercise options granted to me to purchase shares of Common Stock of the Bank under the Incentive Stock Option Award (the "Award") dated as of _____________, _____. The purchase shall take place as of ___________, 200____ (the "Exercise Date").
On or before the Exercise Date, I will pay the applicable purchase price as follows:
[ ]by delivery of cash or a certified check for $ for the full purchase price payable to the order of Alliance National Bank

[ ]by delivery of cash or a certified check for $representing a portion of the purchase price with the balance to consist of shares of Common Stock that I have owned for at least six months and that are represented by a stock certificate which I will surrender to the Bank with my endorsement. If the number of shares of Common Stock represented by such stock certificate exceed the number to be applied against the purchase price, I understand that a new stock certificate will be issued to me reflecting the excess number of shares.

[ ]by delivery of a stock certificate representing shares of Common Stock that I have owned for at least six months which I will surrender to the Bank with my endorsement as payment of the purchase price. If the number of shares of Common Stock represented by such certificate exceed the number to be applied against the purchase price, I understand that a new certificate will be issued to me reflecting the excess number of shares.

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 [ ]by delivery of the purchase price by, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System. I hereby authorize the Bank to issue a stock certificate for the number of shares indicated above in the name of said broker, dealer or other creditor or its nominee pursuant to instructions received by the Bank and to deliver said stock certificate directly to that broker, dealer or other creditor (or to such other party specified in the instructions received by the Bank from the broker, dealer or other creditor) upon receipt of the purchase price.

As soon as the stock certificate is registered in my name, please deliver it to me at the above address.

If the Common Stock being acquired is not registered for issuance to and resale by the Optionee pursuant to an effective registration statement on Form S-8 (or successor form) filed under the Securities Act of 1933, as amended (the "1933 Act"), I hereby represent, warrant, covenant, and agree with the Bank as follows:
The shares of the Common Stock being acquired by me will be acquired for my own account without the participation of any other person, with the intent of holding the Common Stock for investment and without the intent of participating, directly or indirectly, in a distribution of the Common Stock and not with a view to, or for resale in connection with, any distribution of the Common Stock, nor am I aware of the existence of any distribution of the Common Stock;

I am not acquiring the Common Stock based upon any representation, oral or written, by any person with respect to the future value of, or income from, the Common Stock but rather upon an independent examination and judgment as to the prospects of the Bank;

The Common Stock was not offered to me by means of publicly disseminated advertisements or sales literature, nor am I aware of any offers made to other persons by such means;

I am able to bear the economic risks of the investment in the Common Stock, including the risk of a complete loss of my investment therein;

I understand and agree that the Common Stock will be issued and sold to me without registration under any state law relating to the registration of securities for sale, and will be issued and sold in reliance on the exemptions from registration under the 1933 Act, provided by Sections 3(b) and/or 4(2) thereof and the rules and regulations promulgated thereunder;

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The Common Stock cannot be offered for sale, sold or transferred by me other than pursuant to: (A) an effective registration under the 1933 Act or in a transaction otherwise in compliance with, the 1933 Act; and (B) evidence satisfactory to the Bank of compliance with the applicable securities laws of other jurisdictions. The Bank shall be entitled to rely upon an opinion of counsel satisfactory to it with respect to compliance with the above laws;

The Bank will be under no obligation to register the Common Stock or to comply with any exemption available for sale of the Common Stock without registration or filing, and the information or conditions necessary to permit routine sales of securities of the Bank under Rule 144 under the 1933 Act are not now available and no assurance has been given that it or they will become available. The Bank is under no obligation to act in any manner so as to make Rule 144 available with respect to the Common Stock;

I have and have had complete access to and the opportunity to review and make copies of all material documents related to the business of the Bank, including, but not limited to, contracts, financial statements, tax returns, leases, deeds and other books and records. I have examined such of these documents as I wished and am familiar with the business and affairs of the Bank. I realize that the purchase of the Common Stock is a speculative investment and that any possible profit therefrom is uncertain;

I have had the opportunity to ask questions of and receive answers from the Bank and any person acting on its behalf and to obtain all material information reasonably available with respect to the Bank and its affairs. I have received all information and data with respect to the Bank which I have requested and which I have deemed relevant in connection with the evaluation of the merits and risks of my investment in the Bank;

I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the purchase of the Common Stock hereunder and I am able to bear the economic risk of such purchase; and

The agreements, representations, warranties and covenants made by me herein extend to and apply to all of the Common Stock of the Bank issued to me pursuant to this Award. Acceptance by me of the certificate representing such Common Stock shall constitute a confirmation by me that all such agreements, representations, warranties and covenants made herein shall be true and correct at that time.

I understand that the certificates representing the shares being purchased by me in accordance with this notice shall bear a legend referring to the foregoing covenants, representations and warranties and restrictions on transfer, and I agree that a legend to that effect may be placed on any certificate which may be issued to me as a substitute for the certificates being acquired

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by me in accordance with this notice. I further understand that capitalized terms used in this Notice of Exercise without definition shall have the meanings given to them in the Plan.

	
 
	
Very truly yours,

______________________________________

	
 
	
 

	
AGREED TO AND ACCEPTED:

ALLIANCE NAATIONAL BANK

By:___________________________________      Title: 

Number of Shares Exercised:______________

Number of Shares Remaining: _____________
	
 

 

 

 

 

 

 

Date:____________________________

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<PAGE>Exhibit 4.2 (00065728.DOC;1)

EXHIBIT 4.2

	
Certificate Number P-1
	
4,000 Capital Securities

This security has not been registered under the securities act of 1933, as amended (the "securities act"), any state securities laws or any other applicable securities law. Neither this security nor any interest or participation herein may be reoffered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of in the absence of such registration or unless such transaction is exempt from, or not subject to, the registration requirements of the securities act and any applicable state securities laws. The holder of this security by its acceptance hereof agrees to offer, sell or otherwise transfer this security only (a) to the sponsor or the trust, (b) pursuant to a registration statement that has been declared effective under the securities act, (c) to a person whom the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of rule 144a so long as this security is eligible for resale pursuant to rule 144a in accordance with rule 144a, (d) to a non-u.s. person in an offshore transaction in accordance with rule 903 or rule 904 (as applicable) of regulation s under the securities act, (e) to an institutional "accredited investor" within the meaning of subparagraph (a) of rule 501 under the securities act that is acquiring this capital security for its own account, or for the account of such an institutional accredited investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the securities act, or (f) pursuant to any other available exemption from the registration requirements of the securities act, subject to the sponsor's and the trust's right prior to any such offer, sale or transfer to require the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them in accordance with the declaration of trust, a copy of which may be obtained from the sponsor or the trust. Hedging transactions involving this security may not be conducted unless in compliance with the securities act.

the holder of this security by its acceptance hereof also agrees, represents and warrants that it is not an employee benefit, individual retirement account or other plan or arrangement 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"), or an entity whose underlying assets include "plan assets" by reason of any plan's investment in the entity, and no person investing "plan assets" of any plan may acquire or hold the securities or any interest therein, unless such purchaser or holder is eligible for exemptive relief available under u.s. department of labor prohibited transaction class exemption 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption or its purchase and holding of this security is not prohibited by section 406 of erisa or section 4975 of the code with respect to such purchase or holding. any purchaser or holder of the securities or any interest therein will be deemed to have represented by its purchase and holding thereof that either (i) it is not an employee benefit plan within the meaning of section 3(3) of erisa, or a plan to which section 4975 of the code is applicable, a trustee or other person acting on behalf of an employee benefit plan or plan, or any other person or entity using the assets of any employee benefit plan or plan to finance such purchase, or (ii) such purchase will not result in a prohibited transaction under section 406 of erisa or section 4975 of the code for which there is no applicable statutory or administrative exemption.

This security will be issued and may be transferred only in blocks having a liquidation amount of not less than $100,000.00 (100 securities) and multiples of $1,000.00 in excess thereof. Any attempted transfer of securities in a block having a liquidation amount of less than $100,000.00 shall be deemed to be void and of no legal effect whatsoever.

the holder of this security agrees that it will comply with the foregoing restrictions.

In connection with any transfer, the holder will deliver to the registrar and transfer agent such certificates and other information as may be required by the Declaration to confirm that the transfer complies with the foregoing restrictions.

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June 26, 2003

Certificate Evidencing Fixed/Floating Rate Capital Securities

of

Southern Heritage Statutory Trust I

(liquidation amount $1,000 per Capital Security)

Southern Heritage Statutory Trust I, a statutory trust created under the laws of the State of Connecticut (the "Trust"), hereby certifies that Hare & Co. (the "Holder"), as the nominee of The Bank of New York, indenture trustee under the Indenture dated as of June 26, 2003 among Preferred Term Securities X, Ltd., Preferred Term Securities X, Inc. and The Bank of New York, is the registered owner of capital securities of the Trust representing undivided beneficial interests in the assets of the Trust, (liquidation amount $1,000 per capital security) (the "Capital Securities"). Subject to the Declaration (as defined below), the Capital Securities are transferable on the books and records of the Trust in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The Capital Securities represented hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of June 26, 2003, among Tren B. Watson, C. Talmadge Garrison, and C. Ricky Stowe, as Administrators, U.S. Bank National Association, as Institutional Trustee, SOUTHERN HERITAGE BANCORP, INC., as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, including the designation of the terms of the Capital Securities as set forth in Annex I to such amended and restated declaration as the same may be amended from time to time (the "Declaration"). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business.

Upon receipt of this Security, the Holder is bound by the Declaration and is entitled to the benefits thereunder.

By acceptance of this Security, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of beneficial ownership in the Debentures.

This Capital Security is governed by, and construed in accordance with, the laws of the State of Connecticut, without regard to principles of conflict of laws.

Signature appears on following page

IN WITNESS WHEREOF, the Trust has duly executed this certificate.

SOUTHERN HERITAGE STATUTORY TRUST I

 

 

By: ______________________________________

Name:

Title: Administrator

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CERTIFICATE OF AUTHENTICATION

This is one of the Capital Securities referred to in the within-mentioned Declaration.

 

U.S. BANK NATIONAL ASSOCIATION,

as the Institutional Trustee

 

By: _________________________________

Authorized Officer

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REVERSE OF CAPITAL SECURITY

Distributions payable on each Capital Security will be payable at an annual rate equal to 5.55% beginning on (and including) the date of original issuance and ending on (but excluding) June 26, 2008 and at an annual rate for each successive Distribution Period beginning on (and including) June 26, 2008, and each succeeding Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment Date, equal to 3-Month LIBOR, determined as described below, plus 3.10% (the "Coupon Rate"), applied to the stated liquidation amount of $1,000.00 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears will bear interest thereon compounded quarterly at the Distribution Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes cash distributions and any such compounded distributions unless otherwise noted. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. As used herein, "Determination Date" means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the commencement of the relevant Distribution Period. In the event that any date on which a Distribution is payable on this Capital Security is not a Business Day, then a payment of the Distribution 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), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date the payment was originally payable. The amount of the Distribution payable (i) for any Distribution Period commencing on or after the date of original issuance but before June 26, 2008 will be computed on the basis of a 360-day year of twelve 30-day months, and (ii) for the Distribution Period commencing on June 26, 2008 and each succeeding Distribution Period will be calculated by applying the Coupon Rate to the stated liquidation amount outstanding at the commencement of the Distribution Period and multiplying each such amount by the actual number of days in the Distribution Period concerned divided by 360.

"3-Month LIBOR" as used herein, means the London interbank offered interest rate for three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of priority: (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date ("Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four major New York City banks to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period. If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date.

The Distribution Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law.

All percentages resulting from any calculations on the Capital Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)).

Except as otherwise described below, Distributions on the Capital Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on March 26, June 26, September 26 and December 26 of each year, commencing on September 26, 2003. The Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures, so long as no Indenture Event of Default has occurred and is continuing, by extending the interest payment period for up to 20 consecutive quarterly periods (each an "Extension Period") at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable. During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest will accrue at an annual rate equal to the Distribution Rate in effect for each such Extension Period, compounded quarterly from the date such interest would have been payable were it not for the Extension Period, to the extent permitted by law (such interest referred to herein as "Additional Interest"). No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no Extension Period may extend beyond the Maturity Date. Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Additional Interest shall be due and payable during an 

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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. During any Extension Period, Distributions on the Capital Securities shall be deferred for a period equal to the Extension Period. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds available for the payment of such distributions in the Property Account of the Trust. The Trust's funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee.

The Capital Securities shall be redeemable as provided in the Declaration.

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ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate 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 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)

Signature Guarantee:

_______________________________

1Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

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