prer14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 3)
Filed by the Registrant þ
Filed by the Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
GREEN BANKSHARES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state
how it was determined): |
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Proposed maximum aggregate value of transaction: |
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Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing. |
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Amount Previously Paid: |
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(2 ) Form, Schedule or Registration Statement No.: |
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Filing Party: |
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Date Filed: |
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July ___, 2011
Dear Shareholder:
We invite you to attend a Special Meeting of Shareholders (the Special Meeting) of Green
Bankshares, Inc. (the Company) to be held at the General Morgan Inn, 111 North Main Street,
Greeneville, Tennessee, on August ___, 2011, at ___ a.m., local time.
On May 5, 2011, the Company, GreenBank, and North American Financial Holdings, Inc. (NAFH)
entered into an investment agreement (the Investment Agreement), pursuant to which NAFH has
agreed, subject to certain conditions more fully described in the enclosed proxy statement, to:
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purchase for $217,019,000 in cash, 119,900,000 shares of Common Stock, at a
purchase price of $1.81 per share; and |
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permit the Company to distribute to each Company shareholder as of a certain date
fixed prior to the closing of the transactions contemplated by the Investment
Agreement (the Closing), immediately prior to Closing, one contingent value right
(CVR) per share that would entitle the holder to receive up to $0.75 in cash per CVR
at the end of a five-year period based on the credit performance of GreenBanks
existing loan portfolio. |
In connection with the transaction with NAFH, your shares of Company common stock that you own
will remain outstanding immediately following closing of the transaction and are not being cashed
out as part of the transaction. As a result, unless you buy or sell shares of Company common stock
on the open market, you will continue to own the same number of shares of Company common stock that
you own today. The CVRs that will be issued in connection with the transaction are in addition to
your shares of Company common stock and are not being issued in exchange for these shares.
In connection with the Investment Agreement, we have called a Special Meeting to obtain your
approval of the following matters:
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the original issuance and certain subsequent issuances of shares of the
Companys Common Stock to NAFH under the terms of the Investment Agreement; |
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an amendment to the Companys Amended and Restated Charter (the Charter) to
increase the number of authorized shares of the Companys Common Stock from twenty
million (20,000,000) to three hundred million (300,000,000); |
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an amendment to the Companys Charter to decrease the par value of the
Companys Common Stock from $2.00 per share to $0.01 per share; |
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an amendment to the Companys Charter to expressly exempt NAFH and its
affiliates and associates from the provisions of Section 9 of the Companys Charter; |
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an amendment to the Companys Charter to remove Section 8(j) of the Charter so
that the Tennessee Control Share Acquisition Act will not apply to the Company and its
shareholders; |
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the merger of GreenBank with and into a subsidiary of NAFH; |
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on an advisory and non-binding basis, the compensation to be received by the
Companys named executive officers in connection with the issuance of the shares of
Common Stock to NAFH under the terms of the Investment Agreement; and |
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the grant to the proxy holder of discretionary authority to vote to adjourn the
Special Meeting, if necessary, in order to solicit additional proxies in the event
there are not sufficient affirmative votes present at the Special Meeting to approve
the proposals that may be considered and voted on, at the Special Meeting. |
Enclosed is a proxy statement and a proxy card. Directors and officers of the Company will be
present to respond to any appropriate questions shareholders may have.
Your vote is important, regardless of the number of shares you own. On behalf of the
Board of Directors, we urge you to sign, date and return the enclosed proxy as soon as possible,
even if you currently plan to attend the Special Meeting. We also offer telephone and Internet
voting, as more particularly described in the attached proxy statement. Voting by telephone,
Internet or by returning a proxy in the mail will not prevent you from voting in person at the
Special Meeting, but will assure that your vote is counted if you are unable to attend the Special
Meeting.
Thank you for your cooperation and your continuing support.
Sincerely,
Stephen M. Rownd
Chairman of the Board and
Chief Executive Officer
If you have any questions or need assistance voting
your shares, please call our proxy solicitor:
INNISFREE M&A INCORPORATED
Shareholder may call toll-free at 1 (888) 750-5834
Banks and Brokers may call collect at 1 (212) 750-5833
GREEN BANKSHARES, INC.
Notice of Special Meeting of Shareholders
To Be Held on August __, 2011
Notice is hereby given that a Special Meeting of Shareholders (the Special Meeting) of Green
Bankshares, Inc. (the Company) will be held on August __, 2011 at ___ a.m., local time, at the
General Morgan Inn, 111 North Main Street, Greeneville, Tennessee.
A Proxy Card and a Proxy Statement for the Special Meeting are enclosed.
The Special Meeting is for the purpose of considering and acting upon the following matters:
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to approve the original issuance and certain subsequent issuances of shares of
the Companys Common Stock to North American Financial Holdings, Inc. under the terms
of the Investment Agreement, dated May 5, 2011, among Green Bankshares, Inc., GreenBank
and North American Financial Holdings, Inc. (the Investment Agreement); |
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to vote on an amendment to the Companys Amended and Restated Charter (the
Charter) to increase the number of authorized shares of the Companys Common Stock
from twenty million (20,000,000) to three hundred million (300,000,000); |
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to vote on an amendment to the Companys Charter to decrease the par value of
the Companys Common Stock from $2.00 per share to $0.01 per share; |
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to vote on an amendment to the Companys Charter to expressly exempt North
American Financial Holdings, Inc. and its affiliates and associates from the provisions
of Section 9 of the Companys Charter; |
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to vote on an amendment to the Companys Charter to remove Section 8(j) of the
Charter so that the Tennessee Control Share Acquisition Act will not apply to the
Company and its shareholders; |
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to approve the merger of GreenBank with and into a subsidiary of North American
Financial Holdings, Inc.; |
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to approve, on an advisory and non-binding basis, the compensation to be
received by the Companys named executive officers in connection with the issuance of
the shares of the Companys Common Stock to North American Financial Holdings, Inc.
under the terms of the Investment Agreement; and |
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to grant the proxy holder discretionary authority to vote to adjourn the
Special Meeting, if necessary, in order to solicit additional proxies in the event
there are not sufficient affirmative votes present at the Special Meeting to approve
the proposals that may be considered and voted on, at the Special Meeting. |
NOTE: As of the date hereof, the Board of Directors is not aware of any other business to
come before the Special Meeting.
Any action may be taken on any one of the foregoing proposals at the Special Meeting on the
date specified above or on any date or dates to which, by original or later adjournments, the
Special Meeting may be adjourned. Shareholders of record at the close
of business on July 6, 2011
will be entitled to vote at the Special Meeting and any adjournments thereof.
You are requested to fill in and sign the enclosed proxy card which is solicited by the Board
of Directors and to mail it promptly in the enclosed envelope or, alternatively, vote by telephone
or over the Internet as described in the attached Proxy Statement. The proxy will not be used if
you attend the Special Meeting and choose to vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
Michael J. Fowler
Secretary
Greeneville, Tennessee
July __, 2011
It is important that proxies be returned promptly. Therefore, whether or not you plan to be
present in person at the Special Meeting, please sign, date, and complete the enclosed proxy card
and return it in the enclosed envelope. No postage is required if mailed in the United States.
Alternatively, you can vote over the telephone or on the Internet, as more particularly described
in the attached Proxy Statement. Should you subsequently desire to revoke your proxy, you may do
so as provided in the attached Proxy Statement before it is voted at the Special Meeting.
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
Important Notice Regarding the Availability of Proxy Materials for the
Special Meeting of Shareholders to be Held on August __, 2011
This
Proxy Statement and a proxy card are available at
https://www.proxyvotenow.com/grnb.
The
Special Meeting of Shareholders will be held August __, 2011 at ___a.m. local time at the
General Morgan Inn, 111 North Main Street, Greeneville, Tennessee. In order to obtain
directions to attend the Special Meeting of Shareholders, please call Michael J. Fowler, our
Corporate Secretary, at (423) 278-3050.
TABLE OF CONTENTS
PROXY STATEMENT
of
GREEN BANKSHARES, INC.
100 North Main Street
P.O. Box 1120
Greeneville, Tennessee 37743
(423) 639-5111
SPECIAL MEETING OF SHAREHOLDERS
August __, 2011
General
This Proxy Statement is being furnished to Green Bankshares, Inc. (the Company) shareholders
in connection with the solicitation of proxies by the Companys Board of Directors (the Board of
Directors) to be used at the Special Meeting of Shareholders of the Company (the Special
Meeting), to be held on August __ 2011, at __ a.m., local time, at General Morgan Inn, 111 North
Main Street, Greeneville, Tennessee. The accompanying Notice of Special Meeting and form of
proxy and this Proxy Statement are first being mailed to shareholders
on or about July __, 2011.
The
Board of Directors has fixed the close of business on
July 6, 2011 as the record date
(the Record Date) for determining the shareholders entitled to receive notice of and to vote at
the Special Meeting. Only holders of record of shares of the Companys common stock (Common
Stock) at the close of business on that date will be entitled to vote at the Special Meeting and
at any adjournment or postponement of that meeting. At the close of business on the Record Date,
there were ______ shares of the Companys Common Stock outstanding,
held by approximately 2,500 holders of
record. Each Company shareholder as of the Record Date will be entitled to one vote for each share
of Common Stock held of record upon each matter properly submitted at the Special Meeting and at
any adjournment or postponement of that meeting.
Overview
On
May 5, 2011, the Company, GreenBank (GreenBank or the Bank), and North American Financial Holdings,
Inc. (NAFH) entered into an investment agreement (the Investment Agreement), pursuant to which
NAFH has agreed to purchase, subject to certain conditions, for $217,019,000 in cash, 119,900,000
shares of Common Stock, at a purchase price of $1.81 per share (the Initial Investment), and
under which each Company shareholder as of a certain date fixed prior to the closing of the Initial
Investment (the Closing) shall receive, immediately prior to Closing, one contingent value right
(CVR) per share that would entitle the holder to receive up to $0.75 in cash per CVR at the end
of a five-year period based on the credit performance of GreenBanks existing loan portfolio.
The CVRs that each shareholder will receive are in addition to the
shares of Company Common Stock that the Companys shareholders
own, which shares will continue to be owned by the shareholders
following the Closing. Following consummation of the transactions contemplated by the Investment Agreement, it is
anticipated that NAFH will own approximately 90.1% of the
Companys outstanding Common Stock. It is also expected that in connection with the closing of the Initial Investment that GreenBank
will be merged with and into NAFHs bank subsidiary Capital Bank, National Association (formerly
known as NAFH National Bank) (the Bank Merger). Throughout this Proxy Statement, we refer to
Capital Bank, National Association as NAFH Bank. The approximately $217 million that NAFH is
investing in the Company will be available for the primary purpose of providing capital support to
GreenBank, and following the Bank Merger, NAFH Bank, including providing any capital necessary to
allow GreenBank or, following the Bank Merger, NAFH Bank to meet any capital commitments made by
those banks to their primary regulators. The Company believes that the operations of GreenBank
will benefit from this additional capital support, which should allow management to return their
principal focus to improving the profitability of GreenBank and growing the banks operations
throughout its Tennessee markets. It is not expected that any of the $217 million investment will
be distributed to the Companys shareholders.
The purpose of the Special Meeting is to obtain the shareholder approvals needed to complete
the transactions contemplated by the Investment Agreement.
Conditions to the Completion of the Initial Investment
The obligation of each of NAFH, the Company and GreenBank to complete the Initial Investment
is subject to the satisfaction or waiver of the following conditions:
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the absence of any law, order, injunction or decree by a governmental body
prohibiting (or any lawsuit or formal proceeding by a governmental body seeking to
prohibit) the Initial Investment or NAFHs owning or voting the shares it intends to
purchase in the Initial Investment; |
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receipt of all required regulatory approvals; |
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the approval of Proposals 1, 2, 3, 5 and 6 described in this Proxy Statement; |
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the accuracy of the other partys representations and warranties (subject to the
materiality standard described in the Investment Agreement) and the performance by
the other party in all material respects of its obligations under the Investment
Agreement; and |
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the entry by NAFH and the United States Department of the Treasury (Treasury)
into a binding agreement, on terms previously disclosed to the Company by NAFH,
regarding the NAFHs repurchase of $72.3 million of shares of the Companys Fixed
Rate Cumulative Perpetual Preferred Stock, Series A and warrant to purchase shares of
Common Stock issued to the Treasury in connection with the Companys participation in
the Capital Purchase Program (the CPP) of the Treasurys Troubled Asset Relief
Program (the TARP) (the Repurchase). |
In addition, the obligation of NAFH to complete the Initial Investment is subject to the
satisfaction or waiver of the following conditions:
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either (i) Proposal 4 described in this Proxy Statement is approved by the
Companys shareholders or (ii) the Bank Merger (as defined in Proposal 4) shall have
received all required board and governmental approvals and is reasonably capable of
being consummated within three business days following the Closing; |
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the absence, since December 31, 2010, of any material adverse effect (as defined
in the Investment Agreement) on the Company or its subsidiaries; |
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the appointment of individuals designated by NAFH to the board of directors of the
Company and GreenBank such that the NAFH designees constitute a majority of the board
of directors of the Company and GreenBank; |
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the resignation of certain directors of the Company and GreenBank; |
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the waiver of rights to receive certain change in control and other payments from
certain senior officers; |
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the absence of any requirement imposed by any required regulatory approvals that
materially reduces the economic benefit of the transactions contemplated by the
Investment Agreement for NAFH (a Burdensome Condition), as determined by NAFH in
its good faith judgment; |
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certain limitations on reductions in deposit levels and the amount of charge-offs
at GreenBank between the date of the Investment Agreement and Closing; |
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the declaration of the CVR distribution; and |
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other terms and conditions typical of similar transactions and described in the
Investment Agreement. |
Termination of the Investment Agreement
The Investment Agreement may be terminated in a number of situations, including (i) by the
Company or NAFH if (a) the Closing does not occur within 150 days after the Investment Agreement is
signed or (b) notice from a governmental entity that it will not grant a required approval or if a
governmental entity takes certain actions
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prohibiting, or imposing a Burdensome Condition upon, the transactions contemplated by the
Investment Agreement, (ii) by the Company or NAFH in the event of a breach by the other of a
representation or warranty or a covenant (that is not cured in the time allowed in the Investment
Agreement) that causes the failure of a closing condition to be satisfied, (iii) by the Company or
NAFH if Proposals 1, 2, 3, 5 and 6 described in this Proxy Statement are not approved, or (iv) by
NAFH if, prior to the date of the Special Meeting, the Company breaches the Agreements
exclusivity/non-solicitation provisions or the Board of Directors withdraws its recommendation to
the Companys shareholders with respect to the transactions contemplated by the Investment
Agreement.
Termination Fees Payable by the Company
If an Acquisition Proposal (as defined in the Investment Agreement) is made to the Company or
its subsidiaries and thereafter the Investment Agreement is terminated because (i) the required
approvals of the Companys shareholders are not obtained; (ii) the Company breaches its obligations
under the non-solicitation/exclusivity provisions; or (iii) the Company breaches a covenant of the
Investment Agreement (and fails to cure such breach in the time allowed in the Investment
Agreement) that causes the failure of a closing condition to be satisfied, then the Company will
owe NAFH a $750,000 expense reimbursement immediately and, if an alternative transaction is entered
into within twelve (12) months of the termination of the deal, an $8,000,000 termination fee at the
time the agreement for the new transaction is entered into. If an Acquisition Proposal is made, and
thereafter the Agreement is terminated by NAFH because the Board of Directors has withdrawn its
recommendation that the shareholders approve the transactions or recommended a competing
transaction, a $750,000 expense reimbursement would be payable immediately and $4,000,000 of the
termination fee would be payable immediately, with the remaining $4,000,000 payable if the Company
enters into an agreement for an alternative transaction within 12 months of the termination of the
deal.
In addition, on May 5, 2011, the Company also entered into a Stock Option Agreement (the
Option Agreement) with NAFH, pursuant to which the Company granted an option (the Option) to
purchase up to 2,628,183 shares of Common Stock (not to exceed 19.9% of the issued and outstanding
shares of the Company) at a price equal to the closing price on the first trading day following the
date of the Investment Agreement (the Option Price). Pursuant to the Option Agreement, the Option
will be exercisable under certain circumstances in connection with certain third party acquisitions
or acquisition proposals that occur prior to an Exercise Termination Event.
An Exercise Termination Event means any of the following:
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completion of the Initial Investment; |
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termination of the Investment Agreement in accordance with its terms, before
certain third party acquisitions or acquisition proposals, except a termination of
the Investment Agreement by NAFH based on a breach by the Company of a
representation, warranty, covenant or other agreement contained in the Investment
Agreement (unless the breach is non-volitional) or a termination based on the Company
breaching its obligations under the non-solicitation/exclusivity provisions of the
Investment Agreement or based on the Board of Directors having withdrawn its
recommendation that the Companys shareholders approve the transactions or
recommended a competing transaction; or |
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the passage of 18 months, subject to certain limited extensions described in the
Option Agreement, after termination of the Investment Agreement, if the termination
follows the occurrence of certain third party acquisitions or acquisition proposals
or is a termination of the Investment Agreement by NAFH based on a breach by the
Company of a representation, warranty, covenant or other agreement contained in the
Investment Agreement (unless the breach is non-volitional) or a termination based on
the Company breaching its obligations under the non-solicitation/exclusivity
provisions of the Investment Agreement or based on the Board of Directors having
withdrawn its recommendation that the Companys shareholders approve the transactions
or recommended a competing transaction. |
In addition, upon the occurrence of certain events relating to third party acquisitions, NAFH
may require the Company to repurchase the Option at a price equal to either (i) the number of
shares for which the Option may be exercised multiplied by the amount by which the Market/Offer
Price (as that term is defined in the Option Agreement), exceeds the Option Price or (ii)
$2,500,000, adjusted in the case of clause (ii) for the aggregate
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purchase price previously paid by NAFH with respect to any option shares and gains on sales of
stock purchased under the Option. In no event may NAFHs total profit with respect to the Option
exceed $8,000,000.
Termination Fee Payable by NAFH
If the Investment Agreement is terminated because NAFH breaches a covenant of the Investment
Agreement (and fails to cure such breach in the time allowed in the Investment Agreement) that
causes the failure of a closing condition to be satisfied, then NAFH will owe the Company an amount
equal to $8,000,000 in respect of the Companys and the Banks out-of-pocket expenses incurred in
connection with the Investment Agreement and the transactions contemplated thereby.
Contingent Value Rights
Pursuant to the terms of the Investment Agreement, immediately prior to the closing date of
the Investment, existing shareholders of the Company as of a certain date fixed prior to the
closing date will be issued one CVR for each share of Common Stock owned by the shareholder. Based
on the term sheet for the CVRs which is included as Exhibit A of the Investment Agreement which is
attached as Appendix A to this Proxy Statement, the Company expects that each CVR will
entitle the holder thereof to a cash payment of up to $0.75 per CVR based on the amount of net
charge-offs (Credit Losses) incurred between May 5, 2011 and the five year anniversary of the
Closing (the CVR Measurement Period) on account of any of GreenBanks loans existing as of May
5, 2011. The CVRs will provide that if the amount of Credit Losses during the CVR Measurement
Period is less than $178 million, then NAFH will pay to the Companys shareholders within sixty
(60) days following the five year anniversary of the Closing an amount equal to (1) if the
difference between $178 million and the amount of Credit Losses incurred during the CVR Measurement
Period, expressed on a per CVR basis, is less than or equal to $0.50, then 100% of such difference;
and (2) if the difference between $178 million and the amount of Credit Losses incurred during the
CVR Measurement Period, expressed on per CVR basis, is greater than $0.50, then $0.50 plus 50% of
such amount in excess of $0.50, with an aggregate maximum of $0.75 per CVR. In the event that the
amount of Credit Losses during the CVR Measurement Period equals or exceeds $178 million, then the
CVRs will expire and the holders thereof will receive no payment on account of the CVRs.
Except for modifications of the terms of the CVRs that are adverse to the holders of the CVRs,
the holders of the CVRs will have no voting rights with respect to the CVRs, will have no right to
receive dividends on account of the CVRs and will only be able to transfer the CVRs by will or the
laws of descent or distribution. The Company may redeem the CVRs at any time at a price of $0.75
per share and in the event that the Company experiences a change in control (which means any
transaction resulting in the holders of the equity interests of NAFH immediately prior to such
transaction owning, directly or indirectly, less than 50% of the equity interests of NAFH) the CVRs
shall be redeemed at a price of $0.75 per CVR upon closing of that change in control transaction.
By way of example if the Credit Losses incurred during the CVR Measurement Period total $156
million, each holder of a CVR will receive a cash payment of $0.75 per CVR. Credit Losses during
the CVR Measurement Period of $168 million would result in a cash payment of $0.63 per CVR, while
Credit Losses during the CVR Measurement Period of $174 million would result in a cash payment of
$0.30 per CVR. These payment scenarios are only examples of certain payout scenarios and should
not be viewed as the Companys expectations as to the likely payouts under the CVRs.
The Company is unable to predict whether any amounts will be payable under the CVRs as the
amount of Credit Losses that may be experienced over the CVR Measurement Period is subject to
numerous risks and uncertainties, including, among others, the condition of the economy in the
markets served by GreenBank. By way of example only, the total amount of the
Companys Credit Losses over the five year period ended December 31, 2010 was $156.1 million.
For additional information regarding projected net charge-offs and estimated potential loan losses see
Proposal 1 Approval of the Issuance of Shares of Common Stock Under the Investment Agreement Projected
Financial Information.
Matters to be Considered
At this Special Meeting, holders of record of the Companys Common Stock as of the Record Date
will be asked to:
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approve the original issuance and certain subsequent issuances of shares of Common
Stock to NAFH under the terms of the Investment Agreement; |
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vote on an amendment to the Companys Charter to increase the number of authorized
shares of Common Stock from twenty million (20,000,000) to three hundred million
(300,000,000); |
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vote on an amendment to the Charter to decrease the par value of the Common Stock
from $2.00 per share to $0.01 per share; |
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vote on an amendment to the Charter to expressly exempt NAFH and its affiliates
and associates from the provisions of Section 9 of the Charter; |
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vote on an amendment to the Charter to remove Section 8(j) of the Charter so that
the Tennessee Control Share Acquisition Act will not apply to the Company and its
shareholders; |
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approve the merger of GreenBank with and into a subsidiary of NAFH; |
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approve, on an advisory and non-binding basis, the compensation to be received by
the Companys named executive officers in connection with the issuance of the shares
of Common Stock to NAFH under the terms of the Investment Agreement; and |
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grant the proxy holder discretionary authority to vote to adjourn the Special
Meeting, if necessary, in order to solicit additional proxies in the event there are
not sufficient affirmative votes present at the Special Meeting to approve the
proposals that may be considered and voted on, at the Special Meeting. |
Proxies
Each copy of this Proxy Statement mailed to Company shareholders is accompanied by a proxy
card with instructions for voting by mail, by telephone or on the Internet. If voting by mail, you
should complete and return the proxy card accompanying this Proxy Statement in the enclosed,
postage paid envelope to ensure that your vote is counted at the Special Meeting, or at any
adjournment or postponement of the Special Meeting, regardless of whether you plan to attend the
Special Meeting. You may also vote your shares by telephone or on the
Internet. Instructions for voting by telephone or on the Internet are set forth in the enclosed proxy
card.
The presence of a shareholder at the Special Meeting will not automatically revoke that
shareholders proxy. However, a shareholder may revoke a proxy at any time prior to its exercise
by:
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submitting a written revocation prior to the meeting to Michael J. Fowler,
Corporate Secretary, Green Bankshares, Inc., 100 North Main Street,
Greeneville, Tennessee 37743-4992; |
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submitting another proxy by mail, Internet or telephone on a later date than
the original proxy; or |
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attending the Special Meeting and voting in person. |
If your shares are held by a broker or bank, you must follow the instructions on the form you
receive from your broker or bank with respect to changing or revoking your proxy.
The shares represented by any proxy card that is properly executed and received by the Company
in time to be voted at the Special Meeting will be voted in accordance with the instructions that
are marked on the proxy card. If you execute your proxy card but do not provide the Company with
any instructions, your shares will be voted FOR the issuance of Common Stock pursuant to the
terms of the Investment Agreement; FOR the amendment to the Companys Charter to increase the
number of authorized shares of Common Stock; FOR the amendment to the Companys Charter to
decrease the par value of the Common Stock; FOR the amendment to the Companys Charter to
expressly exempt NAFH and its affiliates and associates from Section 9 of the Charter; FOR the
amendment to the Companys Charter removing Section 8(j) of the Charter; FOR the approval of the
merger of GreenBank with and into a subsidiary of NAFH; FOR the approval of the compensation to
be received by the Companys named executive officers in connection with the issuance of the
Companys Common Stock to NAFH under the Investment Agreement; and FOR the grant of discretionary
authority to adjourn the Special Meeting, if necessary, in order to solicit additional proxies.
Proxies that are returned to us where brokers have received instructions to vote on one or
more proposals but do not vote on other proposal(s) are referred to as broker non-votes with
respect to the proposal(s) not voted upon. Broker non-votes are included in determining the
presence of a quorum.
Vote Required
In order to have a lawful meeting, a quorum of shareholders must be present at the Special
Meeting. The presence, in person or by proxy, of the holders of a majority of the outstanding
shares of the Companys Common Stock outstanding as of the Record Date will constitute a quorum at
the Special Meeting. A shareholder will be deemed to be present if the shareholder either attends
the Special Meeting or submits a properly executed proxy card by mail, on the Internet or by
telephone that is received at or prior to the Special Meeting (and not revoked). Under the laws of
the State of Tennessee, the Companys state of incorporation, abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum, but are not counted as
votes cast at the meeting. Broker non-votes occur when brokers who hold their customers shares in
street name submit proxies for such shares on some matters, but not others. Generally, this would
occur when brokers have not received any instructions from their customers. In these cases, the
brokers, as the holders of record, are permitted to vote on routine matters, but not on
non-routine matters, such as approval of the issuance of Common Stock to NAFH pursuant to the terms
of the Investment Agreement; approval of the merger of GreenBank with and into a subsidiary of
NAFH; and approval of the compensation to be received by the Companys named executive officers in
connection with the issuance of the Companys Common Stock under the Investment Agreement. As
such, unless you instruct your broker how to vote shares of yours held in a brokers name, those
shares will not be voted on the approval of the issuance of Common Stock to NAFH pursuant to the
terms of the Investment Agreement; approval of the merger of GreenBank with and into a subsidiary
of NAFH; and approval of the compensation to be received by the Companys named executive officers
in connection with the issuance of the Companys Common Stock to NAFH under the Investment
Agreement, but will be counted in determining whether there is a quorum.
If a quorum exists, approval of the amendments to the Companys Charter, other than the
approval of the amendment to expressly exempt NAFH and its affiliates and associates from Section 9
of the Charter; approval of the issuance of Common Stock to NAFH under the terms of the Investment
Agreement; approval
6
of the compensation to be received by the Companys named executive officers in connection
with the issuance of the Companys Common Stock to NAFH under the Investment Agreement; and
approval of the proposal to adjourn the Special Meeting, if necessary, require that the number of
votes cast, in person or by proxy, in favor of such proposals at the Special Meeting exceed the
number of votes cast, in person or by proxy, against the proposals. Approval of the amendment to
the Companys Charter to expressly exempt NAFH and its affiliates and associates from Section 9 of
the Charter requires the affirmative vote of 80% of the outstanding shares of Common Stock entitled
to vote on the matter. Approval of the merger of GreenBank with and into a subsidiary of NAFH
requires the affirmative vote of a majority of the outstanding shares of Common Stock as of the
Record Date entitled to vote at the Special Meeting.
Abstentions and broker non-votes will have no effect on the approval of the amendments to the
Companys Charter (other than the approval of the amendment to expressly exempt NAFH and its
affiliates and associates from Section 9 of the Charter), the approval of the issuance of Common
Stock to NAFH under the terms of the Investment Agreement, the approval of the compensation to be
received by the Companys named executive officers in connection with the issuance of the Companys
Common Stock to NAFH under the Investment Agreement and the approval of the proposal to adjourn the
Special Meeting and will have the effect of a vote against approval of the amendment to the Charter
to expressly exempt NAFH and its affiliates and associates from Section 9 of the Charter and
approval of the merger of GreenBank with and into a subsidiary of NAFH.
Solicitation of Proxies
The Company will pay all expenses incurred in connection with this solicitation, including
postage, printing, handling and the actual expenses incurred by custodians, nominees and
fiduciaries in forwarding proxy materials to beneficial owners. Additionally, the Company has
engaged Innisfree M&A Incorporated to assist in the distribution of proxy materials and the solicitation of
proxies by mail, telephone, facsimile, or personal meetings. The
Company has agreed to pay Innisfree a solicitation fee not to exceed
$20,000 plus expenses. In addition to solicitation by mail, certain of the
Companys officers, directors and regular employees, who will receive no additional compensation
for their services, may solicit proxies by telephone, personal communication or other means. The
Company will also reimburse brokerage firms and other persons representing beneficial owners of
shares for reasonable expenses incurred in forwarding proxy soliciting materials to the beneficial
owners.
PROPOSAL 1 APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK UNDER THE
INVESTMENT AGREEMENT
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 1 as well as approval of Proposals No.
2, 3, 5 and 6 and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to
approve NAFHs investment in the Company should vote to approve this Proposal No. 1 as well as
Proposals No. 2 6. As described below, the Companys Board of Directors also recommends that
shareholders vote to approve Proposals No. 7 and 8.
On May 5, 2011, the Companys Board of Directors approved a resolution to issue shares of
Common Stock under the Investment Agreement, pursuant to which NAFH has agreed to purchase, subject
to certain conditions, for $217,019,000 in cash, 119,900,000 shares of Common Stock at a purchase
price of $1.81 per share, and under which each Company shareholder as of a certain date fixed prior
to the Closing will receive one CVR per share that would entitle the holder to receive up to $0.75
in cash per CVR at the end of a five-year period based on the credit performance of GreenBanks
existing loan portfolio. In addition, pursuant to the Investment Agreement, following the closing
of the Initial Investment and until such time as the Bank is merged with and into a subsidiary of
NAFH, NAFH has the right to purchase, at a price equal to the lesser of (a) $1.81 per share and (b)
the Companys tangible book value per share at the end of the then most recently completed fiscal
quarter, such additional shares of Common Stock necessary to ensure that the Banks tier 1 leverage
ratio is at least 10% (the Top-Up Investment and, collectively with the Initial Investment, the
Investment). A copy of the Investment Agreement is attached as Appendix A to this Proxy
Statement.
Because the Companys Common Stock is listed on the NASDAQ Stock Market LLC (NASDAQ), it is
subject to NASDAQs rules and regulations. NASDAQ Listing Rule 5635(d) requires shareholder
approval prior to
7
the issuance of Common Stock, or securities convertible into or exercisable for Common Stock, equal
to 20% or more of the Common Stock or 20% or more of the voting power outstanding before the
issuance for less than the greater of book value or market value of the stock.
Under NASDAQ Listing Rule 5635(b), companies are required to obtain shareholder approval prior
to the issuance of securities when the issuance or potential issuance would result in a change of
control as defined by NASDAQ. NASDAQ generally characterizes a transaction whereby an investor or
group of investors acquires, or obtains the right to acquire, 20% or more of the voting power of an
issuer on a post-transaction basis as a change of control for purposes of Rule 5635(b).
Assuming the existence of a quorum, this proposal will be approved if the number of shares
voted in favor of the proposal to approve the issuance of shares of Common Stock under the
Investment Agreement exceeds the number of shares voted against the proposal. As such, abstentions
and broker non-votes will not affect the outcome of the vote.
Reasons for this Proposal
As part of its ongoing evaluation of the Companys business, the Companys Board of Directors
and the Companys senior management regularly evaluate the Companys long-term strategic
alternatives and prospects for continued operations. These strategic discussions have included,
among other things, the possibility of business combinations with other entities, continuing the
Companys on-going operation as an independent institution, securities offerings, both public and
private, and the potential sale or recapitalization of the Company.
Beginning in late 2007, the Company, like many financial institutions across the United
States, began to experience financial stress which was primarily attributable to the significant
weaknesses in the U.S. economy that began to surface during the fourth quarter of 2007 which
continued to escalate throughout 2008 and 2009. These deteriorating economic conditions, which
manifested themselves primarily in the Companys residential real estate construction and
development portfolio, continued into 2010 when economic conditions briefly exhibited signs of
improvement in the first half of 2010, and continued to deteriorate again in the second half of the
year. As a result of these weakened economic conditions, the Companys results of operations were
significantly and negatively affected in the fourth quarter of 2007 and throughout each of the
2008, 2009 and 2010 fiscal years.
Beginning in 2008, the Company sought to proactively address its asset quality problems by
seeking to quickly dispose of troubled assets (which were principally in its residential real
estate construction and development portfolio in its Nashville and Knoxville, Tennessee markets)
taking losses on the disposition of those assets as necessary. As a result, the Companys
provision for loan losses in 2008, 2009 and 2010 totaled $52.8 million, $50.2 million and $71.1
million. The Company incurred net charge-offs of $38.1 million, $48.9 million and $54.4 million in
each of those three years. During the first quarter of 2011, the Company continued to experience
increased levels of provision expense and net charge-offs as its asset quality problems continued.
For the first quarter of 2011, the Companys provision for losses totaled $13.9 million and its net
charge-offs totaled $15.6 million.
The impact of the increase in nonperforming assets and the associated increase in credit
expense and other real estate owned expenses has resulted in significant losses over the past three
fiscal years and the first quarter of 2011, which has eroded the Companys shareholders equity and
regulatory capital ratios. The Company reported a net loss available to common shareholders of
$85.7 million in 2010. This compared to a net loss available to common shareholders of $155.7
million in 2009 that included a $143.4 million non-recurring charge for goodwill impairment and a
net loss available to common shareholders of $5.5 million in 2008. For the first quarter of 2011,
the Company recorded a net loss available to common shareholders of $11.6 million.
In December of 2008, the Companys Board of Directors authorized the Company to participate in
the CPP established by the Treasury under the TARP of the Emergency Economic Stabilization Act of
2008 (the EESA). In connection with its participation in the CPP, the Company issued to Treasury
(i) 72,278 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A,
having a liquidation preference of $1,000 per share (the Series A Preferred Stock), and (ii) a
ten-year warrant to purchase up to 635,504 shares of the Companys Common Stock, at an initial
exercise price of $17.06 per share (the Warrant), for an aggregate purchase price of
approximately $72.3 million in cash. This $72.3 million investment qualified as Tier 1 capital
and significantly
8
improved the regulatory capital ratios of the Company and GreenBank. Although the capital
contributed to GreenBank as a result of the Companys participation in the CPP significantly
improved GreenBanks regulatory capital ratios, which also benefited from the approximately $88.7
million of capital contributed by the Companys trust preferred issuances, the investment did not
strengthen the Companys common shareholders equity, which continued to erode as the Companys
credit quality issues continued into 2009 and 2010.
In November 2010, the Company informally committed to the Federal Reserve Bank of Atlanta that
it would not incur additional indebtedness, pay cash dividends, make payments on the Series A
Preferred Stock or the Companys trust preferred securities or repurchase outstanding stock without
prior regulatory approval. Since that date, the Company has not been given permission to pay
interest on the Companys trust preferred securities or dividends on the Series A Preferred Stock.
As a result of such deferrals, the Company may not pay dividends on any of its common or preferred
stock or trust preferred securities until all accrued and deferred amounts have been paid.
GreenBank has also informally committed to the Federal Deposit Insurance Corporation (FDIC)
and the Tennessee Department of Financial Institutions (TDFI) that it will maintain a Tier 1
leverage ratio of not less than 10% and a Total risk-based capital ratio of not less than 14%.
Because of the significant losses that the Bank incurred in the second half of 2010 and first
quarter of 2011, GreenBanks capital levels fell below these required minimum levels at December
31, 2010 and remain below these levels at March 31, 2011.
Beginning in the third quarter of 2010, the Companys Board of Directors began to work closely
with management and the Companys financial advisor to explore the Companys reasonably available
strategic alternatives to address the Companys credit, financial and regulatory challenges,
including maintaining the status quo, selling common or preferred stock in a public or private
offering, disposing of a significant amount of problem assets, a balance sheet restructuring
transaction in which the Series A Preferred Stock was converted to common stock, and merging with a
larger financial institution in a strategic transaction.
In September 2010, the Company formally engaged its financial advisor in connection with its exploration
of these strategic alternatives. Pursuant to the terms of its engagement, the Companys financial advisor will receive a fee
upon the successful consummation of the NAFH recapitalization transaction.
During the two years prior to its engagement
on September 16, 2010, the Companys
financial advisor had no formal engagements with either the Company or NAFH.
Following their engagement in September 2010, representatives of the Companys financial
advisor met with various members of the Companys senior management to discuss the Companys near
and longer-term prospects assuming various scenarios.
Throughout the third and fourth quarters of 2010 and into the first quarter of 2011 the
Companys Board of Directors, with the assistance of the Companys financial advisor, engaged in
extensive discussions regarding the Companys strategic alternatives and the Companys Board of
Directors authorized the Companys financial advisor and members of senior management to pursue all
alternatives available to the Company to strengthen the Companys capital position, including
pursuing discussions with Treasury regarding converting the Series A Preferred Stock into Common
Stock and any discount that Treasury might be willing to accept in connection with such a
conversion. The Companys Board of Directors also authorized management to provide financial
information to companies that might be interested in pursuing a transaction with the Company,
subject to those companies executing confidentiality agreements with the Company.
Beginning late in the third quarter
of 2010, on behalf of the Company, the Companys financial advisor began contacting
both potential private equity investors and possible strategic partners and inquiring as
to whether these companies would have interest in pursuing a transaction with the Company. Over
the next six months, on behalf of the Company, the Companys
financial advisor contacted fifty potential private equity
investors and sixteen potential strategic partners. The private equity investors contacted were
chosen because they had generally expressed interest to the Companys financial advisor in pursuing
capital investment transactions like those being considered by the Company. The strategic partners
contacted were chosen because they had generally expressed to the Companys financial advisor a
willingness to consider acquiring financial institutions of a similar
size to the Company or with
operations in the Companys market areas. Of these potential private equity investors and
strategic partners contacted, twenty-one potential private equity investors and seven potential
strategic partners, including both platform companies, like NAFH, and large, regional financial
institutions, entered into a confidentiality agreement with the Company. Subsequent to these
companies executing confidentiality agreements, the Company provided these interested companies
with access to an online data room containing financial information about the Company and provided
these interested companies with information regarding the Companys loan portfolio. Members of the
Companys senior management also held in-person meetings with seventeen of the private equity
sponsors and three of the strategic partners.
During the time that the Companys senior managers were having discussions with these private
equity firms and potential strategic partners, the Companys results of operations continued to be
negatively impacted by credit quality issues and related elevated provision expense and net
charge-offs, and the Companys stock price continued to decline. During the third and fourth
quarters of 2010, equity capital market conditions continued to worsen and it became increasingly
more difficult for bank holding companies, particularly those experiencing significant asset
quality problems like the Company, to successfully consummate public offerings. As a result, the
Companys Board of Directors directed management and the Companys financial advisor to focus their
efforts on
9
raising capital through the sale of common or preferred stock in a private offering rather than a
public offering and in a transaction between the Company and a strategic partner.
Throughout October 2010 and November 2010, management and the Companys financial advisor
continued to have discussions with companies that were interested in making an investment in the
Company or in merging with the Company, and on a regular basis the Companys Board of Directors was
apprised of the results of those discussions. In November 2010, the Company received oral
indications of interest from two potential private equity investors and preliminary written
indications of interest from three potential strategic partners. Each of the indications from the
private equity investors was conditioned on further due diligence, particularly involving the
Companys loan portfolio and potential losses embedded in the
portfolio. Under each proposal, additional investors would have been
required to supplement these lead
investors investment to raise an amount of capital that the investors thought was sufficient to
capitalize the Company and GreenBank in light of the amount of losses these investors believed
remained in the Companys loan portfolio. Neither of these private equity investors ever made a
written offer to the Company. The three indications that the Company received from strategic
partners were also conditioned on further due diligence, particularly involving the Companys loan
portfolio and the potential losses embedded in the portfolio. Following their due diligence review,
none of these strategic partners ever made a definitive offer to acquire the Company.
In December 2010, the Companys senior managers and its financial advisor engaged in
discussions with a private equity investor (PE Firm A) that owned a portion of a community bank
based in the Southeast (PE Firm As Bank) about a transaction that would combine the Companys
bank subsidiary with PE Firm As Bank coupled with a recapitalization of the resulting entity led
by PE Firm A. Over the next four months, the Companys representatives and PE Firm As
representatives had intermittent discussions about a potential transaction and PE Firm A completed
a significant amount of due diligence on the Company, with particular emphasis on the Companys
loan portfolio, and the Companys senior managers completed limited due diligence on PE Firm As
Bank.
During the period from December 2010 to April 2011, the Companys senior management and its
financial advisor continued to engage in discussions with PE Firm A, met with a number of other
private equity investors and explored other alternatives for the Company. On or about April 14,
2011, NAFH submitted a written offer to invest $202 million into the Company at a per share price
of $1.00 per share and requested that the Company negotiate exclusively with NAFH for a period of
thirty days to reach a definitive agreement. This offer was conditioned on, among other things,
NAFH being able to secure a discount of 40% from the Treasury on the repurchase of the Series A
Preferred Stock. The Companys Board of Directors met on April 15, 2011 to consider this written
offer and after discussing the offer, instructed the Companys financial advisor and the Companys
senior managers to notify NAFH that it was rejecting this offer because, among other things, the
Board of Directors believed the per share investment price was inadequate.
The Companys Board of Directors did not convey to NAFH a minimum per share investment price that
would be acceptable to the Board of Directors and did not discuss as a group any such minimum
price.
Around the time that the Company received NAFHs initial written offer, the Company also
received an oral indication from PE Firm A indicating that it was interested in leading a $170
million investment in the Company at a price of up to $2.00 per share, conditioned upon, among
other things, the Company acquiring PE Firm As Bank at 1.5x book value and on Treasury converting
its Series A Preferred Stock to Common Stock at a 70% discount. The Companys Board of Directors
met on April 15, 2011 to consider this oral indication of interest and instructed the Companys
financial advisor to have PE Firm A reduce its offer to writing, which PE Firm A did, delivering a
written offer to the Company on April 18, 2011. PE Firm As written offer confirmed its oral
indication of interest, although it reflected a reduction in the size of the capital investment
from $170 million to $163 million. The written offer continued to be conditioned upon (1) the
Companys agreeing to acquire PE Firm As Banks common stock at 1.5x book value, (2) the
Treasurys willingness to convert the Series A Preferred Stock to Common Stock at a 70% discount
and (3) PE Firm As satisfactory completion of further financial, legal, and operational due
diligence, including accounting and tax-related due diligence. In addition, PE Firm As written
offer was conditioned upon the Company implementing protections designed to ensure that the Company
would be able to utilize its net operating losses and deferred tax assets following closing of the
investment without limitation.
On April 18, 2011, the Companys Board of Directors met to consider PE Firm As written offer.
At that meeting, the Board of Directors authorized the Companys senior management and its
financial advisor to pursue
10
further discussions with PE Firm A. Over the next ten days, members of the Companys senior
management and its financial advisor had numerous discussions with representatives of PE Firm A and
representatives of PE Firm As Bank regarding the structure of the proposed transaction and other
transaction-related matters. The Companys senior managers and financial advisor also engaged in discussions with representatives of PE Firm A and PE
Firm As Bank regarding PE Firm As Banks prospects for growth and preliminary views on the
opportunity for the combined banks. The Companys senior managers performed a limited amount of due
diligence on PE Firm As Bank, including a review of publicly available financial information
regarding PE Firms As Banks historical financial performance. Throughout their discussions, the
Companys senior
management and its financial advisor stressed to
PE Firm As representatives that the current transaction proposal had significant execution risk,
particularly the requirement that Treasury convert the Series A Preferred Stock to common stock at
at least a 70% discount. Based on conversations that the Companys senior management had with
Treasurys representatives, the Companys senior management did not believe Treasury would agree to
a discount of that magnitude.
On April 22, 2011, representatives of NAFH asked members of the Companys senior management if
they could make a presentation to the Companys Board of Directors. On April 26, 2011,
representatives of NAFH attended a meeting of the Companys Board of Directors and described the
terms of a revised offer that NAFH was prepared to make to the Company. Pursuant to the terms of
this revised offer, NAFH would acquire 100% of the Companys outstanding Common Stock in a merger
transaction. The consideration paid to the Companys shareholders would be based on the closing
price for the Companys common stock on that date, which was $2.09 per share, and could be paid in
all cash, or in a combination of cash and equity securities of NAFH, or its subsidiary Capital Bank
Corporation, although no more than 20% of the total consideration would be in the form of equity
and only shareholders of the Company that qualified as accredited investors under the SECs rules
and regulations would be entitled to receive NAFH stock. Unlike its earlier offer, this offer was
not conditioned on the Treasury agreeing to sell the $72.3 million of Series A Preferred Stock to
NAFH at a discount although NAFH orally indicated that they continued to seek a discount from
Treasury. This revised offer also included the issuance of contingent value rights to the
Companys shareholders which would entitle the Companys shareholders to cash proceeds of up to
$0.75 per share, based on the credit performance of GreenBanks legacy loan portfolio over the five
years following closing. NAFHs representatives communicated to the Companys Board of Directors
that NAFH had substantially completed its due diligence and that it had a sufficient amount of cash
on hand to effect the transaction and would not require any type of financing contingency or
condition. NAFHs representatives communicated to the Companys Board of Directors that NAFH
needed to move quickly on this transaction and was prepared to devote the resources necessary to
finalizing definitive deal documentation by April 30, 2011.
At this meeting, NAFH was asked, and confirmed, that the recapitalization transaction structure it
has proposed on or about April 14, 2011 was still a transaction structure that it would consider,
but that the investment price under that structure would not be as high as the $2.09 price it had
offered for the merger transaction.
Following NAFHs representatives presentation at the April 26, 2011 board meeting, the
Companys Board of Directors and senior management discussed with the Companys legal and financial
advisors the revised NAFH proposal and the current status of the discussions with PE Firm A. The
Companys Board of Directors authorized management and the Companys financial advisor to pursue
further discussions with NAFH and with PE Firm A.
Between April 26, 2011 and April 29, 2011, NAFH revised its proposals and offered the
Companys Board of Directors the option of a recapitalization transaction, in which NAFH would
acquire approximately $217 million of the Companys Common Stock at a per share purchase price of
$1.81 per share, or alternatively, a transaction in which NAFH would acquire 100% of the Companys
outstanding common stock in a merger transaction at a per share purchase price of $2.15, with the
option of up to 20% of the merger consideration being in the form of Capital Bank Corporation
stock. Each transaction structure included the same offer of contingent value rights. Each
transaction included roughly the same closing conditions, and neither transaction was expressly
conditioned on the Treasury agreeing to sell the $72.3 million of Series A Preferred Stock to NAFH
at a discount. The Companys Board of Directors directed the Companys senior management and its
financial advisor to continue to have discussions with NAFH regarding its proposal, including
requesting that NAFH allow the Companys existing shareholders a chance to invest in the Companys
common stock in a rights offering if the recapitalization transaction was consummated.
On April 29, 2011, the Companys Board of Directors met to consider the three alternatives
then available to the Board of Directors the recapitalization transaction with NAFH; the merger
transaction with NAFH with a per share price now at $2.15 per share; and the recapitalization
transaction with PE Firm A at a per share price of up to $2.00. The Companys Board of Directors
also considered the alternative of continuing to operate the Company on a stand-alone basis with an
injection of new capital. In comparing the three transaction alternatives, the Companys Board of
Directors considered numerous factors, including but not limited to, price, availability of
financing, deal certainty, timing, the amount of capital infusion, likelihood of and timing for
securing regulatory approval, its estimate of the Treasurys
willingness to agree to a repurchase of the Series A Preferred
Stock, and the potential investors different visions for the Company going forward. In evaluating the
investment price being offered in each of the recapitalization transactions and the value of the
merger consideration being offered in the NAFH merger transaction, the Board of Directors
considered that each of those prices was at a discount to the Companys book value per common share
(shareholders equity less preferred stock and common stock warrants) and the trading price of the
Companys common stock. While the per share consideration being offered in each of the proposed
structures was below the Companys book value per common share of $4.88 as of March 31, 2011, the
Companys Board of Directors considered that the Companys book value per common share did not reflect NAFHs or PE Firm As views on the
potential losses embedded in the Companys loan portfolio or the impact of the purchase accounting
adjustments, including the adjustments resulting from marking the loan portfolio to fair value,
that would likely accompany either alternative. When evaluating the discount each alternative
reflected to the current trading price of the Companys common stock, the Companys Board of
Directors also considered that the trading price of the Companys common stock did not reflect
NAFHs or PE Firm As views on the potential losses embedded in the Companys loan portfolio or the
impact of the purchase accounting adjustments, including the adjustments resulting from marking the
loan portfolio to fair value, that would likely accompany either alternative, and did not reflect
the fact that the announcement by the Company that it had consented to the issuance of a cease and
desist order by the FDIC and entered into a written agreement with the TDFI, the possibility of
which is discussed in more detail below, both of which would likely have negatively impacted the
trading price of the Companys Common Stock.
In evaluating the various alternatives, the Companys Board of Directors considered that while
PE Firm A offered the possibility of a higher nominal price per share than the NAFH
recapitalization transaction, its offer was conditioned on further due diligence, Treasury agreeing
to convert the Series A Preferred Stock to common stock on
acceptable terms, and
preservation of the Companys net operating losses and deferred tax asset. The Companys Board of
Directors also believed that while the merger transaction alternative proposed by NAFH offered a
higher nominal price per share than NAFHs recapitalization transaction, the Companys common stock
price would likely trade higher than the value of the consideration being offered in the NAFH
merger transaction, based on the trading history of certain companies that had recently announced
similar recapitalization transactions whose stock
prices were trading, on April 28, 2011, at premiums ranging from
115% of pro forma tangible book
value per share to 270% of pro forma tangible book value per share. In addition, the Companys
Board of Directors believed that the recapitalization transaction could be consummated on a more
accelerated timeline than the merger transaction because the shares of Capital Bank Corporation
common stock to be issued in the merger transaction would have needed to be registered with the
SEC, which would have likely added additional time to the process. The Companys Board of
Directors also believed that the NAFH recapitalization transaction, which offered the Companys
shareholders an opportunity to remain shareholders of the Company and ultimately shareholders of
NAFH, which has now filed a registration statement with the SEC related to its proposed initial
public offering and which the Board of Directors at that time believed would be filing for its
initial public offering before the end of 2011, offered the potential for further improved returns
over the NAFH merger transaction in which only a portion of the consideration that the Companys
shareholders would have received would have been in equity securities. The Companys Board of
Directors also believed that the potential cash value to the CVRs provided a positive benefit over
the recapitalization transaction involving PE Firm A, and that accordingly the NAFH
recapitalization transaction offered a higher value to shareholders than the recapitalization
transaction involving PE Firm A. For these reasons, the Companys Board of Directors instructed the
Companys financial advisor and the senior management to focus their efforts on negotiating a
recapitalization transaction with NAFH.
11
In instructing the Companys senior management and its financial advisor to focus their
efforts on the NAFH recapitalization transaction, the Companys Board of Directors viewed the NAFH
recapitalization transaction as more certain to close over PE Firm As recapitalization transaction
and to provide greater future growth opportunities for the Company and the Companys shareholders
than either of the other two alternative transactions. The financing for the transaction with PE
Firm A was not as secure as NAFHs readily available cash, and regulatory approval for the
transaction with PE Firm A was less certain as to both timing and
likelihood of approval because PE Firm A would require additional
co-investors to fund the full investment. In
addition to being more certain to close, the NAFH recapitalization transaction also entails a much
larger capital infusion than the alternative transaction with PE Firm A, does not require that
Treasury accept a discount on its Series A Preferred Stock (although NAFH indicated that it was
still seeking a discount from Treasury), and is not conditioned on the Company preserving its net
operating losses and deferred tax asset. Also, when considering the
recapitalization transaction, the Companys Board of Directors
also considered the contingent nature of the financial advisors
fee.
Beginning on April 29, 2011 and continuing through May 5, 2011, the Companys senior
management and its legal and financial advisors negotiated the terms of the Investment Agreement
and the ancillary documents thereto with NAFH and its advisors. The Companys legal and financial advisors sought numerous changes to the draft of the Investment
Agreement submitted by NAFH, including, among others, changes to the non-solicitation provisions,
elimination of the Option, and modifications to the closing conditions. The Companys legal
advisor also attempted to negotiate a reduction in the size of the termination fees and a reduction
in the number of situations in which those fees would be payable as well as an increase in the size
of the reverse termination fee.
The Companys advisors
also reiterated the desire of the Companys Board of Directors that NAFH permit the Company to
conduct a rights offering following consummation of the recapitalization transaction to its
existing shareholders at the same per share price that NAFH was paying. NAFH was unwilling to
agree to most of the changes suggested by the Companys advisors, including the request for
a rights offering to be included in the transaction or for the Company being entitled to require
NAFH to specifically perform its obligations under the Investment Agreement, and insisted that the
agreement be signed promptly.
On May 2, 2011, GreenBank received notice from the FDIC and TDFI that, as a result of those
agencies findings in their most recently completed joint safety and soundness examination, the
agencies would be seeking a formal enforcement action against GreenBank aimed at strengthening
GreenBanks operations and its financial condition. Accordingly, the FDIC informed the Company that
it was pursuing the issuance of a consent order against GreenBank and the TDFI was pursuing the
issuance of a written agreement against GreenBank and that these formal enforcement actions would
likely require GreenBank to maintain capital levels at or above those minimum levels that GreenBank had informally committed to maintain (as described above), which were
above those levels
that GreenBank currently met. The
Board of Directors believed that the issuance of this formal enforcement action would negatively
impact the Companys operations and that the prompt consummation of a capital raising transaction
would significantly reduce this negative impact.
On May 5, 2011, the Companys Board of Directors met for the primary purpose of considering
the NAFH recapitalization transaction. Representatives of the Companys legal and financial
advisors attended this meeting, as did certain members of the Companys senior management. At this meeting, the Companys financial advisor advised the Board of Directors that the financial
advisor currently anticipated that it would act as a managing underwriter in connection with NAFHs
potential public offering and that the financial advisor may provide investment banking services to
the Company and NAFH in the future, for which the financial advisor may
receive a fee. The Board of Directors did not believe that this potential conflict of interest
impaired the financial advisors ability to advise the Board of Directors impartially.
Following a discussion of the financial terms of the NAFH recapitalization transaction, a
representative of the Companys legal advisor
12
reviewed with the Companys Board of Directors their applicable fiduciary duties and
responsibilities and described for the Board of Directors in detail the terms of the Investment
Agreement and the ancillary agreements. The Companys Board of Directors considered the $1.81 per
share purchase price proposed by NAFH, together with the CVR, compared to the per share prices
offered in the other two alternatives as well as the potential stock price performance for the
Companys Common Stock on a stand-alone basis (based on managements assumptions as to future
financial performance).
In considering the $1.81 per share purchase price proposed by NAFH, the Companys Board of
Directors discussed that the price was below the current trading price for the Companys common
stock and current book value per share of Common Stock as well as the per share price offered by
NAFH in the merger transaction alternative. Despite the fact that this price was nominally below
these other per share prices, the Board of Directors believed that it was likely that the trading
price of the Companys common stock would trade higher following announcement of the proposed
transaction and that the trading price would likely trade higher than the $2.15 per share price
offered in the merger transaction. The Board of Directors reached this conclusion based on its
review of the stock price performance of the following companies that had entered into
recapitalization transactions similar to the transaction proposed by NAFH since September 30, 2009:
(i) Capital Bank Corporation; (ii) TIB Financial Corp.; (iii) Palmetto Bancshares, Inc.; (iv)
Hampton Roads Bankshares, Inc.; (v) Pacific Capital Bancorp; (vi) Sterling Financial Corporation;
and (vii) West Coast Bancorp. In the case of each of these companies, the price at which the
companys stock was trading at the close of the market on
May 4, 2011 ranged from 115% of the
companys pro forma tangible book value per share to 213% of pro forma tangible book value per
share. Applying these trading multiples to the $1.55 pro forma tangible book value per share
implied by the $1.81 per share purchase price, the Board of Directors believed that it was likely
that the Companys Common Stock would trade at a price higher than the price offered by NAFH in the
merger transaction. The Board of Directors gave particular attention to the trading price of
Capital Bank Corporation, which on May 4, 2011, was trading at 201.8% of pro forma tangible book
value per share. The Board of Directors believed that the Capital Bank Corporation trading price
was particularly relevant to the Companys situation given the similarities between NAFHs
investment in Capital Bank Corporation and its proposed investment in the Company.
At the May 5, 2011 Board of Directors meeting, Mr. Rownd also presented the views of
management regarding the proposed recapitalization transaction with NAFH, concluding with
managements recommendation that the transaction be approved. After discussion, the Companys
Board of Directors adopted and approved the Investment Agreement and the transactions contemplated
by the Investment Agreement, including the Bank Merger described in Proposal 6, and determined that
the Investment Agreement and the transactions contemplated by the Investment Agreement, including
the Bank Merger, are advisable and in the best interests of the Company and its shareholders.
On May 5, 2011, the Company announced the execution of the Investment Agreement with NAFH.
The Company is seeking approval to issue shares of Common Stock under the Investment Agreement to
support the Companys strategic growth opportunities in the future. If the issuance of shares under
the Investment Agreement is approved and the proposed transactions are consummated, the Company
will receive approximately $217 million in gross proceeds from the Investment by NAFH. If the
Company is unable to complete the Investment, it would materially and adversely affect the
Companys business, financial results and prospects.
Projected Financial Information
The Companys senior management does not as a matter of course make public projections as to
future performance or earnings and, especially during this period of economic uncertainty, cautions
against relying on any such projections, including those summarized below. However, the Companys
senior management did provide the Companys 2011 financial plan to NAFH, PE Firm A, and other
potential private equity investors and strategic partners in connection with their consideration of
a possible transaction with the Company. The projections included in the Companys 2011 financial
plan, as well as other projections, were also provided to the Companys Board of Directors. The
Company has included in this Proxy Statement the projections included in the Companys 2011
financial plan that were deemed material by the Companys Board of Directors for purposes of
considering and evaluating the recapitalization transaction proposed by NAFH. The inclusion of
these projections should not be regarded as an indication that the Companys management or Board of
Directors or any other recipient of these or other financial projections considered, or now
consider, these projections, or any other projections provided in connection with the proposed NAFH
recapitalization transaction, to be a reliable prediction of future results and they should not be
relied on as such.
The Company believes that the assumptions the Companys management used as a basis for
preparing projections were reasonable at the time the projections were prepared, given information
the Companys management had at the time. However, the projections do not take into account any
circumstances or events occurring after the date they were prepared and you should not assume that
the projections remain accurate as of the date of this Proxy Statement or that the projections will
continue to be accurate or reflective of the Companys managements view at the time you consider
whether to vote for approval of the proposals included in this Proxy Statement. The internal
financial forecasts upon which these projections were based are subjective in many respects and are
thus susceptible to various interpretations. The projections reflect numerous assumptions with
respect to industry performance, general business, economic, market and financial conditions and
other matters, all of which are difficult to predict and many of which are beyond the Companys
control. The projections are also subject to significant uncertainties in connection with changes
to the Companys business and its financial condition and results of operations, and include
numerous estimates and assumptions related to the Companys business that are inherently subject to
significant economic, political and competitive uncertainties, including those factors described
below under Forward Looking Statements beginning on
page 28, all of which are difficult to
predict and many of which are beyond the Companys control. As a result, although the projections
set forth below were prepared in good faith based upon assumptions believed to be reasonable at the
time the projections were prepared, there can be no assurance that the projected results will be
realized or that actual results will not be significantly higher or lower than projected.
Since
the date of the management-prepared projections set out below, the Company has made publicly available its
actual results of operations for the fiscal year ended December 31, 2010 and the three months ended
March 31, 2011. You should review the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2010 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2011,
together with the information set forth in Appendix F attached hereto. Readers of this
Proxy Statement are cautioned not to place undue reliance on the specific portions of the
financial projections set forth below. No one has made or makes any representation to you regarding
the information included in these projections or the future financial results of the Company.
For the foregoing reasons, as well as the bases and assumptions on which the financial
projections presented below were compiled, the inclusion of these specific portions of the
financial projections in this Proxy Statement should not be regarded as an indication that such
projections will be an accurate prediction of future results or events, and they should not be
relied on as such. Except as required by applicable securities laws, the Company has not updated
and does not intend to update or otherwise revise the financial projections or the specific
portions presented below to reflect circumstances existing after the date when such projections
were made or to reflect the occurrence of future events, even in the event that any or all of the
assumptions underlying the projections are shown to be in error.
A summary of the above-described financial projections is set forth below:
|
|
|
|
|
|
|
Projected |
|
|
as of and for the fiscal year |
|
|
ending December 31, |
|
|
2011 |
|
|
(dollars in thousands) |
Balance Sheet Data: |
|
|
|
|
Investments and cash |
|
$ |
510,865 |
|
Loans |
|
|
1,590,818 |
|
Loan loss reserve |
|
|
(61,662 |
) |
Other real estate owned |
|
|
74,246 |
|
Deposits |
|
|
1,875,876 |
|
Borrowings |
|
|
163,944 |
|
Capital |
|
|
205,848 |
|
|
Income Statement Data: |
|
|
|
|
Net interest income |
|
|
75,637 |
|
Loan loss provision |
|
|
(41,860 |
) |
Non-interest income |
|
|
30,414 |
|
Non-interest expense |
|
|
(89,556 |
) |
Loss before income taxes |
|
|
(25,365 |
) |
Net loss GreenBank |
|
|
(25,365 |
) |
Green Bankshares expenses |
|
|
(7,100 |
) |
Consolidated net loss |
|
|
(32,465 |
) |
|
Other
Financial Data: |
|
|
|
|
Net
charge -offs |
|
$ |
45,100 |
|
|
Capital Ratios: |
|
|
|
|
Tier 1 leverage ratio |
|
|
8.20 |
% |
Total risk-based capital ratio |
|
|
12.88 |
% |
Tangible common equity as a percentage
of tangible assets |
|
|
1.66 |
% |
In addition to the 2011 financial plan, the Company also provided NAFH, PE Firm A and other
potential private equity investors and strategic partners with a loan portfolio analysis (the
Analysis) prepared by Situs Real, LLC (Situs), an experienced independent loan valuation firm
that has reviewed numerous loan portfolios throughout the United States, including portfolios of
companies like the Company that were seeking to raise capital. The Company engaged Situs in the
first quarter of 2011 after interviewing other similar firms, choosing Situs because of its
reputation for providing portfolio reviews and Situss independent approach. The Company paid
Situs a fee of approximately $250,000 to perform the valuation analysis, which fee was not
contingent on Situs agreeing on certain Company-mandated procedures or reaching any particular
analytical results. The Company did not impose any limitations on the scope of Situss review.
Situss
review was based on a review of the Companys loan portfolio as
of December 31, 2010 and was
based upon Situss views of the prevailing economic conditions and real estate conditions as of
August 2010. The Analysis included Situss estimates of potential future losses embedded in the
Companys loan portfolio over a three year time horizon. The Analysis estimated that the future
cumulative losses embedded within the Companys loan portfolio at December 31, 2010 ranged between
$75.3 million, in its upside case scenario, to approximately $98.7 million in its base case
scenario and $173.3 million in its downside case scenario.
Because payments under the CVRs are
based on Credit Losses incurred between May 5, 2011 and the five year anniversary of the Closing,
the portion of any of Situss estimated potential future losses that the Company charged off
between December 31, 2010 and May 4, 2011 would be excluded from the amount of Credit Losses that
the Company incurred for purposes of determining the amount of any
payment due under the CVRs and Situs did not estimate effects during
the period from December 31, 2013 through May 5, 2016. For
the quarter ended March 31, 2011, the Company incurred
net charge-offs totaling approximately $15.6
million.
In preparing its Analysis, Situs reviewed approximately 5,000 loans, including commercial real
estate, construction and land loans (CRE Loans), commercial and industrial loans (C&I Loans)
and residential real estate loans, and conducted several distinct, but related procedures, to
derive collateral values and to estimate possible losses (reflecting the product of probability of
default and collateral deficiencies) in the Companys loan portfolio. For GreenBanks consumer
loan portfolio, Situs applied the industry loss rate calculated by the Federal Reserve. With
respect to GreenBanks CRE Loans, Situs reviewed approximately 210 loans with balances totaling
approximately $533.6 million, representing approximately 65.1% of the dollar value of GreenBanks
loans within this segment of the portfolio at December 31, 2010. Situss review of GreenBanks
commercial and industrial loans covered approximately 70 loans with balances totaling approximately
$207.0 million, representing approximately 35.7% of the dollar value of GreenBanks loans within
this segment of the portfolio at December 31, 2010. The residential real estate loans reviewed by
Situs covered approximately 4,700 loans totaling approximately $352.9 million, representing
approximately 82.0% of the dollar value of GreenBanks loans within this segment of the loan
portfolio at December 31, 2010, with the results of its review of those loans extrapolated to the
remaining balance of the residential real estate portfolio.
When reviewing the selected CRE Loans, Situs categorized the loans based on two levels of review.
Situss Level 1 analysis involved an in-depth loan file review of approximately 50 loans
representing approximately 37.3% of the dollar value of CRE Loans at December 31, 2010. In
reviewing these loans for the possibility of default under the base case scenario, Situss
representatives reviewed a summary description of the loan history, current status and terms,
collateral, financial condition of the borrower and/or guarantor, local real estate market,
including market participant comments as well as sales and rent comparables, as appropriate, any
collateral propertys tenancy, occupancy and cash flow projections and probability of default.
Level 2 analysis for those CRE Loans sampled involved calculating a possible loss estimate based on
a limited file review of approximately 161 loans representing approximately 27.8% of the dollar
value of CRE Loans at December 31, 2010 based on property type, geographic region and property
operating information, where available, combined with the results of Situss Level 1 analysis.
Based on its review of the CRE Loans within the selected sample, Situs estimated the possible loan
losses within the sampled loans within the segment of the portfolio by multiplying Situss
subjective view on the probability (expressed as a percentage) that the borrower would default on
the obligation by the difference between the current amount committed on the loan and estimates of
the current value of the collateral supporting the borrowers obligation. Situs then extrapolated
losses across the remainder of GreenBanks portfolio of CRE Loans based on its analysis of the
sampled loans. To arrive at its upside case and downside case scenarios, Situs adjusted its
assumptions with respect to collateral values and probability of default downward and upward, as
applicable
For its base case review of the selected sample of C&I Loans, Situs completed a Level 2 analysis of
approximately 70 loans representing approximately 35.7% of the dollar value of C&I Loans at
December 31, 2010. The Level 2 analysis consisted of analyzing the loans risk rating, repayment
sources, accrual status, collateral coverage, covenant structure and obligor support to help
determine a probability of default, loss given default, expected exposure at default and timing of
projected default. Situss conclusions with respect to the possible losses in the sample of C&I
Loans were then extrapolated across the remainder of GreenBanks portfolio of C&I Loans. To arrive
at its upside case scenario, Situs increased the underlying collateral value by 10%. The downside
case scenario was the result of migrating the sampled C&I Loans down one risk rating.
For its base case review of the selected sample of residential real estate loans, including
mortgage and home equity loans, Situs utilized a location-correlated housing price index model,
estimating mark-to-market loan to value ratios at the property level for residential loan
portfolios based on relative price movements from the date of a loans origination and/or the
latest appraisal. Situss review consisted of a residential index value assessment on
approximately 4,700 loans, representing approximately 82% of the dollar value of these types of
loans at December 31, 2010 Situs arrived at its estimated possible loss conclusions based on
estimated loan to value ratios resulting from its review of observed historical, industry peak loss
rates and forward-looking loss rate conclusions with respect to first and second mortgages and home
equity lines of credit. Then, Situs calculated an estimated probability (expressed as a
percentage) that the borrower would default on the obligation based on the resulting loan to value
ratios, further enhancing the probability of default by taking into account the then current loan
performance, including loan status, days past due and credit score. To arrive at its upside case
and downside case scenarios, Situs increased and decreased the estimated collateral values by 10%,
respectively.
For its base case review of GreenBanks consumer loan portfolio, Situs applied the Federal
Reserves charge-off rate for consumer loans at commercial banks (excluding the top 100 banks) of
2.09% to GreenBanks consumer portfolio. To arrive at its upside case and downside case scenarios,
Situs decreased and increased the loss rate by 50 basis points, respectively.
In performing its Analysis of GreenBanks CRE Loans and C&I Loans, Situs followed agreed upon
procedures which included reviewing information provided by GreenBank for each of the loans
reviewed utilizing a Level 1 analysis and completing market research on each piece of collateral
for loans reviewed utilizing a Level 1 analysis. To estimate the probability that a borrower might
default on a loan reviewed utilizing a Level 1 analysis, Situs considered a variety of factors,
including loan to value ratios, debt service coverage ratios, maturity date, remaining interest
reserve, additional loan support and practical sources of repayment. For each of the loans
reviewed utilizing a Level 2 analysis, Situs completed a file review and limited market research,
reviewing, among other things, loan approvals, property operating statements, watch list reports,
criticized asset reports, appraisals and borrower/guarantor financial statements.
In performing the Analysis, Situs relied on information provided by GreenBank, including data
tapes, as well as market statistics and other information provided by both public and private
sources as well as interviews with market participants, including appraisers, brokers, realtors,
investors and local governmental agencies. Situs representatives also engaged in discussions with
members of GreenBanks senior management regarding certain individual loans. Situs did not conduct
site inspections as part of the scope of its assignment and made certain assumptions about
compliance with zoning restrictions and other applicable government regulations affecting
properties securing collateral-dependent loans. While Situs reviewed certain financial information
of guarantors of CRE Loans provided by GreenBank, it did not complete a full analysis of the
guarantors financial statements and was not able to make any statement regarding a guarantors
financial condition. Accordingly, Situss scope included
subjective quantification of the recourse
support available from guarantors.
The Analysis was prepared by Situss representatives, and not by the Company or its management, and
accordingly, the Analysis reflects Situss views, including views as to the broader economic
outlook for the United States and the Companys market areas, including for the housing industry,
and not necessarily those of the Companys management. Further, the conclusions reached in the
Analysis are based on a significant number of assumptions, including, but not limited to,
assumptions related to then current and projected economic conditions in the United States and in
the Companys market areas and collateral values, particularly those related to residential real
estate, in the Companys market areas. The Company believes that
Situss assumptions with respect to the economic conditions for
the 2011 fiscal year were not materially different than the
Companys managements assumptions in preparing the
management-prepared 2011 financial projections. Situs noted in the Analysis that its review should not be
used for valuation purposes under generally accepted accounting principles.
Just as the Company has cautioned that the inclusion in this Proxy Statement of the
management-prepared financial projections described above should not be regarded as an indication
that those projections will be an accurate prediction of future results or events, and should not
be relied upon as such, the Company similarly cautions it shareholders and other investors that the
potential estimated loss levels described in the Analysis similarly should not be regarded as an
indication that these potential estimated losses will be an accurate prediction of future losses
that will be experienced in the Companys loan portfolio and should not be relied upon as such.
Like the management-prepared financial projections, the estimated losses described in the Analysis do
not take into account any circumstances or events occurring after the date it was prepared and you
should not assume that these estimates remain accurate as of the date of this Proxy Statement or
that these estimates will continue to be accurate at the time you consider whether to vote for
approval for the proposals included in this Proxy Statement. Further, except as required by
applicable securities laws, the Company undertakes no obligation to update or revise these
estimates.
Effect of this Proposal
The issuance of shares of Common Stock under the Investment Agreement will not affect the
rights of the holders of currently outstanding Common Stock, but the shares issued pursuant to the
Investment will cause substantial dilution to existing shareholders voting power and in the future
earnings per share of their Common Stock. When the additional shares of Common Stock are issued
under the Investment Agreement and assuming approval of the other proposals set forth in this Proxy
Statement, such new shares will have the same voting and other rights and privileges as the
currently issued and outstanding shares of Common Stock, including the right to cast one vote per
share on all matters and to participate in dividends when and to the extent declared and paid.
If this proposal is approved and other closing conditions (including the
approval of Proposals 2, 3, 5 and 6) are satisfied, the Company will
issue 119,900,000 shares of Common Stock to NAFH, which will result in
NAFH owning approximately 90.1% of the Companys outstanding Common
Stock. In addition, if requested by NAFH, the Company will issue
such additional shares following the closing of the
Initial Investment but prior to such time as GreenBank is
merged with and into a subsidiary of NAFH as are necessary to maintain
GreenBanks tier l leverage ratio at or above 10%.
If the Closing occurs, no further vote of the Companys
shareholders will be required to effect the merger of the
Company with and into NAFH (the Holding Company Merger), as NAFH
will be a controlling majority shareholder and will be able to accomplish
that transaction under the provisions of the Tennessee Business Corporation Act
that allows a parent corporation that owns at least 90%
of the outstanding capital stock of a subsidiary to merge
that subsidiary corporation into the parent without requiring a
vote of the minority shareholders. If the Holding Company Merger is completed,
the Companys Common Stock would be exchanged for shares of Class A common stock of
NAFH, with the Companys shareholders becoming shareholders of NAFH.
Pursuant to the terms of the Investment Agreement and as approved by the Companys Board of
Directors, the exchange ratio that would be used for determining the number of shares of
NAFH Class A common stock into which the Companys Common Stock would be converted in the Holding
Company Merger will be based on the relative pro forma tangible book value per share of NAFHs common
stock and the Companys
Common Stock. In setting the exchange ratio to be used in the Holding Company Merger, the
purchase accounting adjustments made in accordance with generally accepted accounting principles
that will be made to the Companys and GreenBanks financial statements, including the adjustments
resulting from marking GreenBanks loan portfolio to market value, would impact the Companys tangible
book value per share. NAFHs board of directors has financial interests that are adverse to those of the
Companys shareholders in making these adjustments as any reduction in the Companys tangible
book value per common share relative to the tangible book value per share of NAFH would reduce the
number of shares of NAFH Class A common stock that the Companys shareholders would receive in the
Holding Company Merger.
The pro forma relative tangible book value per share of the Companys and NAFHs common stock
approved by the Companys Board of Directors to be utilized in calculating the exchange ratio
applicable to the Holding Company Merger is not currently known and will be impacted by the
purchase accounting adjustments that will be made to the Companys financial statements in
connection with the Holding Company Merger, including the adjustments resulting from marking
GreenBanks loan portfolio to market value. At March 31, 2011, the Companys and NAFHs tangible
book value per share of common stock was $4.41 and $17.76, respectively. The Companys tangible
book value per share as of March 31, 2011 does not reflect the purchase accounting adjustments,
which are expected to reduce the Companys tangible book value per share relative to the tangible
book value per share of NAFH.
Interests of the Companys Directors and Executive Officers in the Proposal
Certain of the Companys directors and executive officers have an interest in this Proposal
No. 1 as a result of their ownership of shares of Common Stock, as set forth in the section
entitled Security Ownership of Certain Beneficial Owners and Management below. In addition to
their interests in this Proposal No. 1 as a result of their ownership of shares of Common Stock,
certain of the Companys directors and executive officers also have interests in this Proposal No.
1 that differ from, or are in addition to, those of the Company shareholders generally, because the
Initial Investment and the consummation of the related transactions contemplated by the Investment
Agreement will constitute a change in control under certain employment agreements, equity plans
and other benefits plans and programs in which the Companys directors and executive officers
participate. The employment agreements and benefit plans and programs provide the Companys
directors and officers certain additional benefits upon a change in control, subject to any
applicable legal or regulatory restrictions.
13
In addition to the interests and benefits applicable to the Companys named executive officers
as described in Proposal 7 Approval of Executive Compensation the Companys directors and
executive officers have the following additional interests in the transaction with NAFH:
Treatment of Outstanding Equity Awards. Under the terms of the Companys Amended and Restated
2004 Long-Term Incentive Plan (the LTIP), the vesting of the restricted stock and unvested stock
options accelerate immediately prior to a change in control of the Company, including the
Investment, and become fully vested. However, because of the Companys participation in the CPP
any such vesting is prohibited for the Companys SEOs and next five most highly compensated
employees. While the vesting of the unvested equity awards will not accelerate prior to
consummation of the Investment for these individuals, it is anticipated that these unvested equity
awards will accelerate following consummation of the Repurchase. Each of the named executive
officers, except R. Stan Puckett, currently hold unvested equity awards which are anticipated to
vest following the consummation of the Repurchase.
As
of July ___, 2011, Messrs. Vaught, W.
Adams and Ottinger hold 2,000, 476 and 392 unvested stock options, respectively, that are anticipated to vest following consummation of the
Repurchase. None of the unvested stock options have an exercise price that is less than $1.81 and,
therefore, such stock options currently have no intrinsic value.
As
of July ___, 2011, Messrs. Rownd, Fowler,
W. Adams and Ottinger hold 42,537, 30,865, 624
and 1,716 shares of unvested restricted stock, respectively, that are anticipated to
vest following the consummation of the Repurchase.
Potential Payments with Respect to Executive Officers. In addition to those benefits for the
named executive officers described in Proposal 7 Approval of Executive Compensation, Steve D.
Ottinger, the Companys only executive officer who is not a named executive officer, is party to a
Change in Control Protection Plan Participation Agreement, dated October 22, 2004, under the
Companys Change in Control Protection Plan (the CIC Plan) which provides that if Mr. Ottinger is
terminated without cause or resigns with good reason (both as defined in the CIC Plan) within two
years following a change in control, Mr. Ottinger would be entitled to an amount equal to 1.99
times Mr. Ottingers base amount within the meaning of Section 280G(b)(3) of the Internal Revenue
Code of 1986, as amended (the Code), payable in lump sum. If this payment is triggered, Mr.
Ottinger would be entitled to receive a payment equal to $296,898.
The independent members of the Companys Board of Directors were aware of and considered these
interests, among other matters, in evaluating and negotiating the Investment Agreement and in
recommending the approval of this Proposal No. 1. For an additional discussion of the additional
interests of certain officers of the Company in this Proposal No. 1, please see Proposal 7
Approval of Executive Compensation.
No Preemptive Rights
The holders of Common Stock have no preemptive rights to any future issuances of Common Stock.
Regulatory Approval
Board of Governors of the Federal Reserve System. The acquisition of control of a bank
holding company through acquisition of its securities requires the prior approval of the Board of
Governors of the Federal Reserve (the Federal Reserve) pursuant to Section 3 of the Bank Holding
Company Act of 1956, as amended (Section 3). Prior approval under Section 3 also is needed for
NAFH to exercise the Option and acquire the underlying shares. The Federal Reserve generally will
not approve an application under Section 3:
14
|
|
|
That would result in a monopoly or that would further a combination or conspiracy to
monopolize banking in the United States; or |
|
|
|
|
That could substantially lessen competition in any in any banking market, that would
tend to create a monopoly in any banking market, or that would be in restraint of trade,
unless the Federal Reserve finds that the public interest in meeting the convenience and
needs of the communities served outweighs the anti-competitive effects of the proposed
transaction. |
The Federal Reserve is also required to consider: (a) the financial condition and future
prospects of NAFH, NAFH Bank, Green Bankshares, and GreenBank, (b) the managerial condition of the
NAFH, NAFH Bank, Green Bankshares and GreenBank, (c) the convenience and needs of the communities
to be served, including the record of performance under the Community Reinvestment Act of 1977, and
(d) the effectiveness of NAFH, NAFH Bank, Green Bankshares and GreenBank in combating money
laundering.
The statutory criteria for an interstate acquisition also must be satisfied to receive Federal
Reserve approval. Such standards include that (i) NAFH is at least well capitalized and well
managed under criteria determined by the Federal Reserve, unless the transaction is approved before
July 21, 2011, in which case the statutory standard is that NAFH must be at least adequately
capitalized and adequately managed, (ii) GreenBank has been in existence for the minimum amount of
time required under state law or five years, whichever period is less, (iii) NAFH will not control
deposits that exceed 10% of all deposits controlled by insured depository institutions in the
United States or 30% of deposits controlled by insured depository institutions in North Carolina
and (iv) certain other requirements. The parties expect to satisfy these standards.
Applicable regulations require publication of notice of a Section 3 application and an
opportunity for the public to comment on the application in writing and to request a hearing. Any
acquisition of the securities of the Company approved by the Federal Reserve may not be completed
until 30 calendar days after such approval, during which time the U.S. Department of Justice may
challenge such acquisition on anti-trust grounds and seek divestiture of certain assets and
liabilities. With the approval of the Federal Reserve and the U.S. Department of Justice, the
waiting period may be reduced to 15 days.
Application. NAFH
is preparing, and expects to file soon, the necessary Section 3
application requesting approval of the Federal Reserve. The application will describe the terms of
the transaction whereby NAFH would acquire the Companys securities, the parties involved, and the
plan to engage in the Bank Merger immediately after the consummation of that transaction.
Recommendation of the Companys Board of Directors
In reaching its decision to adopt and approve the Investment Agreement and the transactions
contemplated thereby, including the Bank Merger, and to recommend that the Companys shareholders
approve the proposals included in this Proxy Statement, the Companys Board of Directors considered
a number of factors, including, without limitation, the following potentially positive factors in
support of the recapitalization transaction with NAFH:
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its belief that the recapitalization transaction with NAFH was more favorable to
the Companys shareholders than any other alternative reasonably available to the
Company. The Board of Directors considered possible alternatives to the
recapitalization transaction with NAFH, including continuing to operate the Company
on a stand-alone basis, entering into the merger transaction with
NAFH, or pursuing a
recapitalization transaction with PE Firm A, and the risks and uncertain returns
associated with each of these alternatives, each of which the Board of Directors
determined not to pursue when compared to the recapitalization transaction, which the
Companys Board of Directors believed offered the possibility of the highest value to
the Companys shareholders because of the Board of Directors belief that (1) based
on the trading prices of certain comparable recapitalization transactions, the
Companys stock price would trade higher than the value of the merger consideration
being offered by NAFH and (2) unlike in the NAFH merger transaction in
which the Companys shareholders would receive primarily cash in exchange for their
shares of Company Common Stock, the Companys shareholders would remain shareholders
of the Company and as a result they would have the opportunity to participate in the
Companys future earnings or growth, which the Companys Board of Directors believed
would be improved over a stand-alone basis on account of the significant capital
investment by NAFH; |
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the Board of Directors belief that if the Companys stock price traded higher
than the per share price offered in the merger transaction the
Companys shareholders
could immediately sell their shares of Common Stock at a price higher than the price
they would receive in the merger transaction without having to wait for the
transaction to close before doing so; |
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the results of the extensive review of strategic alternatives conducted by the Company, with
the assistance of its financial and legal advisors over a period of nine months,
which involved the Companys management engaging in discussions
with approximately twenty parties to determine their
potential interest in a business combination or recapitalization transaction with the
Company; |
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the conclusion of the Companys Board of Directors that the termination fees,
expense reimbursements and payments potentially owning to NAFH under the Investment
Agreement and the Option (and the circumstances when each such fee or
payment is payable) were reasonable in light of the potential benefits to the Company
and its shareholders of the recapitalization transaction with NAFH and the extensive
sale process conducted by the Company; |
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the significant amount of cash on hand at NAFH, and the absence of a financing
condition to NAFHs obligation to consummate the Investment, together with NAFHs
obligation under the Investment Agreement to pay the Company a reverse termination
fee in an amount equal to $8,000,000 if the Investment Agreement is terminated
because NAFH breaches a covenant of the Investment Agreement (and fails to cure such
breach in the time allowed in the Investment Agreement) that causes the failure of a
closing condition to be satisfied; and |
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the conclusion by the Companys Board of Directors that consummation of the
recapitalization transaction with NAFH, including the Bank Merger, would aid the
Company and GreenBank in dealing with the formal regulatory enforcement action being
pursued by the FDIC and the TDFI, which the Board of Directors believed would
negatively impact the Companys and GreenBanks operations on a stand-alone basis. |
The Board of Directors also considered and balanced against the potentially positive factors
the following potentially negative factors concerning the recapitalization transaction with NAFH:
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the amount of dilution that the Companys existing shareholders would incur as a
result of consummation of the transactions contemplated by the Investment Agreement; |
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the fact that the per share purchase price being paid by NAFH was less than the
trading price for the Companys Common Stock and the book value per share of Common
Stock; |
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the risk that the NAFH recapitalization transaction might not be completed,
including the risk that the banking regulators or the Companys shareholders might
not approve the transaction; |
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the actual and potential interests of the Companys executive officers and
directors in the recapitalization transaction that may be different than or in
addition to those of the Companys shareholders generally (see Interests of the
Companys Directors and Executive Officers in the Proposal); |
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the restrictions in the Investment Agreement on the Companys ability to solicit
or engage in discussions or negotiations with a third party regarding other proposals
and the restrictions on the ability of the Companys Board of Directors to withdraw
its recommendation that the Companys shareholders vote in favor of the proposals
included in this Proxy Statement; |
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the requirements in the Investment Agreement and the Option that the Company pay
NAFH termination fees and expense reimbursement payments of up to $16,750,000 in
certain circumstances (see Overview Termination Fees Payable by the Company );
and |
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the possibility of employee and customer disruption associated with the
recapitalization transaction. |
After taking into account all of the factors set forth above, as well as others, the Board of
Directors determined that the potentially positive factors outweighed the potentially negative
factors and that the Investment Agreement and the transactions contemplated thereby, including the
Bank Merger, are advisable and in the best interests of the Company and its shareholders. For the
additional factors considered by the Companys Board of Directors in determining whether to
recommend that the Companys shareholders approve the Bank Merger, see PROPOSAL 6 APPROVAL OF
THE MERGER OF GREENBANK WITH AND INTO A SUBSIDIARY OF NORTH AMERICAN FINANCIAL HOLDINGS, INC.
Reasons for the Bank Merger.
This discussion of the information and factors considered by the Companys Board of Directors
is not intended to be exhaustive, but is believed to address the material information and factors
considered by the Companys Board of Directors. In view of the number and variety of these factors,
the Companys Board of Directors did not find it practicable to make specific assessments of, or
otherwise assign relative weights to, the specific factors and analyses considered in reaching its
determination. The determination to adopt and approve the Investment Agreement and the transactions
contemplated thereby, including the Bank Merger, was made after consideration of all of the factors
and analyses as a whole. In deciding to adopt and approve the Investment Agreement and the
transactions contemplated thereby, including the Bank Merger, individual members of the Companys
Board of Directors may have given different weights to the different factors considered by the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
ISSUANCE OF SHARES OF COMMON STOCK TO NAFH UNDER THE INVESTMENT AGREEMENT.
PROPOSAL 2 AMENDMENT TO THE COMPANYS CHARTER TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 2 as well as approval of Proposals No.
1, 3, 5 and 6 and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to
approve NAFHs investment in the Company should vote to approve this Proposal No. 2 as well as
Proposals No. 1, 3, 4, 5 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval,
a proposed amendment to the Companys Charter, providing for an increase in the authorized number
of shares of Common Stock from twenty million (20,000,000) to three hundred million (300,000,000).
In order for this amendment to the Companys Charter to be approved, the number of shares voted in
favor of the amendment must exceed the number of shares voted against the amendment.
15
If this proposal is approved by the Companys shareholders at the Special Meeting, the
amendment to the Charter will become effective upon the filing of Articles of Amendment with the
Secretary of State of Tennessee, which filing is expected to take place shortly after the Special
Meeting. The Board of Directors believes that it is in the best interests of the Company and all of
its shareholders to amend the Charter to increase the authorized number of shares of Common Stock
from twenty million (20,000,000) to three hundred million (300,000,000).
Except as set forth below and elsewhere in this Proxy Statement, the relative rights of the
holders of Common Stock under the Charter would remain unchanged. The text of this proposed
amendment to Companys Charter is set forth in Appendix B to this proxy statement.
Reasons for this Proposal
The reasons for the increase in the authorized shares of Common Stock are (i) to facilitate
the Companys ability to issue shares to NAFH in connection with the Investment Agreement and (ii)
for other corporate purposes. As part of the Companys efforts to increase the resources of
GreenBank, the Company has executed the Investment Agreement, pursuant to which 119,900,000 shares
of the Companys Common Stock will be issued to NAFH at a purchase price of $1.81 per share. The
proposed amendment would increase the number of authorized shares of Common Stock by two hundred
eighty million (280,000,000) shares. Other than with respect to the Initial Investment and the
Top-Up Investment, the Board of Directors has no present agreement, arrangement or commitment to
issue any of the remaining shares for which approval is sought.
The Board of Directors has determined that this proposal to increase the number of authorized
shares of Common Stock is desirable and in the best interest of shareholders because it would
provide the Company with the ability to support its present capital needs and future anticipated
growth. Additionally, an increase in the amount of authorized shares is necessary to ensure that
the Company has an adequate amount of authorized and unissued shares to complete the issuance of
shares of Common Stock to NAFH in connection with the Investment.
Effect of this Proposal
Adoption of this proposal would not affect the rights of current holders of outstanding Common
Stock. If additional authorized shares of Common Stock, or securities that are convertible into or
exchangeable or exercisable for shares of Common Stock, are issued, our existing shareholders
could, depending upon the price realized, experience dilution of book value per share, earnings per
share and percentage ownership. When, and if, additional shares of our Common Stock are issued,
including under the Investment Agreement, these new shares would have the same voting and other
rights and privileges as the currently issued and outstanding shares of Common Stock, including the
right to cast one vote per share and to participate in dividends when and to the extent declared
and paid.
The following table illustrates the effect the proposed amendment would have on the number of
shares of Common Stock available for issuance, if approved by the shareholders:
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Upon Effectiveness of |
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As of June 30, 2011 |
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Amendment |
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Shares of Common Stock Authorized |
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20,000,000 |
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300,000,000 |
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Shares of Common Stock Outstanding |
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13,239,090 |
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13,239,090 |
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Shares of Common Stock Reserved for Issuance* |
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1,050,937 |
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1,050,937 |
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Shares of Common Stock Available for Future Issuance |
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5,709,973 |
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285,709,973 |
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Shares of Common Stock to be Issued in Connection
with Investment Agreement |
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119,900,000 |
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119,900,000 |
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* |
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The number of shares of Common Stock reserved for issuance includes 979,874 shares of Common
Stock subject to outstanding options at June 30, 2011 and 72,278 shares of Common Stock subject to
the Treasury Warrant. |
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This proposed amendment is required to effect the Investment and is not intended as an
anti-takeover provision. However, an increase in the authorized number of shares of Common Stock
could make it more difficult, and thereby discourage, attempts to acquire control of the Company in
the future.
No Preemptive Rights
The holders of Common Stock have no preemptive rights to any future issuances of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO AUTHORIZE ADDITIONAL SHARES OF COMMON STOCK.
PROPOSAL 3 AMENDMENT TO THE COMPANYS CHARTER TO DECREASE THE PAR VALUE
OF COMMON STOCK
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 3 as well as Proposals No. 1, 2, 5 and 6
and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to approve NAFHs
investment in the Company should vote to approve this Proposal No. 3 as well as Proposals No. 1, 2,
4, 5 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval a
proposed amendment to the Companys Charter, providing for a reduction to the par value of Common
Stock from $2.00 per share to $0.01 per share. In order for the amendment to the Companys Charter
to be approved, the number of shares voted in favor of the amendment must exceed the number of
shares voted against the amendment.
If the proposal is approved by the Companys shareholders at the Special Meeting, the
amendment to the Charter and the reduction in par value will become effective upon the filing of
Articles of Amendment with the Secretary of State of Tennessee, which filing is expected to take
place shortly after the Special Meeting. The Board believes it is in the best interest of the
Company and all of its shareholders to amend the Charter to decrease the par value.
Historically, the concept of par value served to protect creditors and senior security holders
by ensuring that a company received at least the par value as consideration for issuance of stock.
Over time, the concept of par value has lost much of its significance. Many companies that
incorporate today use a nominal par value or have no par value. The reduction in the par value of
Companys Common Stock will have no effect on the rights of holders of Company Common Stock except
for the minimum amount per share the Company may receive upon the issuance of authorized but
unissued shares. The reduction in par value, on its own, will not change the number of authorized
shares of Company Common Stock or the value of Common Stock currently issued and outstanding.
Furthermore, under Tennessee law, the setting of a par value for shares does not create a
requirement for a minimum consideration for the issuance of such shares or impose any other
restriction on their issuance. The Board of Directors considers the proposed amendment to be in
the best interests of the Company and its shareholders because it is a condition to the completion
of the Investment and because the it will eliminate any possible confusion over whether the
Investment is permissible since the per share purchase price ($1.81) under the terms of the
Investment Agreement is below the current stated par value per share of Company Common Stock
($2.00). Shareholder approval of this proposed amendment alone will not assure that the Company
will be able to consummate the transaction with NAFH; however, the approval of this amendment is
necessary under the Investment Agreement in order to proceed with the NAFH transaction.
The text of this proposed amendment to the Companys Charter is set forth in Appendix
B to this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO REDUCE THE PAR VALUE OF SHARES OF COMMON STOCK.
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PROPOSAL 4 AMENDMENT TO THE COMPANYS CHARTER TO EXEMPT NORTH AMERICAN
FINANCIAL HOLDINGS, INC. AND ITS AFFILIATES AND ASSOCIATES FROM THE PROVISIONS
OF SECTION 9
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is, in
certain circumstances, conditioned upon shareholder approval of this Proposal No. 4 as well as in
all circumstances approval of Proposals No. 1, 2, 3, 5 and 6. Shareholders who wish to approve
NAFHs investment in the Company should vote to approve this Proposal No. 4 as well as Proposals
No. 1, 2, 3, 5 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval,
a proposed amendment to the Companys Charter, expressly exempting NAFH and its affiliates and
associates from the business combination provisions found in Section 9 of the Charter. In order
for the amendment to the Companys Charter to be approved, the proposal must be approved by the
affirmative vote of at least 80% of the outstanding shares of voting stock entitled to vote on the
matter.
If this proposal is approved by the Companys shareholders at the Special Meeting, the
amendment to the Charter will become effective upon the filing of Articles of Amendment with the
Secretary of State of Tennessee, which filing is expected to take place shortly after the Special
Meeting. The Board of Directors believes that it is in the best interests of the Company and its
shareholders to amend the Charter to expressly exempt NAFH and its affiliates and associates from
the provisions of Section 9 of the Charter. Shareholder approval of this proposed amendment alone
will not ensure that the Company will be able to consummate the transaction with NAFH.
The text of this proposed amendment to Companys Charter is set forth in Appendix C to
this Proxy Statement.
Reasons for this Proposal
Section 9 of the Charter currently provides that a business combination (such as a merger,
consolidation, sale of over $1 million of the Companys stock or assets or similar transactions)
with an interested shareholder (defined as a person owning, either directly or indirectly, 10% or
more of the voting stock of the Company) must be approved by (i) the affirmative vote of at least
80% of the outstanding shares of voting stock and (ii) the affirmative vote of a majority of the
outstanding shares of voting stock not including the voting stock beneficially owned by an
interested shareholder. This increased vote, however, is not required if the business combination
is approved by a majority of the disinterested directors or if the business combination meets
certain conditions specified in the Charter. The Charter also provides that this provision may not
be amended or repealed unless approved by both the affirmative vote of at least 80% of the
outstanding shares of voting stock and the affirmative vote of a majority of the outstanding shares
of voting stock not including shares beneficially owned by the interested shareholder.
The Board of Directors has determined that this proposal to expressly exempt NAFH and its
affiliates and associates from the business combination requirements found in Section 9 of the
Charter is desirable and in the best interest of the Companys shareholders because it may
facilitate the consummation of the transactions contemplated by the Investment Agreement. As
described in the Investment Agreement, following the Closing, NAFH intends to merge GreenBank with
and into a subsidiary of NAFH (the Bank Merger). In addition, following the Closing and as
described in the Investment Agreement, NAFH intends to consummate the Holding Company Merger. A majority of disinterested directors on the Board of Directors has already
approved the Companys entering into the Investment Agreement, pursuant to which 119,900,000 shares
of Common Stock will be issued to NAFH at a purchase price of $1.81 per share as well as the Bank
Merger and the Holding Company Merger on the terms described in the Investment Agreement. The
proposed amendment to expressly exempt NAFH and its affiliates and associates from the provisions
of Section 9 of the Charter is being sought to facilitate the Bank Merger and the Holding Company
Merger and avoid the potential delay and expense of NAFH possibly having to comply with the
supermajority voting requirements of Section 9 of the Charter in connection with the Bank Merger
and the Holding Company Merger or future transactions with NAFH, which following the Closing will
own approximately 90.1% of the Companys Common Stock. For more information on
the Holding Company Merger, including NAFHs ability to consummate the Holding Company
Merger without the need for the affirmative vote of any of the Companys other shareholders
approving the Holding Company Merger see Proposal 1 - Approval of the Issuance of Shares of Common
Stock Under the Investment Agreement - Effect of this Proposal.
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO EXPRESSLY EXEMPT NORTH AMERICAN FINANCIAL HOLDINGS, INC. AND ITS
AFFILIATES AND ASSOCIATES FROM SECTION 9 OF THE CHARTER.
PROPOSAL 5 AMENDMENT TO THE COMPANYS CHARTER TO REMOVE SECTION 8(J) SO
THAT THE TENNESSEE CONTROL SHARE ACQUISITION ACT WILL NOT APPLY TO THE
COMPANY AND ITS SHAREHOLDERS
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 5 as well as approval of Proposals No.
1, 2, 3 and 6 and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to
approve NAFHs investment in the Company should vote to approve this Proposal No. 5 as well as
Proposals No. 1, 2, 3, 4 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval,
a proposed amendment to the Companys Charter to remove a provision in the Companys Charter
whereby the Company elected to have the Tennessee Control Share Acquisition Act, Section
48-103-301, et seq. of the Tennessee Business Corporation Act, apply to the Company. In order for
this amendment to the Companys Charter to be approved, the number of shares voted in favor of the
amendment must exceed the number of shares voted against the amendment.
If the proposal is approved by the Companys shareholders at the Special Meeting, this
amendment to the Charter will become effective upon the filing of Articles of Amendment with the
Secretary of State of Tennessee, which filing is expected to take place shortly after the Special
Meeting. The Board of Directors believes it is in the best interest of the Company and all of its
shareholders to amend the Charter to remove the provision by which the Company has elected to be
governed by the Tennessee Control Share Acquisition Act.
The Tennessee Control Share Acquisition Act generally takes away certain voting rights of a
purchaser any time the purchaser acquires shares of certain Tennessee corporations equal to 20%,
33-1/3%, or more than 50% of all voting power in such corporation. The purchasers voting rights
can be maintained or re-established only by a majority vote of all the shares entitled to vote
generally with respect to the election of directors other than those shares owned by the purchaser
and the officers and inside directors of the corporation.
The Companys Board of Directors considers the proposed amendment to be in the best interests
of the Company and its shareholders because it will allow for the issuance and sale of shares of
Common Stock to NAFH pursuant to the terms of the Investment Agreement. The Investment will result
in NAFH owning approximately 90.1% of the Companys outstanding Common Stock. An amendment to the
Companys Charter to eliminate the applicability of the Tennessee Control Share Acquisition Act is
necessary in order for NAFH to maintain voting rights with respect to the shares being purchased.
Shareholder approval of this amendment alone will not ensure that the Company will be able to
consummate the transaction with NAFH; however, the approval of this amendment is necessary in order
to proceed with the NAFH transaction.
The text of this proposed amendment to the Companys Charter is set forth in Appendix
D to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO REMOVE SECTION 8(J) FROM THE CHARTER SO THAT THE TENNESSEE CONTROL SHARE
ACQUISITION ACT WILL NOT APPLY TO THE COMPANY AND ITS SHAREHOLDERS.
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PROPOSAL 6 APPROVAL OF THE MERGER OF GREENBANK WITH AND INTO A SUBSIDIARY
OF NORTH AMERICAN FINANCIAL HOLDINGS, INC.
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 6 as well as Proposals No. 1, 2, 3 and 5
and, in certain circumstances, Proposal No. 4. Shareholders who wish to approve NAFHs investment
in the Company should vote to approve this Proposal No. 6 as well as Proposals No. 1, 2, 3, 4 and
5.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder
approval, the merger of GreenBank with and into a subsidiary of NAFH, or the Bank Merger. In order
for the Bank Merger to be approved, this proposal must receive the affirmative vote of a majority
of shares of Common Stock outstanding as of the Record Date and entitled to vote thereon.
If the proposal is approved by the Companys shareholders at the Special Meeting, the Bank
Merger will become effective upon the filing of Articles of Merger with the Secretary of State of
Tennessee and the Office of the Comptroller of the Currency, which filing is expected to take place
shortly after the Closing. The Board of Directors believes it is in the best interest of the
Company and all of its shareholders to approve the Bank Merger.
Terms of the Bank Merger
Pursuant to the terms of the Investment Agreement, the Board of Directors of the
Company is requesting that the Companys shareholders approve the merger of GreenBank with and into
NAFH Bank, a national banking association organized under the laws of the United States
and subsidiary of NAFH pursuant to an Agreement and Plan of Merger (the Merger
Agreement), that was previously approved by the Board of Directors of the Company, GreenBank, NAFH
and NAFH Bank. Pursuant to the Merger Agreement and at the effective time of the Bank Merger, each
share of common stock of GreenBank currently held by the Company will be exchanged for a number of
shares common stock of NAFH Bank equal to the ratio of the tangible book value of GreenBank to the
tangible book value of NAFH Bank, in each case as of the end of the then most recently completed
fiscal quarter and all issued and outstanding shares of GreenBank will be cancelled. At the
effective time of the Bank Merger, NAFH Bank will assume all liabilities of GreenBank and the
separate corporate existence of GreenBank will cease. The Companys shareholders will not receive
any consideration in connection with the Bank Merger and all rights of the Companys shareholders
will remain the same with respect to shares of the Companys common stock owned by the
shareholders. If the Bank Merger is approved and thereafter consummated the Company will own
approximately 36% of the resulting bank, rather than 100% of GreenBank. A copy of the Merger
Agreement is attached to this Proxy Statement as Appendix E.
In connection with the Bank Merger, no shareholder of the Company will have dissenters rights
or any other appraisal rights with respect to the shares of Common Stock owned by them.
Business of GreenBank
GreenBank is a Tennessee-chartered commercial bank established in 1890 which has its principal
executive offices located at 111 North Main Street, Greeneville, Tennessee 37743 and its telephone
number is (423) 639-5111. As of March 31, 2011, GreenBank had assets of approximately $2.39
billion, $1.61 billion in loans and $1.98 billion in deposits. The principal business of GreenBank
consists of attracting deposits from the general public and investing those funds, together with
funds generated from operations and from principal and interest payments on loans, primarily in
commercial and residential real estate loans, commercial loans and installment consumer loans. At
March 31, 2011, GreenBank had 63 Tennessee-based full-service banking offices located in Greene,
Blount, Cocke, Hamblen, Hawkins, Knox, Loudon, McMinn, Monroe, Sullivan, and Washington Counties in
East Tennessee and in Davidson, Lawrence, Macon, Montgomery, Rutherford, Smith, Sumner and
Williamson Counties in Middle Tennessee. GreenBank also operates two other full service
branchesone located in nearby Madison County, North Carolina and the other in nearby Bristol,
Virginia. Further, GreenBank operates a mortgage banking operation in Knox County, Tennessee.
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Deposits of GreenBank are insured by the Deposit Insurance Fund (DIF) of the FDIC. GreenBank
is subject to comprehensive regulation, examination and supervision by the TDFI, the FRB and the
FDIC.
For additional information relating to GreenBank and the Company, including the financial
condition and results of the Companys operations, please see Appendix F.
Business of NAFH
NAFH is a bank holding company incorporated in late 2009 with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and
acquisitions of other banks, including failed, underperforming and undercapitalized banks. NAFH
was founded by a group of experienced bankers with a record of leading, operating, acquiring and
integrating financial institutions. In December 2009 and January 2010, NAFH raised approximately
$900 million to make acquisitions through a series of private placements of its common stock.
On June 24, 2011, NAFH filed a registration statement with the SEC related to its proposed initial
public offering of up to $300 million of its Class A common stock.
Since its founding, NAFH has acquired five depository institutions, including the assets and certain deposits of three failed
banks from the FDIC, and operates branches located in North Carolina, South Carolina and Florida.
In 2010 and 2011, NAFH deployed some of the proceeds from its private offerings in the following
transactions:
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On July 16, 2010, NAFH commenced banking operations when it purchased approximately $1.2 billion of assets and assumed approximately $960 million of deposits
of three failed banks from the FDIC: First National Bank of the
South of Spartanburg, South Carolina, Metro Bank of Dade County of Miami, Florida and
Turnberry Bank of Aventura, Florida (collectively, the Failed Banks). The transactions
included 13 branches located in South Carolina and 10 branches located in Florida. NAFH
purchased assets of approximately $1.4 billion and assumed deposits of approximately $1.2
billion from the Failed Banks. In connection with the acquisition, NAFH entered into loss-sharing arrangements with the FDIC covering approximately $796 million of loans and real
estate owned of the Failed Banks that NAFH acquired. |
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On September 30, 2010, NAFH invested approximately $175 million in TIB Financial, a bank
holding company headquartered in Naples, Florida with approximately $1.7 billion in assets
and 28 branches in southwest Florida at the acquisition date, and acquired approximately 94% of that companys
common stock after giving effect to a subsequent rights offering to legacy TIB Financial
Corp. shareholders. On April 27, 2011, NAFH combined TIB Financial Corp.s banking
subsidiary, TIB Bank, with NAFH Bank in an all stock transaction. |
|
|
|
|
|
On January 28, 2011, NAFH invested approximately $181 million in Capital Bank
Corporation, a bank holding company headquartered in Raleigh, North Carolina with
approximately $1.7 billion in assets and 32 branches in central and western North Carolina at the acquisition date,
and acquired approximately 83% of that companys common stock after giving effect to a
subsequent rights offering to legacy Capital Bank Corporation shareholders. |
NAFHs primary business is to offer a wide range of commercial and consumer loans and
deposits, as well as ancillary financial services. NAFHs strategy is to build a mid-size regional
bank by operating, integrating and growing its existing operations as well as to acquire other
banks, including failed, underperforming and undercapitalized banks. NAFH seeks to create a
mid-sized regional bank that will be able to realize greater economies of scale compared to
smaller community banks while still providing more personalized, local service than
large-sized banks.
NAFH currently leases office space in Miami, Florida for its principal executive offices. As
of March 31, 2011, NAFH operated 37 branches in Florida, 32 in North Carolina and 13 in South
Carolina.
21
Litigation
Matters
From
time to time NAFH is a party to various litigation matters
incidental to the conduct of its business. NAFH is not presently
party to any such legal proceeding the resolution of which we believe
would have a material adverse effect on its business, operating
results, financial condition or cash flow.
On May 12, 2011, a shareholder of the
Company filed a putative class action lawsuit
(styled Betty Smith v. Green Bankshares, Inc. et al., Case No. 11-625-III,
Davidson County, Tennessee, Chancery Court) against the Company, the Bank,
the Companys Board of Directors (Steven M. Rownd, Robert K. Leonard, Martha M. Bachman,
Bruce Campbell, W.T. Daniels, Samuel E. Lynch, Bill Mooningham, John Tolsma, Kenneth R. Vaught,
and Charles E. Whitfield, Jr.) and NAFH on behalf of all persons holding common stock of the Company.
This complaint, which has been subsequently amended, was filed following the Companys public announcement
on May 5, 2011 of its entering into the Investment Agreement with NAFH and relates to the proposed
investment in the Company by NAFH. The amended complaint alleges that the individual defendants
breached their fiduciary duties by accepting a sale price for the shares to be sold to NAFH that
was unfair to the Companys shareholders and by issuing a proxy statement that contained material
omissions. The complaint also alleges that the Company, the Bank and NAFH aided and abetted these
breaches of fiduciary duty. It seeks injunctive relief and/or rescission of the proposed investment
by NAFH and fees and expenses in an unspecified amount.
On May 25, 2011, another shareholder of the Company filed a similar putative class action
lawsuit (styled Mark McClinton v. Green Bankshares, Inc. et al., Case No. 11-CV-284ktl,
Greene County Circuit Court, Greeneville, Tennessee) against the Company, the Companys Board of
Directors and NAFH on behalf of all persons holding the Companys common stock. The complaint
similarly alleges that the individual defendants breached their fiduciary duties to the Company by
agreeing to sell shares to NAFH at a price unfair to the Companys shareholders. The complaint
also alleges that the Company and NAFH aided and abetted these breaches of fiduciary duty. It
seeks and injunction and/or rescission of NAFHs investment in the Company and fees and expenses in
an unspecified amount.
On June 16, 2011, another shareholder of the Company filed a putative class action lawsuit
(styled Thomas W. Cook Jr. v. Green Bankshares, Inc. et al., Civil Action No.
2:11-cv-00176, United States District Court for the Eastern District of Tennessee, Greeneville)
against the Company, the Companys Board of Directors and NAFH on behalf of all persons holding the
Companys common stock. The complaint alleges that the individual defendants breached their
fiduciary duties to the Company by failing to maximize shareholder value in the proposed
transaction with NAFH. The complaint also alleges that the Company and the individual defendants
violated the securities laws by issuing a Preliminary Proxy Statement that contains alleged
material misstatements and omissions. The complaint also alleges that the Company and NAFH aided
and abetted the breaches of fiduciary duty. It seeks an injunction and/or rescission of NAFHs
investment in the Company, monetary damages and fees and expenses in an unspecified amount.
On
July 6, 2011, another shareholder of the Company filed a lawsuit
(styled Barbara N. Ballard v. Stephen M. Rownd, et al., Civil Action No. 2:11-cv-00201, United States District Court for the Eastern District of Tennessee, Greeneville) against the Company, the Companys Board of Directors and
NAFH asserting an individual claim that alleges that the individual
defendants violated the securities laws by issuing a Preliminary Proxy
Statement that contains alleged material misstatements and omissions.
The complaint also alleges a class action claim on behalf of all persons
holding the Companys common stock against the individual defendants for
breach of fiduciary duty based on these same alleged material misstatements
and omissions. The complaint also alleges that the Company and NAFH aided
and abetted the breaches of fiduciary duty. It seeks an injunction and/or
rescission of NAFHs investment in the Company and fees and expenses in an unspecified amount.
On July 26, 2011, the parties to the above-referenced class action lawsuits reached an
agreement in principle to resolve these lawsuits on the basis of the inclusion of certain
additional disclosures regarding the NAFH transaction in this Proxy Statement. The proposed
settlement is subject to, among other things, court approval.
NAFH intends to defend these matters vigorously and cannot predict their outcome.
Reasons for the Bank Merger
A condition to the Closing is the approval by the shareholders of the Company of the
Bank Merger. The Company is seeking your approval of the Bank Merger because the Companys results
of operations and financial condition are principally made up of GreenBanks results of operations
and financial condition. The Board of Directors of the Company believes that the Investment and
the Bank Merger are in the best interests of the Companys shareholders and in connection with the
Investment recommends that the Companys shareholders approve the Bank Merger. Each of the Board
of Directors of the Company, GreenBank, NAFH and NAFH Bank believes that the Bank Merger is in the
best interest of their respective entities and shareholders. In arriving at their determination,
each of the respective boards considered a number of factors, including the following:
|
|
|
The Bank Merger is expected to create significant operating efficiencies by
consolidating the loan operations, deposit operations, ALCO and risk management,
budgeting, marketing, financial reporting and compliance functions of the two banks; |
|
|
|
|
The Bank Merger will result in a bank with increased size and scale; |
|
|
|
|
The Bank Merger will expand NAFH Banks and GreenBanks overall geographic
coverage; |
|
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|
The Bank Merger is expected to be a tax free transaction; and |
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|
|
The Bank Merger is expected to mitigate the regulatory burden of operating two
stand alone banks regulated by two different federal regulators. |
In addition to the above factors, the Board of Directors of the Company, in determining
whether to recommend approval of the Bank Merger to the Companys shareholders, also considered
publicly available historical financial information related to NAFHs five completed
acquisitions and the March 31, 2011 financial condition and capital position of NAFH Bank and
NAFHs Capital Bank subsidiary. The Companys Board of Directors also considered, when considering
whether to recommend approval of the Bank Merger to the Companys shareholders, the Companys and
GreenBanks tangible book value and the Companys shareholders tangible common equity ownership in
the Company as of March 31, 2011 and on an estimated pro forma basis after giving effect to NAFHs
investment in the Company, both before and after giving effect to the Bank Merger, and in each case
after giving effect to the estimated purchase accounting adjustments to be made in connection with
the transaction, including as a result of the marking to market of GreenBanks loan portfolio. The
Companys Board of Directors, when considering whether to recommend approval of the Bank Merger to
the Companys shareholders, also considered the fact that the exchange ratio to be utilized in
calculating the number of NAFH Bank common shares to be issued to the Company in connection with
the Bank Merger would be calculated on the basis of GreenBanks and NAFH Banks tangible book value
per share, after giving effect to any purchase accounting adjustments to be made in connection with
the transaction, including as a result of the marking to market of GreenBanks loan portfolio.
The Company did not receive a fairness opinion from its financial advisor regarding whether
the consideration offered by NAFH in the Bank Merger was fair, from a financial point of view, to
GreenBanks shareholder or the Companys shareholders.
The Companys Board of Directors believed that the critical
aspect of the transaction was to raise capital. Given the Companys
regulatory posture and diminished capital resources, and after having canvassed
the market for merger partners and significant investors, the Companys Board determined
that the NAFH recapitalization presented the best course of action for the Company and
its shareholders. The Companys Board of Directors understood that a capital raising
transaction such as the Investment by NAFH, which does not involve a sale of control by
existing shareholders to a third party, is not the type of transaction that would typically
lend itself to a fairness analysis on the part of a financial advisor. As to the Bank Merger,
which is an ancillary component to the principal recapitalization transaction, the Companys
Board of Directors believed that it had sufficient information
regarding GreenBanks historical
results and prospects and the historical results and prospective business plans of NAFH
Bank, as well as sufficient understanding of the transaction structure, to reach an informed decision,
without requiring a fairness opinion from its financial advisor, and that merging the two banks together
on the basis of the pro forma tangible book value of each bank was advisable.
The foregoing discussion of the information and factors considered by each of the respective
board of directors is not exhaustive, but includes the material factors considered by such board of
directors. In view of the wide variety of factors considered by each board of directors in
connection with its evaluation of the Bank Merger and the complexity of such matters, each board of
directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise
assign relative weights to the specific factors that it considered in reaching its decision.
Background of the Bank Merger
The Bank Merger is an ancillary step in the Investment and the other transactions
with NAFH. For a background of the Investment and the Companys reasons for seeking to consummate
the Investment, please see Proposal 1 Approval of the Issuance of Shares of Common Stock Under
the Investment Agreement Reasons for this Proposal.
22
Unaudited
Historical and Pro Forma Comparative Per Share Data
The following table
shows comparative per share data about the Companys and NAFHs
historical and pro forma net income, cash dividends and book value. The comparative per share data
below provides the Companys shareholders with information about the value of their shares of
Common Stock prior to the Bank Merger as opposed to the value of their shares of Common Stock after
the Bank Merger and once the two companies are combined.
You should not rely on the pro forma information as necessarily indicative of historical
results the Company would have experienced had GreenBank been combined with NAFH Bank or of future
results the Company will have after the Bank Merger. In addition, you should not rely on the
three-month information as indicative of results for the entire year.
This information should be read in conjunction with the historical consolidated financial
statements (and the related notes to these statements) of the Company and NAFH, which are
attached hereto as Appendix F and G, respectively.
The
pro forma data in the table below assumes that the Initial Investment is accounted for using
the acquisition method of accounting and represents a current estimate based on available information
of the combined companys results of operations. The significant pro forma assumptions include
estimates regarding fair value adjustments to the balance sheet as
well as the amortization/accretion impact of those adjustments on
results of operations.
The pro forma information, while helpful in illustrating the financial characteristics of
the combined company under one set of assumptions, does not reflect the impact of possible cost
savings, revenue enhancements, expense efficiencies, asset dispositions and share repurchases,
among other factors that may result as a consequence of the merger and, accordingly, does not
attempt to predict or suggest future results. It also does not necessarily reflect what the
historical results of the combined company would have been had the companies been combined during
these periods. Upon completion of the Bank Merger, a portion of the operating results of the
resulting bank will be reflected in the consolidated financial statements of the Company
on a prospective basis.
Unaudited Historical and Pro Forma Per Share Data
|
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|
|
|
|
|
|
Company |
|
NAFH |
|
Company |
|
NAFH |
|
|
Per Share |
|
Per Share |
|
Per Share |
|
Per Share |
|
|
Data |
|
Data |
|
Data |
|
Data |
|
|
(As Reported) |
|
(As Reported) |
|
(Pro Forma) |
|
(Pro Forma) |
Three months ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic |
|
$ |
(0.88 |
) |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.11 |
|
Net income (loss) per share, diluted |
|
|
(0.88 |
) |
|
|
0.01 |
|
|
|
0.04 |
|
|
|
0.11 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common book value per share |
|
$ |
4.88 |
|
|
$ |
19.56 |
|
|
$ |
1.90 |
|
|
$ |
19.53 |
|
Year ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic |
|
|
(6.54 |
) |
|
|
0.32 |
|
|
|
0.13 |
|
|
|
0.72 |
|
Net income (loss) per share, diluted |
|
|
(6.54 |
) |
|
|
0.32 |
|
|
|
0.13 |
|
|
|
0.72 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common book value per share |
|
|
5.75 |
|
|
|
19.49 |
|
|
|
1.98 |
|
|
|
19.45 |
|
Regulatory Approval
Office of the Comptroller of the Currency. The merger of two banks in which the
surviving bank is a national bank requires the approval of the Office of the Comptroller of the
Currency. The Office of the Comptroller of the Currency will review the Bank Merger. The Office of
the Comptroller of the Currency generally will not approve any merger:
23
|
|
|
That would result in a monopoly or
that would further a combination or
conspiracy to monopolize banking in the
United States; or |
|
|
|
|
That could substantially lessen
competition in any banking market, that
would tend to create a monopoly in any
banking market, or that would be in
restraint of trade, unless the Office of
the Comptroller of the Currency finds that
the public interest in meeting the
convenience and needs of the communities
served outweighs the anti-competitive
effects of the proposed transaction. |
The Office of the Comptroller of the Currency is also required to consider the financial and
managerial resources and future prospects of GreenBank and NAFH Bank and the convenience and needs
of the communities to be served. Under the Community Reinvestment Act of 1977, the Office of the
Comptroller of the Currency also must take into account the record of performance of GreenBank and
NAFH Bank in meeting the credit needs of their communities, including low and moderate-income
neighborhoods. The Office of the Comptroller of the Currency also must consider the effectiveness
of GreenBank and NAFH Bank in combating money laundering.
The statutory criteria for an interstate combination also must be satisfied to receive Office
of the Comptroller of the Currency Approval. Such standards include that (i) NAFH Bank is at least
well capitalized and well managed under criteria determined by the Office of the Comptroller of the
Currency, unless the transaction is approved before July 21, 2011, in which case the statutory
standard is that NAFH must be at least adequately capitalized and adequately managed, (ii)
GreenBank has been in existence for the minimum amount of time required under state law or five
years, whichever is less, (iii) NAFH will not control deposits that exceed 10% of all deposits
controlled by insured depository institutions in the United States or 30% of deposits controlled by
insured depository institutions in North Carolina and (iv) certain other requirements. The parties
expect to satisfy these standards.
Applicable regulations require publication of notice of an application for approval of the
Bank Merger and an opportunity for the public to comment on the application in writing and to
request a hearing. Any merger approved by the Office of the Comptroller of the Currency generally
may not be completed until 30 days after such approval, during which time the U.S. Department of
Justice may challenge such transaction on antitrust grounds and seek divestiture of certain assets
and liabilities. With the approval of the Office of the Comptroller of the Currency and the U.S.
Department of Justice, the waiting period may be reduced to 15 days.
Application. GreenBank and NAFH Bank have filed the necessary application with the Office of
the Comptroller of the Currency, requesting approval of the Bank Merger. The application describes
the terms of the Bank Merger, the parties involved, and the activities to be conducted by the
combined companies as a result of the Bank Merger, and contain certain related financial and
managerial information. Copies of the application were provided to the U.S. Department of Justice
and other governmental agencies.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE BANK MERGER.
PROPOSAL 7 APPROVAL OF EXECUTIVE COMPENSATION
Rules recently adopted by the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act require the Company to submit to a vote of its shareholders, on a non-binding and
advisory basis, the compensation that may be payable to its named executive officers that is based
on or otherwise relates to the Investment. As discussed in more detail below, because of the
Companys participation in the CPP, the Company is currently unable to pay its named executive
officers any such payments. A condition to the Closing, however, is the Repurchase. The following
discussion sets forth the compensation that may be payable to our named executive officers, or
NEOs, that is based on or otherwise relates to the Investment and should be read in conjunction
with the table Golden Parachute Payments below.
Background
On October 14, 2008, the Treasury announced the creation of the CPP, pursuant to which the
Company issued to the Treasury the Series A Preferred Stock and Common Stock warrants of the
Company. As a result of the
24
Companys participation in the CPP, the Company became subject to certain executive
compensation requirements under EESA, Treasury regulations, and the contract pursuant to which the
Company sold such preferred stock. The compensation requirements were modified and strengthened in
February 2009 with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA) and
again in June 2009 when Treasury issued regulations implementing various provisions of EESA, as
modified by ARRA (the June 2009 IFR). As described more specifically below, these requirements
are applicable to our NEOs. Throughout this proxy statement, we refer to EESA to mean EESA as
amended by ARRA and as implemented by the June 2009 IFR.
In connection with the Companys sale of the Series A Preferred Stock our employees that were
our senior executive officers, or SEOs, as defined under EESA, executed letter agreements with the
Company in 2008 in which, among other things, each employee agreed that the Company is prohibited
from paying any golden parachute payment (as originally defined in Section 111(b)(2)(c) of the
EESA) to the individual during any period that the executive is a senior executive officer of the
Company and the Treasury holds any equity or debt securities of the Company issued in the CPP. As
mentioned above, the ARRA and the June 2009 IFR imposed additional restrictions and limits
concerning executive compensation of companies that participated in the CPP, including a provision
prohibiting any payment to any SEO or any of the Companys next five most highly compensated
employees, including the Companys named executive officers, for departure from a company for any
reason, except for payments for services performed or benefits accrued. Under EESA, a payment, or
a right to payment, generally will be treated as a payment for services performed or benefits
accrued only if the payment would be made regardless of whether the employee departs or the change
in control event occurs, or if payment is due upon departure of the employee, regardless of whether
the departure is voluntary or involuntary. EESA also provides exceptions for certain payments made
under benefits plans or deferred compensation plans. In December 2009, the Compensation Committee
of the Board of Directors requested, and subsequently received, additional letter agreements from
each of our SEOs acknowledging the additional limitations on the individuals compensation imposed
under EESA, as modified by the ARRA and the June 2009 IFR during the TARP Period.
In connection with the Closing, NAFH will purchase from the Treasury all of the issued and
outstanding shares of Series A Preferred Stock and Common Stock owned by the Treasury. As such,
the prohibitions on executive compensation under EESA set forth above will no longer apply.
Treatment of Outstanding Equity Awards
As described above in Proposal 1 Approval of the Issuance of Shares of Common
Stock Under the Investment Agreement Interest of the Companys Directors and Executive Officers
in the Proposal it is anticipated that any unvested stock options and unvested shares of
restricted stock owned by the NEOs will vest following the Repurchase.
Potential Payments with Respect to the Named Executive Officers
The following discussion sets forth the potential payments that could become due to
each individual NEO that is based on or otherwise relates to the Investment and taking into
consideration applicable restrictions under EESA as modified by ARRA and the June 2009 IFR, as well
as the closing condition set forth in the Investment Agreement that requires that Kenneth R. Vaught
and Steven L. Droke (as well as two other employees of the Company who are not named executive
officers) waive all compensation and benefits that would be payable following the Investment and
the Repurchase that is not payable due to restrictions under EESA, as modified by ARRA and the June
2009 IFR. Mr. Droke resigned effective June 17, 2011, which resignation eliminated the need to obtain the
waiver from Mr. Droke contemplated by the closing condition set forth in the Investment Agreement.
Steven L. Droke resigned on June 17, 2011, and James E. Adams and Stan R. Puckett retired on May 16, 2011 and March 31, 2010, respectively,
and as such are not included in the following discussion as none of the individuals is entitled to any payments
solely as a result of consummation of the Investment. In addition, neither Stephen M. Rownd nor
Michael J. Fowler are entitled to change in control or severance payments or benefits so they are
also excluded from the discussion below. Under all of the agreements and arrangements discussed
below, the Investment would qualify as a change in control.
A. Kenneth R. Vaught
25
Mr. Vaught is a party to an Employment Agreement, dated December 31, 2007 (the Vaught
Employment Agreement), with respect to his employment by the Company. Under the terms of the
Vaught Employment Agreement, if within 18 months following a change in control the Company or its
successor terminates Mr. Vaught without cause or Mr. Vaught voluntarily resigns following a change
in position, a reduction in title or a significant reduction in the duties which he is to perform
for the Company or its successor, then the Company or its successor shall pay to Mr. Vaught a lump
sum payment equal to 2.99 times Mr. Vaughts annual base salary and bonus for the year immediately
preceding termination. This payment shall be made no earlier than six months following the date of
termination. If payments to Mr. Vaught following a change in control would create an excise tax for
the employee under the excess parachute rules of Section 4999 of the Code, the Company is required
to pay to the employee the amount of such excise tax and all federal and state income or other
taxes with respect to any such additional amounts (the Gross-Up Amount) and such additional
amount as is necessary to offset any tax liability of the employee as a result of the Gross-Up
Amount.
As discussed above, the change in control payment would be due to Mr. Vaught under the terms
of the Vaught Employment Agreement if a change in control occurs and subsequently Mr. Vaught is
terminated. Because the Companys participation in the CPP will terminate at Closing in connection
with the Repurchase resulting in the restrictions of EESA as modified by ARRA and the June 2009 IFR
not applying to the Company after Closing, Mr. Vaught could potentially be eligible to receive the
change in control payment discussed above. However, in order to enter into the Investment
Agreement, NAFH required that its obligation to consummate the Investment be conditioned on Mr.
Vaught entering into a waiver agreement with NAFH waiving any right to the change in control
payment pursuant to any benefit plan in which Mr. Vaught participates, including the Vaught
Employment Agreement. If Mr. Vaught does not execute the requested waiver, or the Company
otherwise fails to effect Mr. Vaught not being entitled to any change in control payments under any
benefit plan in which he participates, NAFH is not obligated to consummate the Investment.
Mr. Vaught has also entered into a Non-Competition Agreement with the Company. In
consideration for entering into this agreement, the Company provided certain deferred compensation
benefits which have been funded by individual insurance policies. The benefits payable range from 7
to 10 years based upon certain events occurring such as age, retirement, disability or death and
are described in more detail below. The benefits payable under the agreement, other than benefits
relating to a change in control, are not prohibited by EESA, as modified by ARRA and the June 2009
IFR, and Mr. Vaught is not required to waive his right to receive the benefits that are not related
to a change in control in order for NAFHs closing condition to be satisfied.
B. William C. Adams, Jr.
26
Mr. W. Adams is a party to a Change in Control Protection Plan Participation Agreement, dated
October 22, 2004 (the Adams CIC Agreement). The terms of the Adams CIC Agreement are subject to
the provisions of the CIC Plan. Pursuant to the terms of the Adams CIC Agreement, if Mr. W. Adams
is terminated without cause or resigns with good reason (both as defined in the CIC Plan) within
two years following a change in control, Mr. W. Adams would be entitled to an amount equal to 1.99
times Mr. W. Adamss base amount within the meaning of Section 280G(b)(3) of the Code, payable in
lump sum.
As discussed above, the change in control payment would be due to Mr. W. Adams under the terms
of the Adams CIC Agreement if a change in control occurs and subsequently Mr. W. Adams is
terminated. Because the Companys participation in the CPP will terminate at Closing in connection
with the Repurchase and the restrictions of EESA will not apply to the Company after Closing, Mr.
W. Adams could still potentially receive the change in control payment discussed above.
Golden Parachute Compensation
The following table should be read in conjunction with the narrative above and sets forth
additional information required by Item 402(t) of Regulation S-K regarding compensation for each
NEO that is based on or otherwise relates to the Investment, assuming the following:
|
|
|
The closing price per share at the time of consummation of the Investment is
$2.58, which is equal to average closing market price of the Companys common stock
over the first five business days following the first public announcement of the
Investment (or May 5, 2011); |
|
|
|
|
The Investment closed on July __, 2011, the last practicable date prior to the
filing of this Proxy Statement; |
|
|
|
|
The named executive officers of the Company were terminated without cause
immediately following a change in control on July __, 2011, which is the last
practicable date prior to the filing of this Proxy Statement; and |
|
|
|
|
Mr. Vaught waived his right to receive any change in control
payments based on or otherwise related to the Investment. |
|
|
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|
|
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|
|
|
|
|
|
|
|
Cash |
|
|
Equity |
|
Pension/ |
|
|
Name |
|
($) |
|
($)(1) |
|
NQDC ($) |
|
Total ($) |
Stephen M. Rownd |
|
|
|
|
|
|
109,745 |
|
|
|
|
|
|
|
109,745 |
|
Michael J. Fowler |
|
|
|
|
|
|
79,632 |
|
|
|
|
|
|
|
79,632 |
|
Kenneth R. Vaught |
|
|
(2 |
) |
|
|
2,655 |
|
|
|
(3 |
) |
|
|
2,655 |
|
James E. Adams(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve L.
Droke(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William C. Adams, Jr. |
|
|
321,266 |
|
|
|
1,604 |
|
|
|
|
|
|
|
322,870 |
|
R. Stan Puckett (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to EESA, the accelerated vesting of equity awards upon a change in control is
prohibited. However, it is anticipated that following consummation of the Repurchase the unvested
equity awards of the NEOs will be accelerated. None of the stock options held by the NEOs have
exercise prices that are less than $2.58. Accordingly, no value is ascribed to these stock options
and the value reported is related solely to unvested shares of restricted stock. |
|
(2) |
|
If the Company fails to obtain waivers with respect to payments based on or otherwise related
to the Investment from Mr. Vaught and NAFH waives such condition to the Closing, Mr.
Vaught may be entitled to additional payments in the amount of approximately $798,000. |
|
(3) |
|
Under the Non-Competition Agreement and in connection with his termination (without regard for
any change in control enhancement), Mr. Vaught would be entitled to receive payments of $84,924 per
year for a period of ten years. Mr. Vaught would not be entitled to receive payments until he
reaches age 50. |
|
(4) |
|
Messrs. J. Adams and Puckett retired on May 16, 2011 and March 31, 2010, respectively, and
neither is entitled to any payments solely as a result of consummation of the Investment. |
|
(5) |
|
Mr. Droke resigned effective June 17, 2011 and is not entitled to any payments solely as a
result of consummation of the Investment. |
27
The Company is requesting shareholder approval, on a non-binding and advisory basis, of
the compensation that may be payable to the Companys named executive officers that is based on or
otherwise relates to the Investment and therefore is asking stockholders to adopt the following
resolution:
RESOLVED, that the compensation that may be paid or become payable to the Companys
named executive officers that is based on or otherwise relates to the Investment, as disclosed in
the table entitled Golden Parachute Compensation pursuant to Item 402(t) of Regulation S-K
including the associated narrative discussion, and the agreements or understandings pursuant to
which such compensation may be paid or become payable, are hereby APPROVED.
The vote on this Proposal 7 is a vote separate and apart from the vote on the other
proposals. Accordingly, you may vote to approve this Proposal 7 on executive compensation and vote
not to approve the other proposals and vice versa. Because the vote is advisory in nature only, it
will not be binding on either the Company or NAFH regardless of whether the Investment is approved
and subsequently consummated. Accordingly, as the compensation to be paid in connection with the
Investment is contractual with the executives, regardless of the outcome of this advisory vote,
such compensation may be payable, subject only to the conditions and restrictions applicable
thereto, if the Investment is approved.
Assuming the existence of a quorum, this proposal will be approved if the number of
shares voted in favor of the proposal to approve the compensation of the Companys named executive
officers in connection with the Investment exceeds the number of shares voted against such
proposal. As such, abstentions and broker non-votes will not affect the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL 7 AS TO THE
APPROVAL, ON A NON-BINDING AND ADVISORY BASIS, OF THE COMPENSATION TO BE RECEIVED BY THE COMPANYS
NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE INVESTMENT.
PROPOSAL 8 APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING
This proposal would give the proxy holders discretionary authority to vote to adjourn the
Special Meeting if there are not sufficient affirmative votes present at the Special Meeting to
approve the proposals that may be considered and acted upon. Any adjournment of the Special Meeting
may be made without notice, other than by an announcement made at the Special Meeting. Approval of
this proposal will allow the Company, to the extent that shares voted by proxy are required to
approve a proposal to adjourn the Special Meeting, to solicit additional proxies to determine
whether sufficient shares will be voted in favor of or against the proposals. If the Company is
unable to adjourn the Special Meeting to solicit additional proxies, the proposals may fail, not
because shareholders voted against the proposals, but rather because there were not sufficient
shares represented at the Special Meeting to approve the proposals. The Company has no reason to
believe that an adjournment of the Special Meeting will be necessary at this time.
Assuming the existence of a quorum, this proposal will be approved if the number of shares
voted in favor of this proposal exceeds the number of shares voted against the proposal. As such,
abstentions and broker non-votes will not affect the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF A POTENTIAL
ADJOURNMENT OF THE SPECIAL MEETING.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this Proxy Statement are not historical facts but are
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. All forward-looking statements involve risk and uncertainty and actual results could differ
materially from the anticipated results or other expectations expressed in the forward-looking
statements. Risks and uncertainties related to the Companys
business are discussed in the Companys SEC filings, including its Annual Report on Form 10-K for the
year ended
28
December 31, 2010 and its Quarterly Report in Form 10-Q for the three months ended March
31, 2011, and include, but are not limited to, (1) the occurrence of any event, change or other
circumstances that could give rise to the termination of the Investment Agreement, pursuant to
which the Investment is to be consummated; (2) the outcome of any legal proceedings that may be
instituted against the Company and others following announcement of the Investment Agreement; (3)
the inability to complete the transactions contemplated by the Investment Agreement due to the
failure to obtain shareholder approval or the failure to satisfy other conditions to completion of
the transaction, including the receipt of regulatory approval; (4) risks that the proposed
transactions contemplated by the Investment Agreement disrupt current plans and operations and the
potential difficulties in employee retention as a result of the proposed transaction; (5) the
amount of the costs, fees, expenses and charges related to the proposed transaction, including the
expense reimbursement and termination fees that may be payable in the event that the Investment
Agreement is terminated under certain scenarios; (6) deterioration in the financial condition of
borrowers resulting in significant increases in loan losses and provisions for those losses; (7)
continuation of the historically low short-term interest rate environment; (8) changes in loan
underwriting, credit review or loss reserve policies associated with economic conditions,
examination conclusions, or regulatory developments; (9) increased levels of non-performing and
repossessed assets and the ability to resolve these may result in future losses; (10) greater than
anticipated deterioration or lack of sustained growth in the national or local economies; (11)
rapid fluctuations or unanticipated changes in interest rates; (12) the impact of governmental
restrictions on entities participating in the CPP of the Treasury; (13) changes in state and
federal legislation, regulations or policies applicable to banks or other financial service
providers, including regulatory or legislative developments, like the Dodd-Frank Wall Street Reform
and Consumer Protection Act, arising out of current unsettled conditions in the economy, (14) the
results of regulatory examinations including requirements contained in any enforcement action
against the Company or the Bank as a result of such examinations; (15) the remediation efforts
related to the Companys material weakness in its internal control over financial reporting; (16)
increased competition with other financial institutions in the markets that GreenBank serves; (17)
the Company recording a further valuation allowance related to its deferred tax asset; (18)
exploring alternatives available for the future repayment or conversion of the preferred stock
issued in the CPP, including in the transaction contemplated in the Investment Agreement; (19)
further deterioration in the valuation of other real estate owned; (20) inability to comply with
regulatory capital requirements and to secure any required regulatory approvals for capital actions
to raise capital if necessary to comply with any regulatory capital requirements; and (21) the loss
of key personnel. The Company undertakes no obligation to update forward-looking statements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Persons and groups beneficially owning more than 5% of the Common Stock are required under
federal securities laws to file certain reports with the SEC detailing their ownership. The
following table sets forth the amount and percentage of the Common Stock beneficially owned by any
person or group of persons known to the Company to be a beneficial owner of more than 5% of the
common stock as of the Record Date.
|
|
|
|
|
|
|
|
|
Name and Address of |
|
Amount and Nature of |
|
Percent of Common |
Beneficial Owner |
|
Beneficial Ownership (a) |
|
Stock Outstanding |
Scott M. Niswonger
|
|
|
827,711 |
(b) |
|
|
6.25 |
% |
P.O. Box 938
Greeneville, TN 37744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia Wagner Assets Management, L.P.
|
|
|
1,183,912 |
(c) |
|
|
8.94 |
% |
227 West Monroe Street, Suite 3000
Chicago, IL 60606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phil M. Bachman
|
|
|
893,280 |
(d) |
|
|
6.75 |
% |
Martha Bachman
100 N. Main Street, P.O. Box 1120
Greeneville, Tennessee 37743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
780,663 |
(e) |
|
|
5.90 |
% |
6300 Bee Cave Road, Building One
Austin, TX 78746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
(a) |
|
For purposes of this table, an individual or entity is considered to
beneficially own any share of Common Stock which he, she or it directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise, has or shares:
(1) voting power, which includes the power to vote, or to direct the voting of, such security;
and/or (2) investment power, which includes the power to dispose, or to direct the disposition
of, such security. In addition, an individual or entity is deemed to be the beneficial owner
of any share of Common Stock of which he, she or it has the right to acquire voting or
investment power within 60 days of the Record Date. |
|
(b) |
|
Based upon information set forth in a Schedule 13D/A, filed with the SEC on October
22, 2010 by Mr. Niswonger, who has sole voting and dispositive power with respect to 827,711
shares. |
|
(c) |
|
Based solely on the information contained in a Schedule 13G filed by Columbia
Wagner Asset Management, L.P. with the SEC on February 10, 2011, as of December 31, 2010. |
|
(d) |
|
Martha Bachman is a director and the wife of retired director Phil Bachman.
Includes 201,417 shares of common stock held directly or indirectly by Martha Bachman, 673,697
shares owned by Phil Bachman individually and 18,166 shares owned by Mr. and Mrs. Bachman
jointly. |
|
(e) |
|
Based solely on the information contained in a Schedule 13G filed by Dimensional
Fund Advisors, L.P. with the SEC on February 11, 2011, as of December 31, 2010. |
|
|
The following table sets forth, as of the Record Date, certain information known to
the Company as to Common Stock beneficially owned by each director and named executive officer
of the Company and by all directors and executive officers of the Company as a group. The
address for each of our directors and executive officers listed below is c/o Green Bankshares,
Inc., 100 North Main Street, P.O. Box 1120, Greeneville, Tennessee 37743. As of the Record
Date, there were ______ shares of the
Companys Common Stock outstanding. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Shares |
|
|
|
|
|
Percent of |
|
|
Beneficially |
|
Acquirable in |
|
|
|
|
|
Common Stock |
Name and Position |
|
Owned(a)(b) |
|
60 Days (c) |
|
Total |
|
Outstanding |
|
Stephen M. Rownd,
Chairman of the Board and
Chief Executive Officer |
|
|
47,114 |
|
|
|
|
|
|
|
47,114 |
|
|
|
* |
|
Martha Bachman, Director |
|
|
893,280 |
(d)(e) |
|
|
|
|
|
|
893,280 |
|
|
|
6.75 |
% |
Bruce Campbell, Director |
|
|
10,189 |
|
|
|
|
|
|
|
10,189 |
|
|
|
* |
|
W.T. Daniels, Director |
|
|
14,215 |
|
|
|
|
|
|
|
14,215 |
|
|
|
* |
|
Robert K. Leonard, Director |
|
|
94,153 |
(f)(e) |
|
|
|
|
|
|
94,153 |
|
|
|
* |
|
Samuel Lynch, Director |
|
|
3,850 |
|
|
|
|
|
|
|
3,850 |
|
|
|
* |
|
Bill Mooningham, Director |
|
|
2,396 |
|
|
|
|
|
|
|
2,396 |
|
|
|
* |
|
John Tolsma, Director |
|
|
11,985 |
|
|
|
|
|
|
|
11,985 |
|
|
|
* |
|
Charles H.
Whitfield, Jr.,
Director |
|
|
14,817 |
|
|
|
|
|
|
|
14,817 |
|
|
|
* |
|
Kenneth R. Vaught, Director,
President and Chief
Operating Officer |
|
|
38,834 |
|
|
|
26,800 |
|
|
|
65,634 |
|
|
|
* |
|
William C. Adams,
Senior Vice President and
Chief Information Officer |
|
|
25,870 |
(e) |
|
|
16,391 |
|
|
|
42,261 |
|
|
|
* |
|
Steve L. Droke,
Former Senior Vice President and
Chief Credit Officer |
|
|
18,802 |
|
|
|
7,219 |
|
|
|
26,021 |
|
|
|
* |
|
R. Stan Puckett, Retired
Chairman of the Board and
Chief Executive Officer |
|
|
45,772 |
|
|
|
44,640 |
(g) |
|
|
90,412 |
|
|
|
* |
|
James E. Adams, Retired
Executive Vice President,
Former Chief Financial
Officer and
Secretary |
|
|
25,823 |
|
|
|
4,200 |
|
|
|
30,023 |
|
|
|
* |
|
Michael J. Fowler, Senior
Vice President and Chief
Financial Officer |
|
|
30,865 |
|
|
|
|
|
|
|
30,865 |
|
|
|
* |
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Shares |
|
|
|
|
|
Percent of |
|
|
Beneficially |
|
Acquirable in |
|
|
|
|
|
Common Stock |
Name and Position |
|
Owned(a)(b) |
|
60 Days (c) |
|
Total |
|
Outstanding |
|
All directors and executive
officers as a group (16
persons)(h) |
|
|
1,299,825 |
|
|
|
119,737 |
|
|
|
1,419,562 |
|
|
|
10.63 |
% |
|
|
|
* |
|
Less than 1% of the outstanding Common Stock. |
|
(a) |
|
For the definition of beneficially owned, see Note (a) to the preceding table. |
|
(b) |
|
Includes shares owned directly by directors and executive officers of the Company as well as
shares held by their spouses and children, trust of which certain directors are trustees and
corporations in which certain directors own a controlling interest. |
|
(c) |
|
Represents options to purchase Common Stock which are exercisable within 60 days of the
Record Date. |
|
(d) |
|
Martha Bachman is a director and the wife of retired director Phil Bachman. Includes 201,417
shares of common stock held directly or indirectly by Martha Bachman, 673,697 shares owned by
Phil Bachman individually and 18,166 shares owned by Mr. and Mrs. Bachman jointly. |
|
(e) |
|
As of July __, 2011, the following individuals have pledged the following amounts of their
common shares beneficially owned to secure lines of credits or other indebtedness: Martha
Bachman and retired director Phil Bachman 312,899 shares; Robert Leonard 15,000 shares
held in a limited liability partnership; and William C. Adams 5,000 shares. |
|
(f) |
|
Includes 41,197 shares of common stock in a limited partnership of which Mr. Leonard is a
limited partner. Mr. Leonard disclaims beneficial ownership of 32,216 of these shares. Also
includes 504 shares of common stock in a limited liability company in which Mr. Leonard has an
interest. Mr. Leonard disclaims beneficial ownership of 363 of these shares. |
|
(g) |
|
Includes options to acquire 36,000 shares of Common Stock currently exercisable (or
exercisable within 60 days of the Record Date) by Mr. Puckett at an exercise price equal to
150% of the book value of the Common Stock at the date of grant (a weighted average price of
approximately $16.27 per share) and options to acquire 19,800 shares of Common Stock currently
exercisable (or exercisable within 60 days of the Record Date) by Mr. Puckett at an exercise
price equal to the fair market value at the date of grant (a weighted average price of
approximately $29.03 per share). |
|
(h) |
|
Includes shares held by Mr. Puckett, who served as the Companys Chairman and Chief Executive
Officer until March 31, 2010, shares held by Mr. J. Adams, who served as the Companys
Executive Vice President, Chief Financial Officer and Secretary until
May 16, 2011 and shares held by Mr. Droke, who served as
the Companys Senior Vice President and Chief Credit Officer
until June 17, 2011. |
FUTURE SHAREHOLDER PROPOSALS
If a shareholder wishes to have a proposal included in the Companys proxy statement for the
Companys 2012 Annual Meeting of Shareholders, that proposal must be received by the Company at its
executive offices in Greeneville, Tennessee by December 10, 2011. If a shareholder wishes to
present a proposal at the Companys 2012 annual meeting of shareholders and the proposal is not
intended to be included in the Companys proxy statement relating to that meeting, the shareholder
must give advance notice to the Company prior to the deadline for such meeting determined in
accordance with the Companys Charter (the Charter Deadline). Under the Companys Charter, in
order to be deemed properly presented, notice must be delivered to the Companys Secretary at the
Companys principal executive offices no less than forty (40) nor more than sixty (60) days prior
to the scheduled date of the meeting at which such matter is to be acted upon; provided, however,
that if notice or public disclosure of such meeting is given fewer than fifty (50) days before the
meeting, notice by the shareholder must be delivered to the Company not later than the close of
business on the tenth (10th) day following the day on which notice of the meeting was mailed to
shareholders. If a shareholder gives notice of such a proposal after the Charter Deadline, the
shareholder will not be permitted to present the proposal to the shareholders for a vote at the
meeting.
The SEC rules also establish a different deadline for submission of shareholder proposals that
are not intended to be included in the Companys proxy statement with respect to discretionary
voting (the Discretionary Voting Deadline). This deadline for the 2012 annual meeting of
shareholders is February 23, 2012. If a shareholder gives notice of a proposal after this deadline,
the persons named as proxies in the proxy statement for the 2012 annual meeting will be allowed to use their discretionary voting authority to vote against the
shareholder proposal
31
when, and if, the proposal is raised at the 2012 annual meeting. Because the
Charter Deadline is not capable of being determined until the Company gives notice of, or publicly
announces, the date for the 2012 annual meeting of shareholders, it is possible that the Charter
Deadline may occur after the Discretionary Voting Deadline, in which case a proposal received after
the Discretionary Voting Deadline but before the Charter Deadline would be eligible to be presented
at the 2012 annual meeting of shareholders and the Company believes that the persons named as
proxies in the proxy statement would be allowed to use the discretionary authority granted by the
proxy card to vote against the proposal at the meeting without including any disclosures of the
proposal in the proxy statement relating to the meeting.
Shareholder proposals should be addressed to Secretary, Green Bankshares, Inc., 100 North Main
Street, P.O. Box 1120, Greeneville, Tennessee 37743 and must comply with the provisions of the
Companys Charter. Nothing in this paragraph shall be deemed to require the Company to include in
its proxy statement and form of proxy relating to the Companys 2012 Annual Meeting of Shareholders
any shareholder proposal that does not satisfy the requirements for inclusion as established by the
SEC at the time of receipt.
OTHER MATTERS
Discretionary Authority to Vote. As of the date of this document,
the Companys Board of
Directors is not aware of any matters that will be presented for consideration at the Companys
Special Meeting. If any other matters come before either of the meetings or any adjournments or
postponements of the meeting and are voted upon, the enclosed proxy will confer discretionary
authority on the individuals named as proxies to vote the shares represented by the proxy as to any
other matters. The individuals named as proxies intend to vote in accordance with their best
judgment as to any other matters.
Directions to Our Special Meeting at the General Morgan Inn. Requests for directions to
General Morgan Inn should be directed to Michael J. Fowler, 100 North Main Street, Greeneville,
Tennessee 37743 (telephone number (423) 278-3050).
BY ORDER OF THE BOARD OF DIRECTORS
Michael J. Fowler
Secretary
Greeneville, Tennessee
July __, 2011
32
Appendix A
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT
dated as of May 5, 2011
among
GREEN BANKSHARES, INC.,
GREENBANK
and
NORTH AMERICAN FINANCIAL HOLDINGS, INC.
A-i
TABLE OF CONTENTS
|
|
|
ARTICLE I
PURCHASE; CLOSING |
|
|
|
1.1 Purchase
|
|
A-1 |
1.2 Closing
|
|
A-1 |
|
|
|
ARTICLE II
REPRESENTATIONS AND WARRANTIES |
|
|
|
2.1 Disclosure
|
|
A-5 |
2.2 Representations and Warranties of the Company and the Bank
|
|
A-6 |
2.3 Representations and Warranties of Purchaser
|
|
A-23 |
|
|
|
ARTICLE III
COVENANTS |
|
|
|
3.1 Filings; Other Actions
|
|
A-26 |
3.2 Access, Information and Confidentiality
|
|
A-27 |
3.3 Conduct of the Business
|
|
A-28 |
3.4 Acquisition Proposals
|
|
A-31 |
3.5 Repurchase
|
|
A-33 |
3.6 D&O Indemnification
|
|
A-34 |
3.7 Notice of Developments
|
|
A-34 |
|
|
|
ARTICLE IV
ADDITIONAL AGREEMENTS |
|
|
|
4.1 Governance Matters
|
|
A-34 |
4.2 Legend
|
|
A-35 |
4.3 Exchange Listing
|
|
A-35 |
4.4 Registration Rights
|
|
A-35 |
4.5 Employees
|
|
A-35 |
4.6 Reservation for Issuance
|
|
A-35 |
4.7 Additional Investment
|
|
A-35 |
|
|
|
ARTICLE V
TERMINATION |
|
|
|
5.1 Termination
|
|
A-36 |
5.2 Effects of Termination
|
|
A-37 |
5.3 Fees
|
|
A-37 |
|
|
|
ARTICLE VI
MISCELLANEOUS
|
6.1 No Survival
|
|
A-38 |
6.2 Expenses
|
|
A-38 |
|
|
|
A-ii
|
|
|
|
6.3 Amendment; Waiver
|
|
A-38 |
6.4 Counterparts and Facsimile
|
|
A-38 |
6.5 Governing Law
|
|
A-38 |
6.6 Notices
|
|
A-38 |
6.7 Entire Agreement, Assignment
|
|
A-39 |
6.8 Interpretation; Other Definitions
|
|
A-39 |
6.9 Captions
|
|
A-40 |
6.10 Severability
|
|
A-40 |
6.11 No Third Party Beneficiaries
|
|
A-40 |
6.12 Time of Essence
|
|
A-40 |
6.13 Certain Adjustments
|
|
A-41 |
6.14 Public Announcements
|
|
A-41 |
6.15 Specific Performance; Limitation on Damages
|
|
A-41 |
|
|
|
A-iii
|
INDEX OF DEFINED TERMS
|
|
|
Term |
|
Location of Definition |
409A Plan
|
|
2.2(s)(8) |
Acquisition Agreement
|
|
3.4(b) |
Acquisition Proposal
|
|
3.4(c) |
Adverse Recommendation Change
|
|
3.4(b) |
Affiliate
|
|
6.8(a) |
Agency
|
|
2.2(w)(5)(D) |
Agreement
|
|
Preamble |
Authorizations
|
|
2.2(a)(1) |
Bank
|
|
Preamble |
Bank Charter
|
|
2.2(a)(2) |
beneficial owner
|
|
6.8(g) |
beneficially own
|
|
6.8(g) |
Benefit Plan
|
|
2.2(s)(1) |
Burdensome Condition
|
|
1.2(c)(2)(F) |
business day
|
|
6.8(e) |
Capitalization Date
|
|
2.2(b) |
CERCLA
|
|
2.2(v) |
Charge-Offs
|
|
1.2(c)(2)(L) |
Charter
|
|
2.2(a)(1) |
Closing
|
|
1.2(a) |
Closing Date
|
|
1.2(a) |
Closing Expense Reimbursement
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6.2 |
Code
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2.2(j) |
Common Stock
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Recitals |
Company
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Preamble |
Company 10-K
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2.1(c)(2)(A) |
Company Insurance Policies
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2.2(x) |
Company Preferred Stock
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2.2(b) |
Company Recommendation
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3.1(b) |
Company Reports
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2.2(h)(1) |
Company Representatives
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3.2(a) |
Company Significant Agreement
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2.2(m)(i) |
Companys knowledge
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2.1(d) |
Confidentiality Agreement
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3.2(b) |
control
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6.8(a) |
controlled by
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6.8(a) |
CVRs
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Recitals |
Disclosure Schedule
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2.1(a) |
EESA
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2.2(s)(10) |
ERISA
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2.2(s)(1) |
ERISA Affiliate
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2.2(s)(1) |
Exchange Act
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2.2(h)(1) |
Existing D&O Policies
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1.2(c)(2)(H)(i) |
Expense Reimbursement
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5.3(c) |
FDIC
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2.2(a)(2) |
Federal Reserve
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1.2(c)(1)(B) |
GAAP
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2.2(g) |
Governmental Entity
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1.2(c)(1)(A) |
herein
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6.8(d) |
hereof
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6.8(d) |
hereunder
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6.8(d) |
include
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6.8(c) |
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A-iv
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Term |
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Location of Definition |
included
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6.8(c) |
includes
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6.8(c) |
including
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6.8(c) |
knowledge of the Company
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2.1(d) |
Laws
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2.1(b) |
Liens
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1.2(b)(1) |
Loan Portfolio Committee
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4.1(c) |
Loans
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2.2(w)(1) |
Loan Tape
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2.2(w)(9) |
Material Adverse Effect
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2.1(b) |
NASDAQ
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1.2(c)(2)(I) |
Nominees
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4.1(b) |
Notice of Recommendation Change
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3.4(b) |
or
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6.8(b) |
Option
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Recitals |
Organizational Common Stock
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2.2(b) |
Permits
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2.2(q) |
Permitted Liens
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2.2(i) |
Per Share Purchase Price
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1.2(b)(2) |
person
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6.8(f) |
Pool
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2.2(w)(8) |
Previously Disclosed
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2.1(c) |
Proprietary Rights
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2.2(y) |
Purchased Shares
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1.1 |
Purchaser
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Preamble |
Purchaser Designees
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1.2(c)(2)(G) |
Registration Rights Agreement
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4.4 |
Regulatory Agreement
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2.2(u) |
Resigning Directors
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1.2(c)(2)(G) |
Representatives
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3.4(a) |
Repurchase
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Recitals |
Required Approvals
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2.2(f) |
Sarbanes-Oxley Act
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2.2(h)(2) |
SEC
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2.1(c)(2)(A) |
Securities Act
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2.2(h)(1) |
Series A Preferred
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Recitals |
Shareholder Meeting
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3.1(b) |
Shareholder Proposal
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3.1(b) |
SRO
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2.2(h)(1) |
Subsidiaries
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2.2(a)(1) |
Subsidiary
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2.2(a)(1) |
Superior Proposal
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3.4(c) |
Tax Return
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2.2(j) |
Taxes
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2.2(j) |
Tennessee DFI
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1.2(c)(1)(B) |
Termination Fee
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5.3(c) |
Treasury
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Recitals |
Treasury Warrants
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Recitals |
Trust Preferred Securities
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2.2(d)(2) |
under common control with
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6.8(a) |
VA
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2.2(w)(5) |
Voting Debt
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2.2(b) |
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A-v
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LIST OF SCHEDULES AND EXHIBITS
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Schedule A
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List of Subsidiaries |
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Exhibit A
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Terms of Contingent Value Rights |
Exhibit B
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Terms of Repurchase |
Exhibit C
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Form of Registration Rights Agreement |
A-vi
INVESTMENT AGREEMENT, dated as of May 5, 2011 (this Agreement), among Green
Bankshares, Inc., a corporation organized under the laws of the State of Tennessee (the
Company), GreenBank, a Tennessee state-chartered banking corporation and a banking
subsidiary of the Company (the Bank), and North American Financial Holdings, Inc., a
Delaware corporation (Purchaser).
RECITALS:
WHEREAS, the Company intends to issue and sell to Purchaser, and Purchaser intends to purchase
from the Company, as an investment in the Company, 119,900,000 shares of common stock, $2.00 par
value per share, of the Company (the Common Stock) at a purchase price of $1.81 per share
on the terms and conditions described herein;
WHEREAS, on the date hereof, the Company has granted to the Purchaser an option to acquire up
to 2,628,183 shares of Common Stock (but not to exceed 19.9% of the Companys issued and
outstanding shares of Common Stock without giving effect to any shares subject to or issued
pursuant to such option) at a price per share equal to the closing price on the Nasdaq Global
Select Market for shares of Common Stock on the first trading day following the date hereof (the
Option);
WHEREAS, in addition to the purchase price described above, the Company shall, immediately
prior to the issuance of shares of Common Stock to Purchaser, issue to the holders of its Common
Stock (excluding the Purchaser) contingent value rights (the CVRs) on substantially the
terms set forth in Exhibit A;
WHEREAS, in connection with the investment by Purchaser, the Purchaser shall enter into a
binding definitive agreement with the United States Department of the Treasury
(Treasury), pursuant to which, among other things and subject to the terms and conditions
set forth therein, contemporaneous with the Closing, the Purchaser will purchase from Treasury all
of the outstanding shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series
A (the Series A Preferred) (including all obligations with respect to accrued but unpaid
dividends on the Series A Preferred) and related warrants to purchase shares of Company Common
Stock (the Treasury Warrants) (the Repurchase) (the terms of the Repurchase
being set forth in Exhibit B); and
WHEREAS, the Company intends to amend its Charter and its bylaws, in form and substance
reasonably satisfactory to Purchaser, to permit the transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements set forth herein, the parties agree as follows:
ARTICLE I
PURCHASE; CLOSING
1.1 Purchase. On the terms and subject to the conditions set forth herein, at the Closing, Purchaser will
purchase from the Company, and the Company will issue and sell to Purchaser, 119,900,000 shares of
Common Stock (the Purchased Shares).
1.2 Closing.
(a) The Closing. The closing of the purchase and sale of the Purchased Shares
referred to in Section 1.1 (the Closing) shall occur at 10:00 a.m., New York City
time, on
the third business day after the satisfaction or, if permissible, waiver (by the party
entitled to grant such waiver) of the conditions to the Closing set forth in this Agreement
(other than those conditions that by their nature are to be satisfied at the Closing, but
subject to fulfillment or waiver of those conditions), at the offices of Wachtell, Lipton,
Rosen & Katz, 51 West 52nd Street, New York, New York 10019 or such other date or location
as agreed by the parties. The date of the Closing is referred to as the Closing
Date.
A-1
(b) Closing Deliveries. Subject to the satisfaction or waiver on the Closing
Date of the applicable conditions to the Closing set forth in Section 1.2(c), at the
Closing:
(1) the Company will deliver to Purchaser (A) the Closing Expense Reimbursement
in accordance with Section 6.2 hereof, by wire transfer of immediately available
funds to an account or accounts designated by Purchaser, and (B) the Purchased
Shares, as evidenced by one or more certificates dated the Closing Date and bearing
the appropriate legends as set forth herein and free and clear of all liens,
charges, encumbrances and security interests of any kind or nature whatsoever (other
than restrictions on transfer imposed by applicable securities Laws) (collectively,
Liens); and
(2) Purchaser will deliver to the Company, by wire transfer of immediately
available funds to an account or accounts designated by the Company, an amount equal
to the product of $1.81 per share (the Per Share Purchase Price)
multiplied by the number of Purchased Shares.
(c) Closing Conditions. (1) The obligation of Purchaser, on the one hand, and
the Company and the Bank, on the other hand, to effect the Closing is subject to the
fulfillment or written waiver by Purchaser, the Company and the Bank prior to the Closing of
the following conditions:
(A) no provision of any applicable Law and no judgment, injunction,
order or decree of any court, administrative agency or commission or other
governmental authority or instrumentality, whether federal, state, local or
foreign (each, a Governmental Entity) shall prohibit the Closing
or shall prohibit or restrict Purchaser or its Affiliates from owning or
voting any Purchased Shares, and no lawsuit or formal administrative
proceeding shall have been commenced by any Governmental Entity seeking to
effect any of the foregoing;
(B) any Required Approvals of the Tennessee Department of Financial
Institutions (the Tennessee DFI), Office of the Comptroller of the
Currency and the Board of Governors of the Federal Reserve System (the
Federal Reserve) required to consummate the transactions
contemplated by this Agreement shall have been made or obtained and shall be
in full force and effect as of the Closing Date; and
(C) the holders of shares of Common Stock of the Company shall have
approved the Shareholder Proposal (other than the proposal set forth in
clause (1)(iii) of the definition of Shareholder Proposal) by the
requisite vote of such holders and the corresponding amendments to the
Charter shall have become effective.
(2) The obligation of Purchaser to purchase the Purchased Shares at the Closing
is also subject to the fulfillment or written waiver by Purchaser prior to the
Closing of each of the following conditions:
(A) all representations and warranties of the Company and the Bank
contained in this Agreement shall be true and correct (without regard to
materiality or Material Adverse Effect qualifiers contained therein), both
individually and in the aggregate, except where the failure of such
representations and warranties to be so true
and correct, individually or in the aggregate, has not had and would
not be reasonably expected to have a Material Adverse Effect (other than the
representations and warranties set forth in Sections 2.2(b), (d)(1), (o),
(z), and (bb), which shall be true and correct in all material respects
(subject to materiality or Material Adverse Effect qualifiers contained
therein)) as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent any such
representation and warranty expressly relates to a specified date, in which
case such representation and warranty need only be true and correct as of
such specified date);
A-2
(B) each of the Company and the Bank shall have performed in all
material respects all obligations required to be performed by it at or prior
to the Closing;
(C) Purchaser shall have received a certificate signed on behalf of
each of the Company and the Bank by a senior executive officer certifying to
the effect that the conditions set forth in Sections 1.2(c)(2)(A) and
1.2(c)(2)(B) have been satisfied;
(D) since December 31, 2010, except as set forth in any section of the
Company Disclosure Schedule corresponding to Section 2.2 of this Agreement,
no fact, event, change, condition, development, circumstance or effect shall
have occurred that, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect;
(E) (i) The Treasury shall have entered into a binding definitive
agreement with Purchaser providing for, contemporaneous with the Closing,
the sale to Purchaser of all of the issued and outstanding shares of the
Series A Preferred (including all obligations with respect to accrued but
unpaid dividends on the Series A Preferred) and the Treasury Warrants in
accordance with the terms set forth in Exhibit B and such agreement
shall remain in full force and effect; and (ii) the Company shall have
received from each employee of the Company listed on Schedule 1.2(c)(2)(E)
who has waived any compensation or benefits in connection with the Companys
issuance of the Series A Preferred and Treasury Warrants pursuant to the
interim final rule issued by Treasury or who would be prohibited from
receiving compensation or benefits under the interim final rule issued by
Treasury, a binding waiver (in a form acceptable to Purchaser) stipulating
that such compensation and benefits that are not payable as of the date of
this Agreement will not become payable at or following the Closing;
(F) no Required Approval issued by any Governmental Entity shall impose
or contain any restraint, condition or requirement, that, individually or in
the aggregate, is adverse to Purchaser or any of its Affiliates in any
material respect (in the case this clause, adverse shall mean reducing the
economic benefit or increasing the economic burden of the transactions
contemplated hereby), as determined by Purchaser in its reasonable good
faith judgment (any restraint, condition, or requirement of the type
described in this clause (F), a Burdensome Condition);
(G) each of the individuals designated by the Purchaser in its sole
discretion prior to the Closing (the Purchaser Designees) shall
have been appointed to the Board of Directors of the Company and of the
Bank, and an equal number of individuals shall have resigned from the Board
of Directors of the Company and of the Bank (the Resigning
Directors), in each case effective as of the Closing, such that
immediately after the Closing, the Purchaser Designees constitute a majority
of the Board of Directors of each of the Company and the Bank; provided,
however, in no event shall the Board of Directors of the Company contain
fewer than two of the members of the Companys Board of Directors as of the
date hereof, which members shall also be appointed to the board of directors
of Purchaser immediately following the Closing;
(H) either (i) the existing directors and officers liability and errors
and omissions insurance policies of the Company, the Bank and any Subsidiary
(the Existing D&O Policies) shall remain in full force and effect
as of the date of this Agreement and shall continue in full force and effect
until they expire upon the expiration dates set forth in Section 2.2(x) of
the Company Disclosure Schedule and the insurers thereunder shall have
provided to the Company an endorsement in writing to the effect that neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated by this Agreement shall result in a termination of
such policies, or a reduction in coverage of any such policies; or (ii) the
Company shall have obtained a policy (or policies) of directors and officers
liability and errors and omissions insurance
A-3
coverage with insurance
carriers believed to be financially sound and reputable with coverage
substantially identical to the coverage provided by the Existing D&O
Policies;
(I) the shares of Common Stock included in the Purchased Shares shall
have been authorized for listing on the NASDAQ Stock Market
(NASDAQ) or such other market on which the Common Stock is then
listed or quoted, subject to official notice of issuance;
(J) the Company shall have entered into the Registration Rights
Agreement pursuant to Section 4.4, having the terms set forth in Exhibit
C;
(K) as measured immediately prior to the Closing and excluding any
deposits withdrawn by Purchaser or its controlled Affiliates, core deposits
(i.e., money market, demand, checking, savings and transactional accounts
for retail customers) of the Bank shall not have decreased by more than
twenty percent (20%) from the amount thereof as of March 31, 2011;
(L) excluding Charge-Offs made at the written direction of Purchaser or
any controlled Affiliate of Purchaser, (i) the Charge-Offs in any completed
calendar fiscal quarter commencing after March 31, 2011 shall not exceed
$40,000,000 and (ii) the Charge-Offs in the most recent interim quarterly
period commencing after the date hereof and ending five calendar days prior
to the Closing Date shall not exceed an amount equal to $40,000,000
pro-rated by the number of days in such interim quarterly period; for the
purposes of this Section 1.2(c)(2)(L), Charge-Offs shall mean the
loans charged-off as reflected in the Company Reports, if then publicly
filed, and otherwise derived from the books and records of the Bank in a
manner consistent with past practice, with the preparation of the financial
statements in the Company Reports and with the Companys or Banks written
policies in effect as of the date of this Agreement; and three calendar days
prior to the Closing Date, the Company shall provide Purchaser with a
schedule reporting Charge-Offs for the periods referred to in clauses (i)
and (ii);
(M) The Board of Directors of the Company shall have declared a
distribution of the CVRs, effective immediately prior to the Closing,
pursuant to a contingent value right agreement substantially on the terms
set forth on Exhibit A and in form and substance reasonably
acceptable to the Purchaser;
(N) Either (i) the holders of shares of Common Stock of the Company
shall have approved the proposal set forth in clause (1)(iii) of the
definition of Shareholder Proposal by the requisite vote of such holders
and the corresponding amendment to the Charter shall have become effective
or (ii) the merger of the Bank with and into a Subsidiary of the Purchaser
on terms reasonably satisfactory to Purchaser and consistent with
Exhibit D shall have been approved by the Boards of Directors of the
Company and the Bank and by any Governmental Entity the approval of which is
required, and such merger is reasonably capable of being consummated not
later than three (3) business days following the Closing; and
(3) The obligations of the Company and the Bank to effect the Closing are
subject to the fulfillment or written waiver by both of the Company and the Bank
prior to the Closing of the following additional conditions:
(A) all representations and warranties of Purchaser contained in this
Agreement shall be true and correct (without regard to materiality or
material adverse effect qualifiers contained therein) in all material
respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent any such
representation and warranty expressly relates to a specified earlier date,
in which case such representation and warranty need only be true and correct
A-4
as of such specified earlier date, and except where the failure of any such
representation or warranty to be true and correct would not, individually or
in the aggregate, impair in any material respect the ability of Purchaser to
consummate the transactions contemplated by this Agreement;
(B) Purchaser shall have performed in all material respects all
obligations required to be performed by it at or prior to the Closing;
(C) the Company and the Bank each shall have received a certificate
signed on behalf of Purchaser by a senior executive officer certifying to
the effect that the conditions set forth in Sections 1.2(c)(3)(A) and (B)
have been satisfied; and
(D) Purchaser and the Treasury shall have entered into a binding
definitive agreement reflecting Purchasers agreement to repurchase all of
the issued and outstanding Series A Preferred (including all obligations
with respect to accrued but unpaid dividends on the Series A Preferred) and
the Treasury Warrants in accordance with the terms set forth in Exhibit
B and such agreement shall remain in full force and effect.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Disclosure. (a) On or prior to the date hereof, the Company and the Bank delivered to Purchaser and
Purchaser delivered to the Company and the Bank a schedule (a Disclosure Schedule)
setting forth, among other things, items the disclosure of which is necessary or appropriate either
in response to an express disclosure requirement contained in a provision hereof or as an exception
to one or more representations or warranties contained in Section 2.2 with respect to the Company
or the Bank, or in Section 2.3 with respect to Purchaser, or to one or more covenants contained in
Article III.
(b) Material Adverse Effect means any fact, event, change, development,
circumstance or effect that, individually or in the aggregate, (1) is or would be reasonably
likely to be material and adverse to the business, assets, liabilities, results of
operations or condition (financial or otherwise) of the Company, the Bank and the
Subsidiaries, taken as a whole (provided, however, that with respect to this clause (1), a
Material Adverse Effect shall not be deemed to include any fact, event, change, condition,
development, circumstance or effect to the extent resulting from actions or omissions by the
Company taken or not taken with the prior written consent or at the written direction of
Purchaser or as expressly required by this Agreement), or (2) materially impairs or would be
reasonably likely to materially impair the ability of the Company or the Bank to perform its
obligations under this Agreement or to consummate the Closing. Notwithstanding the
foregoing, any adverse change, event or effect to the extent arising from: (i) conditions
generally affecting the United States economy or generally affecting the banking industry
except to the extent the Company and the Bank, taken as a whole, are affected in a
materially disproportionate manner as compared to other community banks in the southeastern
United States; (ii) national or international political or social conditions, including
terrorism or
the engagement by the United States in hostilities or acts of war except to the extent
the Company and the Bank, taken as a whole, are affected in a materially disproportionate
manner as compared to other community banks in the southeastern United States; (iii) changes
in any federal, state, local or foreign Laws, any rule or regulation of any SRO, statutes,
regulations, rules, ordinances and judgments, decrees, orders, writs and injunctions
(collectively, Laws) issued by any Governmental Entity; (iv) any action taken by
Purchaser prior to or at the Closing; (v) any failure, in and of itself, by the Company or
the Bank to meet any internal or disseminated projections, forecasts or revenue or earnings
predictions for any period (provided that any underlying causes of such failure shall not be
excluded in determining whether a Material Adverse Effect has occurred or would reasonably
be expected to occur); (vi) any natural disaster except to the extent the Company and the
Bank, taken as a whole, are affected in a materially disproportionate manner as compared to
other community banks in the southeastern United States (vii) any compliance by the Company
or the Bank with any express written request made by Purchaser; (viii) a decline in the
price, or a change in the
A-5
trading volume, of the Common Stock on the NASDAQ (provided that
any underlying causes of such decline or change shall not be excluded in determining whether
a Material Adverse Effect has occurred or would reasonably be expected to occur); or (ix)
the public announcement, pendency or completion of the transactions contemplated by this
Agreement, including any action taken in response thereto by any person with which the
Company or the Bank does business shall not, in any such case, be taken into account in
determining whether a Material Adverse Effect has occurred or would reasonably be expected
to occur.
(c) Previously Disclosed with regard to (1) a party means information set
forth in its Disclosure Schedule, and (2) the Company or the Bank means information publicly
disclosed by the Company in (A) its Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, as filed by it with the Securities and Exchange Commission
(SEC) on March 15, 2010 (including all exhibits included or incorporated by
reference therein) (the Company 10-K), or (B) any Current Report on Form 8-K filed
or furnished by it with the SEC since January 1, 2011 and publicly available prior to the
date of this Agreement (excluding any risk factor disclosures contained in such documents
under the heading Risk Factors and any disclosure of risks included in any
forward-looking statements disclaimer or other statements that are similarly non-specific
and are predictive or forward-looking in nature).
(d) To the knowledge of the Company, to the knowledge of the Bank,
or any similar phrase means, (i) with respect to any fact or matter, the actual knowledge of
Stephen M. Rownd or James E. Adams, and (ii) with respect to facts or matters relating to
representations and warranties set forth in Section 2.2(w), Stephen M. Rownd, James E. Adams
or Steve Droke, in the case of each of clauses (i) and (ii) without any duty to investigate.
2.2 Representations and Warranties of the Company and the Bank. The Company and the Bank, jointly and severally, represent and warrant to Purchaser, as of the
date of this Agreement and as of the Closing Date (except to the extent made only as of a specified
date in which case as of such date), that, except as Previously Disclosed:
(a) Organization and Authority. (1) The Company is, and at the Closing Date
will be, a corporation duly organized, validly existing and in good standing under the laws
of the State of Tennessee. The Company is a bank holding company duly registered under the
Bank Holding Company Act of 1956, as amended. The Company has, and at the Closing Date will
have, the power and authority (corporate, governmental, regulatory and otherwise) and has or
will have all necessary approvals, orders, licenses, certificates, permits and other
governmental authorizations (collectively, the Authorizations) to own or lease all
of the assets owned or leased by it and to conduct its business in all material respects in
the manner Previously Disclosed, and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted except where
the failure to have such power and authority or such Authorizations has not had,
individually or in the aggregate, a Material Adverse Effect. The Company is, and at the
Closing Date will be, duly licensed or qualified to do business and in good standing as a
foreign corporation in all jurisdictions in which the
nature of the activities conducted by the Company requires such qualification except
for jurisdictions in which the failure to be so qualified or authorized has not had,
individually or in the aggregate, a Material Adverse Effect. The Charter, as amended, of
the Company (the Charter) complies in all material respects with applicable Law.
A complete and correct copy of the Charter and bylaws of the Company, as amended and as
currently in effect, has been delivered or made available to Purchaser. The Companys
direct and indirect subsidiaries (other than the Bank) (each a Subsidiary and
collectively the Subsidiaries) are listed on Schedule A to this Agreement.
(2) The Bank is a wholly owned subsidiary of the Company and is a corporation
and state chartered bank duly organized, validly existing and in good standing under
the Laws of the State of Tennessee. The deposit accounts of the Bank are insured up
to applicable limits by the Deposit Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation (the FDIC); all premiums and
assessments required to be paid in connection therewith have been paid when due; and
no proceedings for the termination or revocation of such insurance are pending or,
to the knowledge of the Company, threatened. The Bank has the power and authority
(corporate, governmental, regulatory and otherwise) and has or will have all
necessary Authorizations to own or lease all of the assets owned or leased by it and
to conduct its business in
A-6
all material respects in the manner Previously Disclosed,
except where the failure to have such power and authority or such Authorizations has
not had, individually or in the aggregate, a Material Adverse Effect. The Bank is
duly licensed or qualified to do business and in good standing in all jurisdictions
in which the nature of the activities conducted by the Bank requires such
qualification except for jurisdictions in which the failure to be so qualified or
authorized has not had, individually or in the aggregate, a Material Adverse Effect.
The charter (Bank Charter) of the Bank complies in all material respects
with applicable Law. A complete and correct copy of the Bank Charter and the bylaws
of the Bank, as amended and as currently in effect, has been delivered or made
available to Purchaser.
(3) Each of the Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing under the Laws of its jurisdiction
of organization. Each such Subsidiary has the power and authority (corporate,
governmental, regulatory and otherwise) and has or will have all necessary
Authorizations to own or lease all of the assets owned or leased by it and to
conduct its business in all material respects as Previously Disclosed, except where
the failure to have such power and authority or such Authorizations has not had,
individually or in the aggregate, a Material Adverse Effect. Each such Subsidiary
is duly licensed or qualified to do business and in good standing as a foreign
corporation or other legal entity in all jurisdictions in which the nature of the
activities conducted by such Subsidiary requires such qualification except for
jurisdictions in which the failure to be so qualified or authorized has not had,
individually or in the aggregate, a Material Adverse Effect. The charter, articles
or certificate of incorporation, certificate of trust or other organizational
document of each Subsidiary comply in all material respects with applicable Law. A
complete and correct copy of the charter, articles or certificate of incorporation
or certificate of trust and bylaws of each Subsidiary (or similar governing
documents), as amended and as currently in effect, has been delivered or made
available to Purchaser.
(b) Capitalization. The authorized capital stock of the Company consists of
130 shares of organizational common stock, par value $10.00 per share, of the Company (the
Organizational Common Stock), 20,000,000 shares of Common Stock and 1,000,000
shares of preferred stock, no par value, of the Company (the Company Preferred
Stock). As of the close of business on May 2, 2011 (the Capitalization
Date), there were no shares of Organizational Common Stock and no more than 13,206,952
shares of Common Stock outstanding (which includes restricted shares) and 72,278 shares of
Series A Preferred and no other shares of Company Preferred Stock outstanding. Since the
Capitalization Date and through the date of this Agreement, except in connection with this
Agreement and the transactions contemplated hereby, and as set forth in Section 2.2(b) of
the Company Disclosure Schedule, the Company has not (1) issued or authorized the issuance
of any shares of Organizational Common Stock, Common Stock or Company Preferred Stock,
or any securities convertible into or exchangeable or exercisable for shares of
Organizational Common Stock, Common Stock or Company Preferred Stock, (2) reserved for
issuance any shares of Organizational Common Stock, Common Stock or Company Preferred Stock
or (3) repurchased or redeemed, or authorized the repurchase or redemption of, any shares of
Organizational Common Stock, Common Stock or Company Preferred Stock. As of the close of
business on the Capitalization Date, other than in respect of shares of Common Stock
reserved for issuance in connection with the Treasury Warrants, any stock option or other
equity incentive plan in respect of which an aggregate of no more than 146,169 shares of
Common Stock have been reserved for issuance and under the Companys Dividend Reinvestment
Plan, no shares of Organizational Common Stock, Common Stock or Company Preferred Stock were
reserved for issuance. All of the issued and outstanding shares of Organizational Common
Stock, Common Stock and Company Preferred Stock have been duly authorized and validly issued
and are fully paid and nonassessable, and have been issued in compliance with all federal
and state securities laws, and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities. All shares of
Organizational Common Stock are callable by the Company at any time at a price of $10.00 per
share by the Company. No bonds, debentures, notes or other indebtedness having the right to
vote on any matters on which the shareholders of the Company may vote (Voting
Debt) are issued and outstanding. As of the date of this Agreement, except (A)
pursuant to any cashless exercise provisions of any Company stock options or pursuant to the
surrender of shares to the Company or the withholding of shares by the Company to cover tax
withholding
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obligations under the Benefit Plans, (B) the warrant to purchase up to 635,504
shares of Common Stock sold by the Company to the Treasury pursuant to that certain Letter
Agreement and Securities Purchase Agreement dated as of December 23, 2008 or (C) as set
forth elsewhere in this Section 2.2(b) or on the Company Disclosure Schedule, the Company
does not have and is not bound by any outstanding subscriptions, options, calls, commitments
or agreements of any character calling for the purchase or issuance of, or securities or
rights convertible into or exchangeable for, any shares of Organizational Common Stock,
Common Stock or Company Preferred Stock or any other equity securities of the Company or
Voting Debt or any securities representing the right to purchase or otherwise receive any
shares of capital stock of the Company (including any rights plan or agreement). Section
2.2(b) of the Company Disclosure Schedule sets forth a table listing the outstanding series
of trust preferred and subordinated debt securities of the Company and the Bank and certain
information with respect thereto, including the holders of such securities as of the date of
this Agreement if known to the Company, and all such information is accurate and complete to
the knowledge of the Company and the Bank.
(c) Subsidiaries. With respect to the Bank and each of the Subsidiaries, (1)
all the issued and outstanding shares of such entitys capital stock have been duly
authorized and validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities Laws, and were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or purchase securities,
and (2) there are no outstanding options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations convertible into or
exchangeable for, or any contracts or commitments to issue or sell, shares of such entitys
capital stock, any other equity security or any Voting Debt, or any such options, rights,
convertible securities or obligations. Except as set forth in Section 2.2(c) of the Company
Disclosure Schedule, the Company owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Bank and the Subsidiaries, free and clear
of all Liens. Except as set forth in Section 2.2(c) of the Company Disclosure Schedule, the
Company does not own, directly or indirectly, any capital stock or other equity securities
of any person that is not a Subsidiary or the Bank.
(d) Authorization. (1) Each of the Company and the Bank has the full legal
right, corporate power and authority to enter into this Agreement and the other agreements
referenced herein to which it will be a party and to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the other
agreements referenced herein to which each of the Company and the Bank will be a party and
the consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Boards of Directors of each of the Company and the Bank. This Agreement
has been, and the other agreements referenced herein to which they will be a party, when
executed, will be, duly and validly executed and delivered by the Company and the Bank and,
assuming due authorization, execution and delivery by Purchaser, is and will be a valid and
binding obligation of
each of the Company and the Bank enforceable against each of the Company and the Bank
in accordance with its terms (except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors rights or by general equity principles).
No other corporate proceedings are necessary for the execution and delivery by the Company
or the Bank of this Agreement and the other agreements referenced herein to which it will be
a party, the performance by them of their obligations hereunder and thereunder or the
consummation by them of the transactions contemplated hereby, subject to receipt of the
approval by the Companys shareholders of the Shareholder Proposal. Except as set forth in
Section 2.2(d) of the Company Disclosure Schedule, the only vote of the shareholders of the
Company required in connection with the approval of the Shareholder Proposal is the
affirmative vote of the holders of not less than a majority of the outstanding Common Stock
entitled to vote at the meeting at which such a vote is taken. All shares of Common Stock
outstanding on the record date for a meeting at which a vote is taken with respect to the
Shareholder Proposal shall be eligible to vote on such proposal.
(2) Neither the execution and delivery by the Company or the Bank of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by the Company or the Bank with any of the provisions hereof, will (A)
violate, conflict with, or result in a breach of any provision of, or constitute a
default (or an event that, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or result in the loss of
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any benefit or creation of any right on the part of any third party under, or accelerate
the performance required by, or result in a right of termination or acceleration of,
or result in the creation of any Liens upon any of the material properties
or assets of the Company, the Bank or any Subsidiary under any of the terms,
conditions or provisions of (i) its charter or bylaws (or similar governing
documents) or the certificate of incorporation, charter, bylaws or other governing
instrument of any Subsidiary or (ii) except as set forth in Section 2.2(d) of the
Company Disclosure Schedule, and except for defaults that would not have nor
reasonably be expected to have a Material Adverse Effect, any material note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which the Company, the Bank or any Subsidiary is a party or by which
it may be bound, including without limitation the trust preferred securities issued
by Greene County Capital Trust I, Greene County Capital Trust II, GreenBank Capital
Trust I, Civitas Statutory Trust I, Cumberland Capital Statutory Trust II or the
related indentures (collectively, the Trust Preferred Securities), or to
which the Company, the Bank or any Subsidiary or any of the properties or assets of
the Company, the Bank or any Subsidiary may be subject, or (B) except for violations
that would not have nor reasonably be expected to have a Material Adverse Effect,
assuming the consents referred to in Section 2.2(f) are duly obtained, violate any
Law applicable to the Company, the Bank or any Subsidiary or any of their respective
properties or assets.
(e) Accountants. Dixon Hughes PLLC, who has expressed its opinion with respect
to the consolidated financial statements contained in the Company 10-K, is as of the date of
such opinion a registered independent public accountant, within the meaning of the Code of
Professional Conduct of the American Institute of Certified Public Accountants, as required
by the Securities Act and the rules and regulations promulgated thereunder and by the rules
of the Public Accounting Oversight Board.
(f) Consents. Schedule 2.2(f) of the Company Disclosure Schedule lists all
governmental and any other material consents, approvals, authorizations, applications,
registrations and qualifications that are required to be obtained in connection with or for
the consummation of the transactions contemplated by this Agreement (the Required
Approvals). Other than the securities or blue sky laws of the various states and the
Required Approvals, no material notice to, registration, declaration or filing with,
exemption or review by, or authorization, order, consent or approval of, any Governmental
Entity or SRO, or expiration or termination of any statutory waiting period, is necessary
for the consummation by the Company or the Bank of the transactions contemplated by this
Agreement.
(g) Financial Statements. The Company has previously made available to
Purchaser copies of the consolidated statements of financial condition of the Company, the
Bank and the Subsidiaries as of
December 31 for the fiscal years 2008, 2009 and 2010, and the related consolidated
statements of operations, of comprehensive income, of changes in shareholders equity, and
of cash flows for the fiscal years 2008 through 2010, inclusive, as reported in the Company
10-K, in each case accompanied by the audit report of Dixon Hughes PLLC. The December 31,
2010 consolidated statement of financial condition of the Company (including the related
notes, where applicable) fairly presents in all material respects the consolidated financial
position of the Company, the Bank and the Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 2.2(g) (including the related notes, where
applicable) fairly present in all material respects, and the financial statements to be
filed by the Company with the SEC after the date of this Agreement will fairly present in
all material respects (subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount), the results of the consolidated operations,
comprehensive income, changes in shareholders equity, cash flows and the consolidated
financial position of the Company, the Bank and the Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; each of such statements (including
the related notes, where applicable) in all material respects complies, and the financial
statements to be filed by the Company with the SEC after the date of this Agreement will
comply, with applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto; and each of such statements (including the related notes,
where applicable) has been, and the financial statements to be filed by the Company with the
SEC after the date of this Agreement will be, prepared in accordance with generally accepted
accounting principles (GAAP) consistently applied during the periods involved,
except as indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. There is
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no transaction, arrangement or other relationship between
the Company, the Bank or any Subsidiary and an unconsolidated or other Affiliated entity
that is not reflected on the financial statements specified in this Section 2.2(g). The
books and records of the Company, the Bank and the Subsidiaries in all material respects
have been, and are being, maintained in accordance with applicable Law and GAAP accounting
requirements and reflect only actual transactions. Dixon Hughes PLLC has not resigned or
been dismissed as independent public accountants of the Company as a result of or in
connection with any disagreements with the Company on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
(h) Reports. (1) Since December 31, 2008, the Company, the Bank and each
Subsidiary has timely filed all material reports, registrations, documents, filings,
statements and submissions, together with any amendments thereto, that it was required to
file with any Governmental Entity or self-regulatory organization having jurisdiction over
the Company (SRO) (the foregoing, collectively, the Company Reports) and
has paid all material fees and assessments due and payable in connection therewith. As of
their respective dates of filing, the Company Reports complied in all material respects with
all statutes and applicable rules and regulations of the applicable Governmental Entities or
SROs. Except as set forth in Section 2.2(h)(1) of the Company Disclosure Schedule, to the
knowledge of the Company, as of the date of this Agreement, there are no outstanding
comments from the SEC or any other Governmental Entity or any SRO with respect to any
Company Report. In the case of each such Company Report filed with or furnished to the SEC,
such Company Report did not, as of its date or if amended prior to the date of this
Agreement, as of the date of such amendment, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in order to make
the statements made in it, in light of the circumstances under which they were made, not
misleading and complied as to form in all material respects with the applicable requirements
of the Securities Act of 1933, as amended (the Securities Act), and the Securities
Exchange Act of 1934, as amended (the Exchange Act). With respect to all other
Company Reports, the Company Reports were complete and accurate in all material respects as
of their respective dates, or the dates of their respective amendments. No executive
officer of the Company, the Bank or any Subsidiary has failed in any respect to make the
certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act.
Copies of all Company Reports not otherwise publicly filed have, to the extent allowed by
applicable Law, been made available to Purchaser by the Company. Except for normal
examinations conducted by a Governmental Entity or SRO in the regular course of the business
of the Company, the Bank and the Subsidiaries, no Governmental Entity or SRO has initiated
any proceeding or, to the knowledge of the Company, investigation into the business or
operations of the Company, the Bank or any Subsidiary since December 31, 2008. Except as
set forth in Section 2.2(h)(1) of the Company Disclosure Schedule, to the
knowledge of the Company and the Bank, there is no unresolved violation, criticism or
exception by any Governmental Entity or SRO with respect to any report or statement relating
to any examinations of the Company, the Bank or any of the Subsidiaries.
(2) The Company (i) keeps books, records and accounts that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company, the Bank and the Subsidiaries, and (ii) maintains a system of
internal accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with managements general or specific
authorization, (B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with managements
general or specific authorization and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company (A) has implemented and
maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Exchange Act) to ensure that material information relating to the Company, including
the Bank and the Subsidiaries, is made known to the chief executive officer and the
chief financial officer of the Company by others within those entities, and (B) has
disclosed, based on its most recent evaluation prior to the date hereof, to the
Companys outside auditors and the audit committee of the Board of Directors (x) any
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) that are reasonably likely to adversely affect the Companys ability
to record, process, summarize and report financial information and (y) any
A-10
fraud, whether or not material, that involves management or other employees who have a
significant role in the Companys internal controls over financial reporting. Since
December 31, 2008, (A) none of the Company, the Bank or any Subsidiary or, to the
knowledge of the Company or the Bank, any director, officer, employee, auditor,
accountant or representative of the Company, the Bank or any Subsidiary has received
or otherwise had or obtained knowledge of any material complaint, allegation,
assertion or claim, whether written or oral, regarding the accounting or auditing
practices, procedures, methodologies or methods of the Company, the Bank or any
Subsidiary or their respective internal accounting controls, including any material
complaint, allegation, assertion or claim that the Company, the Bank or any
Subsidiary has engaged in questionable accounting or auditing practices, and (B) no
attorney representing the Company, the Bank or any Subsidiary, whether or not
employed by the Company, the Bank or any Subsidiary, has reported evidence of a
material violation of securities laws, breach of fiduciary duty or similar violation
by the Company or any of its officers, directors, employees or agents to the
Companys Board of Directors or any committee thereof or to any director or officer
of the Company. The Company is otherwise in compliance in all material respects
with all applicable provisions of the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act), as amended and the rules and regulations promulgated
thereunder and as of the date of this Agreement, the Company has no knowledge of any
reason that its outside auditors and its chief executive officer and chief financial
officer shall 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, without qualification, when next due.
(i) Properties and Leases. The Company, the Bank and the Subsidiaries have
good and marketable title to all real properties and transferable title to all other
properties and assets, tangible or intangible, owned by them (other than any assets or
properties classified as other real estate owned) that are material to the operation of
their businesses, in each case free from Liens (other than (i) Liens for current taxes and
assessments not yet past due or being contested in good faith, (ii) inchoate Liens for
construction in progress, (iii) mechanics, materialmens, workmens, repairmens,
warehousemens and carriers Liens arising in the ordinary course of business of the
Company, the Bank or such Subsidiary consistent with past practice for sums not yet
delinquent or being contested in good faith by appropriate proceedings and (iv) Liens with
respect to tenant personal property, fixtures and/or leasehold improvements at the subject
premises arising under state statutes and/or principles of common law (collectively,
Permitted Liens)) that would impair in any material respect the value thereof or
interfere with the use made or to be made thereof by them in any material respect. The
Company, the Bank and the Subsidiaries own, lease or
otherwise have valid easement rights to use all properties as are necessary to their
operations as now conducted. To the knowledge of the Company, the Company, the Bank and the
Subsidiaries hold all leased real or personal property under valid and enforceable leases
with no exceptions that would interfere with the use made or to be made thereof by them in
any material respect. None of the Company, the Bank or any Subsidiary or, to the knowledge
of the Company, any other party thereto is in default in any material respect under any
lease described in the immediately preceding sentence. There are no condemnation or eminent
domain proceedings pending or, to the knowledge of the Company, threatened in writing, with
respect to any of the real properties owned, or to the Companys knowledge, any of the real
properties leased, by the Company, the Bank or any of the Subsidiaries. None of the
Company, the Bank or any of the Subsidiaries has, within the last two (2) years, made any
material title claims, or has outstanding any material title claims, under any policy of
title insurance respecting any parcel of real property.
(j) Taxes. Except as set forth in Section 2.2(j) of the Company Disclosure
Schedule, (1) each of the Company, the Bank and the Subsidiaries has duly and timely filed
(including, pursuant to applicable extensions granted without penalty) all material Tax
Returns required to be filed by it and all such Tax Returns are correct and complete in all
material respects. Each of the Company, the Bank and the Subsidiaries have paid in full, or
made adequate provision in the financial statements of the Company (in accordance with GAAP)
for, all Taxes shown as due on such Tax Returns; (2) no material deficiencies for any Taxes
have been proposed, asserted or assessed against or with respect to any Taxes due by, or Tax
Returns of, the Company, the Bank or any of the Subsidiaries which deficiencies have not
since been resolved; and (3) there are no material Liens for Taxes upon the assets of either
the Company, the Bank or the Subsidiaries except for statutory Liens for Taxes not yet due
or that are being contested in good faith by
A-11
appropriate proceedings and for which adequate
reserves in accordance with GAAP have been provided. None of the Company, the Bank or any
of the Subsidiaries has been a distributing corporation or a controlled corporation in
any distribution occurring during the last two years in which the parties to such
distribution treated the distribution as one to which Section 355 of the U.S. Internal
Revenue Code of 1986, as amended and the Treasury Regulations promulgated thereunder (the
Code) is applicable. None of the Company, the Bank or any Subsidiary has engaged
in any transaction that is the same as or substantially similar to a listed transaction
for United States federal income tax purposes within the meaning of Treasury Regulations
section 1.6011-4. None of the Company, the Bank or any of the Subsidiaries has engaged in a
transaction of which it made disclosure to any taxing authority to avoid penalties under
Section 6662(d) or any comparable provision of state, foreign or local Law. None of the
Company, the Bank or any of the Subsidiaries has participated in any tax amnesty or
similar program offered by any taxing authority to avoid the assessment of penalties or
other additions to Tax. The Company, the Bank and each of the Subsidiaries have complied in
all material respects with all requirements to report information for Tax purposes to any
individual or taxing authority, and have collected and maintained all requisite
certifications and documentation in valid and complete form with respect to any such
reporting obligation, including, without limitation, valid Internal Revenue Service Forms
W-8 and W-9. No claim has been made by a Tax Authority in writing to the Company, the Bank
or any of the Subsidiaries in a jurisdiction where the Company, the Bank or any of the
Subsidiaries, as the case may be, does not file Tax Returns that the Company, the Bank or
any of such Subsidiaries, as the case may be, is or may be subject to Tax by that
jurisdiction. None of the Company, the Bank or any of the Subsidiaries has granted any
waiver, extension or comparable consent regarding the application of the statute of
limitations with respect to any Taxes or Tax Return that is outstanding, nor has any request
for any such waiver or consent been made. None of the Company, the Bank or any of the
Subsidiaries has been or is in violation (or with notice or lapse of time or both, would be
in violation) of any applicable Law relating to the payment or withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or any similar provisions of state, local or foreign Law). Each of the Company,
the Bank and its Subsidiaries has duly and timely withheld from employee salaries, wages and
other compensation and paid over to the appropriate taxing authority all amounts required to
be so withheld and paid over for all periods under all applicable Laws. No audits or
material investigations by any taxing authority relating to any Tax Returns of any of the
Company, the Bank or any of the Subsidiaries is in progress, nor has the Company, the Bank
or any of the Subsidiaries received notice from any taxing authority of the commencement of
any audit not yet in progress. There are no outstanding powers of attorney enabling any
person or entity not a party to this Agreement to represent the Company, the Bank or any
Subsidiary with respect to Tax matters. None of the Company, the Bank or any of the
Subsidiaries has applied for, been
granted, or agreed to any accounting method change for which it will be required to
take into account any adjustment under Code Section 481 or any similar provision. There are
no material elections regarding Taxes affecting the Company, the Bank or any of the
Subsidiaries. None of the Company, the Bank or any of the Subsidiaries has undergone an
ownership change within the meaning of Code
Section 382(g) provided that the
Company makes no representations as to whether the execution of this Agreement or the
consummation of the transactions contemplated hereby will constitute an ownership change
under Code Section 382(g). For purposes of this Agreement, Taxes shall mean all
taxes, charges, levies, penalties or other assessments imposed by any United States federal,
state, local or foreign taxing authority, including any income, excise, property, sales,
transfer, franchise, payroll, withholding, social security, abandoned or unclaimed property
or other taxes, together with any interest, penalties or additions to tax attributable
thereto, and any payments made or owing to any other person measured by such taxes, charges,
levies, penalties or other assessment, whether pursuant to a tax indemnity agreement, tax
sharing payment or otherwise (other than pursuant to commercial agreements or Benefit
Plans). For purposes of this Agreement, Tax Return shall mean any return, report,
information return or other document (including any related or supporting information)
required to be filed with any taxing authority with respect to Taxes, including, without
limitation, all information returns relating to Taxes of third parties, any claims for
refunds of Taxes and any amendments or supplements to any of the foregoing.
(k) Absence of Certain Changes. Since December 31, 2010, except as Previously
Disclosed, (1) the Company, the Bank and the Subsidiaries have conducted their respective
businesses in all material respects in the ordinary and usual course of business and
consistent with prior practice, (2) none of the Company, the Bank or any Subsidiary has
issued any securities or incurred any liability or obligation,
A-12
direct or contingent, for
borrowed money, except borrowings in the ordinary course of business, (3) except for
publicly disclosed ordinary dividends on the Common Stock and outstanding Company Preferred
Stock or as contemplated by Section 2.2(b) of this Agreement, the Company has not made or
declared any distribution in cash or in kind to its shareholders or issued or repurchased
any shares of its capital stock or other equity interests, (4) no fact, event, change,
condition, development, circumstance or effect has occurred that has had or would reasonably
be expected to have a Material Adverse Effect and (5) no material default (or event that,
with notice or lapse of time, or both, would constitute a material default) exists on the
part of the Company, the Bank or any Subsidiary or, to their knowledge, on the part of any
other party, in the due performance and observance of any term, covenant or condition of any
Company Significant Agreement that would, individually or in the aggregate, constitute a
Material Adverse Effect.
(l) No Undisclosed Liabilities. Except as set forth in Section 2.2(l) of the
Company Disclosure Schedule, none of the Company, the Bank or any of the Subsidiaries has
any liabilities or obligations of any nature and is not an obligor under any guarantee,
keepwell or other similar agreement (absolute, accrued, contingent or otherwise) except for
(1) liabilities or obligations reflected in or reserved against in the Companys
consolidated balance sheet as of December 31, 2010, (2) current liabilities that have arisen
since December 31, 2010 in the ordinary and usual course of business and consistent with
past practice and that have either been Previously Disclosed or would not have, individually
or in the aggregate, a material impact on the Company, the Bank or any Subsidiary and (3)
contractual liabilities under (other than liabilities arising from any breach or violation
of) agreements made in the ordinary and usual course of business and consistent with past
practice and that have either been Previously Disclosed or would not have, individually or
in the aggregate, a material impact on the Company, the Bank or any Subsidiary.
(m) Commitments and Contracts. (i) The Company has Previously Disclosed or
made available to Purchaser or its representatives true, correct and complete copies of,
each of the following written contracts to which the Company, the Bank or any Subsidiary is
a party (each, a Company Significant Agreement):
(1) any contract or agreement which is a material contract within the meaning
of Item 601(b)(10) of Regulation S-K to be performed in whole or in part after the
date of this Agreement;
(2) any contract or agreement with respect to the employment or service of any
current or former directors, officers, or consultants of the Company, the Bank or
any of the Subsidiaries;
(3) any contract or agreement with any director, officer, or Affiliate of the
Company, the Bank or any of the Subsidiaries;
(4) any contract or agreement materially limiting the freedom of the Company,
the Bank or any Subsidiary to engage in any line of business or to compete with any
other person or prohibiting the Company, the Bank or any Subsidiary from soliciting
customers, clients or employees, in each case whether in any specified geographic
region or business or generally;
(5) any contract or agreement with a labor union or guild (including any
collective bargaining agreement);
(6) any contract or agreement which grants any person a right of first refusal,
right of first offer or similar right with respect to any material properties,
assets or businesses of the Company, the Bank or the Subsidiaries other than other
real estate owned;
(7) any trust indenture, mortgage, promissory note, loan agreement or other
contract, agreement or instrument for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP, in each case, where the Company,
the Bank or any
A-13
Subsidiary is a lender, borrower or guarantor other than those
entered into in the ordinary course of business;
(8) any contract or agreement entered into since January 1, 2005 (and any
contract or agreement entered into at any time to the extent that material
obligations remain as of the date hereof) relating to the acquisition or disposition
of any material business or material assets (whether by merger, sale of stock or
assets or otherwise), which acquisition or disposition is not yet complete or where
such contract contains continuing material obligations, including continuing
material indemnity obligations, of the Company, the Bank or any of the Subsidiaries;
(9) any agreement of guarantee, support or indemnification by the Company, the
Bank or any Subsidiary, assumption or endorsement by the Company, the Bank or any
Subsidiary of, or any similar commitment by the Company, the Bank or any Subsidiary
with respect to, the obligations, liabilities (whether accrued, absolute, contingent
or otherwise) or indebtedness of any other person other than those entered into in
the ordinary course of business;
(10) any alliance, cooperation, joint venture, stockholders partnership or
similar agreement involving a sharing of profits or losses relating to the Company,
the Bank or any Subsidiary;
(11) any agreement, option or commitment or right with, or held by, any third
party to acquire, use or have access to any assets or properties, or any interest
therein, of the Company, the Bank or any Subsidiary; and
(12) any material contract or agreement that would require any consent or
approval of a counterparty as a result of the consummation of the transactions
contemplated by this Agreement.
(ii) (A) Each of the Company Significant Agreements has been duly and validly
authorized, executed and delivered by the Company, the Bank or any Subsidiary and is binding
on the Company, the Bank and the Subsidiaries, as applicable, and to the Companys
knowledge, is in full force and effect; (B) the Company, the Bank and each of the
Subsidiaries, as applicable, are in all material respects in compliance with and
have in all material respects performed all obligations required to be performed by them to
date under each Company Significant Agreement; (C) as of the date hereof, none of the
Company, the Bank or any of the Subsidiaries has received notice of any material violation
or default (or any condition that with the passage of time or the giving of notice would
cause such a violation of or a default) by any party under any Company Significant
Agreement; and (D) no other party to any Company Significant Agreement is, to the knowledge
of the Company, in default in any material respect thereunder.
(n) Offering of Purchased Shares. 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 that would require the integration of such offering with the offering of
any of the Purchased Shares, the shares underlying the Option or CVRs to be issued pursuant
to this Agreement, in each case under the Securities Act, and the rules and regulations of
the SEC promulgated thereunder, which might subject the offering, issuance or sale of any of
the Purchased Shares or the shares underlying the Option to Purchaser or the CVRs to the
Companys shareholders (excluding the Purchaser) pursuant to this Agreement to the
registration requirements of the Securities Act.
(o) Status of Purchased Shares. The Purchased Shares to be issued pursuant to
this Agreement have been duly authorized by all necessary corporate action, in each case
subject to the approval of the Shareholder Proposal. When issued, delivered and sold
against receipt of the consideration therefor as provided in this Agreement, the Purchased
Shares will be validly issued, fully paid and nonassessable, will not be issued in violation
of or subject to preemptive rights of any other shareholder of the Company and will not
result in the violation or triggering of any price-based antidilution adjustments under any
agreement to which the Company, the Bank or any Subsidiary is a party. The voting rights of
the
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holders of the Purchased Shares will be enforceable in accordance with the terms of the
Charter, the bylaws of the Company and applicable Law.
(p) Litigation and Other Proceedings. Except as set forth in Section 2.2(p) of
the Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary is a party
to any, and there are no pending or, to the Companys knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental or regulatory
investigations of any nature (1) against the Company, the Bank or any Subsidiary (excluding
those of the type contemplated by the following clause (2)) that, if adversely determined,
would reasonably be expected to result in damages, costs or any other liability owed by the
Company, the Bank or such Subsidiary, as applicable, in excess of $1,000,000 individually or
$5,000,000 in the aggregate or (2) as of the date hereof, challenging the validity or
propriety of the transactions contemplated by this Agreement. There is no material
injunction, order, judgment, decree or regulatory restriction (other than regulatory
restrictions of general application that apply to similarly situated companies) imposed upon
the Company, the Bank, any Subsidiary or the assets of the Company, the Bank or any
Subsidiary. There is no material unresolved violation, criticism or exception by any
Governmental Entity with respect to any report or relating to any examinations or
inspections of the Company, the Bank or any Subsidiary.
(q) Compliance with Laws. (1) The Company, the Bank and each Subsidiary have
all material permits, licenses, franchises, authorizations, orders and approvals of
(Permits), and have made all filings, applications and registrations with,
Governmental Entities and SROs that are required in order to permit them to own or lease
their properties and assets and to carry on their business as presently conducted, except
where the failure to have, or the suspension or cancellation of, any Permit has not had a
Material Adverse Effect. Except as has not had a Material Adverse Effect, each of the
Company, the Bank and each Subsidiary is and has been in compliance with and is not in
default or violation of, and none of them is, to the knowledge of the Company, under
investigation with respect to or, to the knowledge of the Company, has been threatened to be
charged with or given notice of any material violation of, any applicable material domestic
(federal, state or local) or foreign Law or order, demand, writ, injunction, decree or
judgment of any Governmental Entity or SRO. Except for statutory or regulatory restrictions
of general application, no Governmental Entity or SRO has placed any material restriction on
the business or properties of the Company, the Bank or any Subsidiary. Except as set forth
in Section 2.2(q) of the Company Disclosure Schedule, since December 31, 2009, none of the
Company, the Bank or any Subsidiary has received any written notification or communication
from any Governmental Entity or SRO
(A) asserting that the Company, the Bank or any Subsidiary is not in material
compliance with any applicable Law, (B) threatening to revoke any permit, license,
franchise, authorization, order or approval, or (C) threatening or contemplating revocation
or limitation of, or which would have the effect of revoking or limiting, FDIC deposit
insurance.
(2) Except as would not be material to the Company, the Bank and the
Subsidiaries, taken as a whole, the Bank and each Subsidiary have properly
administered all accounts for which the Bank or any Subsidiary acts as a fiduciary,
including accounts for which the Bank or any Subsidiary serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment adviser, in
accordance with the terms of the governing documents, applicable state and federal
law and regulation and common law in all material respects. None of the Bank or any
Subsidiary, or any director, officer or employee of the Bank or any Subsidiary, has
committed any breach of trust with respect to any such fiduciary account that would
be material to the Bank and the Subsidiaries, taken as a whole, and the accountings
for each such fiduciary account are true and correct in all material respects and
accurately reflect in all material respects the assets of such fiduciary account.
(r) Labor. Employees of the Company, the Bank and the Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements otherwise in
effect with respect to such employees. No labor organization or group of employees of the
Company, the Bank or any Subsidiary has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or threatened to be brought or filed
with the National Labor Relations Board or any other labor relations tribunal or authority. There
A-15
are no organizing activities (to the Companys knowledge), strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances, or other material labor
disputes pending or to the Companys knowledge threatened against or involving the Company,
the Bank or any Subsidiary. The Company, the Bank and each Subsidiary believe that their
relations with their employees are good. As of the date hereof, no executive officer of the
Company, the Bank or any Subsidiary has notified the Company, the Bank or any Subsidiary
that such officer intends to leave the employ of the Company, the Bank or any Subsidiary or
otherwise terminate such executive officers employment with the Company, the Bank or any
Subsidiary. To the knowledge of the Company, no executive officer of the Company, the Bank
or any Subsidiary is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other agreement or any restrictive covenant, and to the
knowledge of Company the continued employment of each such executive officer does not
subject the Company, the Bank or any Subsidiary to any liability with respect to any of the
foregoing matters. The Company, the Bank and the Subsidiaries are in compliance with all
notice and other requirements under the Worker Adjustment and Retraining Notification Act of
1988, and any other similar applicable foreign, state, or local Laws relating to facility
closings and layoffs.
(s) Company Benefit Plans.
(1) (A) Section 2.2(s)(1)(A) of the Company Disclosure Schedule sets forth a
complete list of the Companys Benefit Plans. With respect to each Benefit Plan,
except as set forth in Section 2.2(s)(1)(A) of the Company Disclosure Schedule, the
Company, the Bank and the Subsidiaries have complied, and are now in compliance, in
both instances in all material respects, with all provisions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), the Code and
all Laws and regulations applicable to such Benefit Plan; and (B) each Benefit Plan
has been administered in all material respects in accordance with its terms.
Benefit Plan means any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, any employee pension benefit plan within the meaning of
Section 3(2) of ERISA, and any bonus, incentive, deferred compensation, vacation,
stock purchase, stock option, severance, employment, change of control, fringe
benefit, or other compensation or employee benefit plan, program, agreement,
arrangement or policy sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (an ERISA Affiliate), that together with the Company would be
deemed a single employer
within the meaning of section 4001(b) of ERISA, or to which the Company, the
Bank, any Subsidiary or any of their respective ERISA Affiliates is party, whether
written or oral, for the benefit of any director, former director, consultant,
former consultant, employee or former employee of the Company, the Bank or any
Subsidiary.
(2) With respect to each Benefit Plan, the Company has heretofore delivered or
made available to Purchaser or Previously Disclosed true and complete copies of each
of the following documents, to the extent applicable: (A) a copy of the Benefit
Plan and any amendments thereto (or if the Benefit Plan is not a written Benefit
Plan, a description thereof); (B) a copy of the two most recent annual reports and
actuarial reports, and the most recent report prepared with respect thereto in
accordance with Statement of Financial Accounting Standards No. 87; (C) a copy of
the most recent summary plan description required under ERISA with respect thereto;
(D) if the Benefit Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement and the latest financial
statements thereof; and (E) the most recent determination or opinion letter received
from the Internal Revenue Service with respect to each Benefit Plan intended to
qualify under section 401 of the Code.
(3) Except as set forth in Section 2.2(s)(3) of the Company Disclosure
Schedule, no claim has been made, or to the knowledge of the Company threatened,
against the Company, the Bank or any of the Subsidiaries related to the employment
and compensation of employees or any Benefit Plan, including, without limitation,
any claim related to the purchase of employer securities or to expenses paid under
any defined contribution pension plan other than ordinary course claims for
benefits.
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(4) No Benefit Plans are subject to Title IV or described in Section 3(37) of
ERISA, and none of the Company, the Bank or its Subsidiaries has at any time within
the past six (6) years sponsored or contributed to, or has or had within the past
six (6) years any liability or obligation in respect of, any plan subject to Title
IV or described in Section 3(37) of ERISA. Except as set forth in Section 2.2(s)(4)
of the Company Disclosure Schedule, neither the Company, the Bank, nor any
Subsidiary has incurred any current or projected liability in respect of
post-retirement health, medical or life insurance benefits for Company Employees,
except as required to avoid an excise tax under Section 4980B of the Code or
comparable State benefit continuation laws.
(5) Each Benefit Plan intended to be qualified within the meaning of section
401(a) of the Code is so qualified and the trusts maintained thereunder are exempt
from taxation under section 501(a) of the Code, and, to the knowledge of the
Company, no condition exists that could reasonably be expected to jeopardize any
such qualification or exemption.
(6) None of the Company, the Bank or any Subsidiary, any Benefit Plan, any
trust created thereunder, or any trustee or administrator thereof has engaged in a
transaction in connection with which the Company, the Bank or any Subsidiary, any
Benefit Plan, any such trust, or any trustee or administrator thereof, or any party
dealing with any Benefit Plan or any such trust could be subject to either a civil
penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax imposed
pursuant to section 4975 or 4976 of the Code.
(7) There has been no material failure of a Benefit Plan that is a group health
plan (as defined in section 5000(b)(1) of the Code) to meet the requirements of
section 4980B(f) of the Code with respect to a qualified beneficiary (as defined in
section 4980B(g) of the Code).
(8) Except as set forth in Section 2.2(s)(8) of the Company Disclosure
Schedule, each Benefit Plan that is a non-qualified deferred compensation plan
within the meaning of Section 409A(d)(1) of the Code (a 409A Plan)
complies in all material respects with the requirements of Section 409A of the Code
and the guidance promulgated thereunder. From January 1, 2005 through December 31,
2008, each 409A Plan and any award thereunder was maintained in good faith
operational compliance with the requirements of (i) Section 409A of the Code and
(ii) (x) the proposed regulations issued thereunder, (y) the
final regulations issued thereunder or (z) Internal Revenue Service Notice
2005-1. From and after January 1, 2009, each 409A Plan and any award thereunder has
been maintained in operational compliance with the requirements of Section 409A of
the Code the final regulations issued thereunder. Except as set forth in Section
2.2(s)(8) of the Company Disclosure Schedule, as of and since December 31, 2008,
each 409A Plan and any award thereunder has been in documentary compliance with the
requirements of Section 409A of the Code and the final regulations issued
thereunder. Except as set forth in Section 2.2(s)(8) of the Company Disclosure
Schedule, no payment to be made under any 409A Plan is or will be subject to the
interest and additional tax payable pursuant to Section 409A(a)(1)(B) of the Code.
None of the Company, the Bank or any Subsidiary is party to, or otherwise obligated
under, any contract, agreement, plan or arrangement that provides for the gross-up
of taxes imposed by Section 409A(a)(1)(B) of the Code.
(9) (A) Except as set forth in Section 2.2(s)(9) of the Company Disclosure
Schedule or as required by applicable Law, neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including severance, unemployment compensation, excess
parachute payment (within the meaning of Section 280G of the Code), forgiveness of
indebtedness or otherwise) becoming due to any current or former employee, officer
or director of the Company, the Bank or any Subsidiary from the Company, the Bank or
any Subsidiary under any Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any Benefit Plan, (iii) result in any acceleration of the
time of payment or vesting of any such benefits, (iv) require the funding or
increase in the funding of any such benefits or (v) result in any limitation on the
right of the Company, the Bank or any Subsidiary to amend, merge, terminate or
receive a reversion of assets from any Benefit Plan or related trust and (B) except
as set forth in Section 2.2(s)(9) of the Company Disclosure Schedule
A-17
or as required
by applicable Law, none of the Company, the Bank or any 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 will
result, in any limitation on the right of the Company, the Bank or any Subsidiary to
amend, merge, terminate any Benefit Plan or receive a reversion of assets from any
Benefit Plan or related trust. Except as set forth in Section 2.2(s)(9) of the
Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary is
party to, or otherwise obligated under, any contract, agreement, plan or arrangement
that provides for the gross-up of excise taxes imposed by Section 4999 of the Code.
(10) The Company, the Bank and the Subsidiaries will be in compliance, as of
the Closing Date, with Sections 111 and 302 of the Emergency Economic Stabilization
Act of 2008, as amended by the U.S. American Recovery and Reinvestment Act of 2009,
including all guidance issued thereunder by a Governmental Entity (collectively
EESA). Except as set forth in Section 2.2(s)(10) of the Company
Disclosure Schedule, without limiting the generality of the foregoing, each employee
of the Company, the Bank, and the Subsidiaries who is subject to the limitations
imposed under EESA has executed a waiver of claims against the Company, the Bank and
the Subsidiaries with respect to limiting or reducing rights to compensation for so
long as the EESA limitations are required to be imposed.
(t) Risk Management Instruments. All material derivative instruments,
including, swaps, caps, floors and option agreements, whether entered into for the Companys
own account, or for the account of the Bank or one or more of the Subsidiaries, were entered
into (1) only in the ordinary and usual course of business and consistent with past
practice, (2) in accordance with commercially reasonable banking practices and in all
material respects with all applicable laws, rules, regulations and regulatory policies and
(3) with counterparties believed to be financially responsible at the time; and each of them
constitutes the valid and legally binding obligation of the Company, the Bank or one of the
Subsidiaries, enforceable in accordance with its terms. None of the Company, the Bank or
the Subsidiaries, or, to the knowledge of the Company, any other party thereto, is in breach
of any of its material obligations under any such agreement or arrangement.
(u) Agreements with Regulatory Agencies. Except as set forth in Section 2.2(u)
of the Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary is
subject to any cease-and-desist or other similar order or enforcement action issued by, or is a party to any
written agreement, consent agreement or memorandum of understanding with, or is a party to
any commitment letter or similar undertaking to, or is subject to any capital directive by,
or has adopted any board resolutions at the request of, any Governmental Entity or SRO (each
item in this sentence, a Regulatory Agreement), nor has the Company, the Bank or
any Subsidiary been advised since December 31, 2008 by any Governmental Entity or SRO that
it is considering issuing, initiating, ordering, or requesting any such Regulatory
Agreement. Except as set forth in Section 2.2(u) of the Company Disclosure Schedule, the
Company, the Bank and each Subsidiary are in compliance in all material respects with each
Regulatory Agreement to which it is a party or subject, and none of the Company, the Bank or
any Subsidiary has received any notice from any Governmental Entity or SRO indicating that
either the Company, the Bank or any Subsidiary is not in compliance in all material respects
with any such Regulatory Agreement.
(v) Environmental Liability. The Company, the Bank and the Subsidiaries have,
and at the Closing Date will have, complied in all material respects with all laws,
regulations, ordinances and orders relating to public health, safety or the environment
(including without limitation all laws, regulations, ordinances and orders relating to
releases, discharges, emissions or disposals to air, water, land or groundwater, to the
withdrawal or use of groundwater, to the use, handling or disposal of polychlorinated
biphenyls, asbestos or urea formaldehyde, to the treatment, storage, disposal or management
of hazardous substances, pollutants or contaminants, or to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances), the violation of which would or might
have a material impact on the Company, the Bank or any Subsidiary or the consummation of the
transactions contemplated by this Agreement. There is no legal, administrative, arbitral or
other proceeding, claim, action or notice of any nature seeking to impose, or that could
result in the imposition of, on the Company, the Bank or any Subsidiary, any liability or
obligation of the Company, the Bank or any Subsidiary with respect to any environmental
health or
A-18
safety matter or any private or governmental, environmental health or safety
investigation or remediation activity of any nature arising under common law or under any
local, state or federal environmental, health or safety statute, regulation or ordinance,
including the Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (CERCLA), pending or, to the Companys knowledge, threatened against
the Company, the Bank or any Subsidiary or any property in which the Company, the Bank or
any Subsidiary has taken a security interest the result of which has had or would reasonably
be expected to have a Material Adverse Effect; to the Companys knowledge, there is no
reasonable basis for, or circumstances that could reasonably be expected to give rise to,
any such proceeding, claim, action, investigation or remediation; and to the Companys
knowledge, none of the Company, the Bank or any Subsidiary is subject to any agreement,
order, judgment, decree, letter or memorandum by or with any Governmental Entity or third
party that could impose any such environmental obligation or liability.
(w) Loan Portfolio.
(1) Except as set forth in Section 2.2(w)(1) of the Company Disclosure
Schedule, as of April 29, 2011, none of the Company, the Bank or any Subsidiary is a
party to (A) any written or oral loan, loan agreement, note or borrowing arrangement
(including leases, credit enhancements, commitments, guarantees and interest-bearing
assets) (collectively, Loans), other than any Loan the unpaid principal
balance of which does not exceed $50,000, under the terms of which the obligor was,
as of March 31, 2011, over 90 days delinquent in payment of principal or interest or
in default of any other provision, or (B) Loan in excess of $100,000 with any
director, executive officer or five percent or greater shareholder of the Company,
the Bank or any Subsidiary, or to the knowledge of the Company, any person,
corporation or enterprise controlling, controlled by or under common control with
any of the foregoing. Section 2.2(w) of the Company Disclosure Schedule sets forth
(x) all of the Loans in original principal amount in excess of $100,000 of the
Company, the Bank or any of the Subsidiaries that as of March 31, 2011 were
classified by the Company or the Bank or any regulatory examiner as Other Loans
Specially Mentioned, Special Mention, Substandard, Doubtful, Loss,
Classified, Criticized, Credit Risk Assets, Concerned Loans, Watch List or
words of similar import, together with the principal amount of and accrued and
unpaid
interest on each such Loan as of March 31, 2011 and the identity of the
borrower thereunder, (y) by category of Loan (i.e., commercial, consumer, etc.), all
of the other Loans of the Company, the Bank and the Subsidiaries that as of March
31, 2011 were classified as such, together with the aggregate principal amount of
and accrued and unpaid interest on such Loans by category as of March 31, 2011 and
(z) each asset of the Company or the Bank that as of March 31, 2011 was classified
as Other Real Estate Owned and the book value thereof.
(2) Each Loan of the Company, the Bank or any of the Subsidiaries (A) is
evidenced by notes, agreements or other evidences of indebtedness that are true,
genuine and what they purport to be, (B) to the extent secured, has been secured by
valid Liens which have been perfected and (C) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors rights and to general equity
principles.
(3) Each outstanding Loan (including Loans held for resale to investors) has
been solicited and originated and is administered and serviced (to the extent
administered and serviced by the Company, the Bank or any Subsidiary), and the
relevant Loan files are being maintained in all material respects in accordance with
the relevant loan documents, the Companys and the Banks underwriting standards
(and, in the case of Loans held for resale to investors, the underwriting standards,
if any, of the applicable investors) and in material compliance with all applicable
requirements of federal, state and local Laws, regulations and rules.
(4) Except as set forth in Section 2.2(w)(4) of the Company Disclosure
Schedule, none of the agreements pursuant to which the Company, the Bank or any of
the Subsidiaries has
A-19
sold Loans or pools of Loans or participations in Loans or
pools of Loans contains any obligation to repurchase such Loans or interests
therein.
(5) Each of the Company, the Bank and the Subsidiaries, as applicable, is
approved by and is in good standing: (A) as a supervised mortgagee by the Department
of Housing and Urban Development to originate and service Title I FHA mortgage
loans; (B) as a GNMA I and II Issuer by the Government National Mortgage
Association; (C) by the Department of Veterans Affairs (VA) to originate
and service VA loans; and (D) as a seller/servicer by the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation to originate and service
conventional residential mortgage Loans (each such entity being referred to herein
as an Agency).
(6) Except as set forth in Section 2.2(w)(6) of the Company Disclosure
Schedule, none of the Company, the Bank or any of the Subsidiaries is now nor has it
ever been since December 31, 2008 subject to any fine, suspension, settlement or
other agreement or other administrative agreement or sanction by, or any reduction
in any loan purchase commitment from, any Agency or any federal or state agency
relating to the origination, sale or servicing of mortgage or consumer Loans. None
of the Company, the Bank or any of the Subsidiaries has received any notice, nor
does it have any reason to believe as of the date of this Agreement, that any Agency
proposes to limit or terminate the underwriting authority of the Company, the Bank
or any of the Subsidiaries or to increase the guarantee fees payable to any such
Agency.
(7) Each of the Company, the Bank and the Subsidiaries is in compliance in all
material respects with all applicable federal, state and local Laws, rules and
regulations, including the Truth-In-Lending Act and Regulation Z, the Equal Credit
Opportunity Act and Regulation B, the Real Estate Settlement Procedures Act and
Regulation X, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act
and all Agency and other investor and mortgage insurance company requirements
relating to the origination, sale and servicing of mortgage and consumer Loans.
(8) To the knowledge of the Company, each Loan included in a pool of Loans
originated, acquired or serviced by the Company, the Bank or any of the Subsidiaries
(a Pool) meets all eligibility requirements (including all applicable
requirements for obtaining mortgage insurance certificates and loan guaranty
certificates) for inclusion in such Pool. All such Pools have been finally certified
or, if required, recertified in accordance with all applicable Laws, rules and
regulations, except where the time for certification or recertification has not yet
expired. To the knowledge of the Company, no Pools have been improperly certified,
and no Loan has been bought out of a Pool without all required approvals of the
applicable investors.
(9) The information with respect to each Loan set forth in the Loan Tape, and,
to the knowledge of the Company, any third party information set forth in the Loan
Tape is true, correct and accurate as of the dates specified therein, or, if no such
date is indicated therein, as of December 31, 2010. As used herein, Loan
Tape means a data storage disk produced by the Company from its management
information systems regarding the Loans.
(x) Insurance. The Company, the Bank and each of the Subsidiaries maintain,
and have maintained for the two years prior to the date of this Agreement, insurance
underwritten by insurers of recognized financial responsibility, of the types and in the
amounts that the Company, the Bank and the Subsidiaries reasonably believe are adequate for
their respective businesses and as constitute reasonably adequate coverage against all risks
customarily insured against by banking institutions and their subsidiaries of comparable
size and operations, including, but not limited to, insurance covering all real and personal
property owned or leased by the Company, the Bank and any Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against, with such
deductibles as are customary for companies in the same or similar business. True, correct
and complete copies of all policies and binders of insurance currently maintained in respect
of the assets, properties, business, operations, employees, officers or directors of the
Company, the Bank and the Subsidiaries, excluding such policies
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pursuant to which the
Company, the Bank, any Subsidiary or an Affiliate of any them acts as the insurer and that
are identified with respective expiration dates on Section 2.2(x) of the Company Disclosure
Schedule (collectively, the Company Insurance Policies), and all correspondence
relating to any material claims under the Company Insurance Policies, have been previously
made available to Purchaser. All of the Company Insurance Policies are in full force and
effect, the premiums due and payable thereon have been timely paid, and there is no breach
or default (and no condition exists or event has occurred which, with the giving of notice
or lapse of time or both, would constitute such a breach or default) by the Company, the
Bank or any of the Subsidiaries under any of the Company Insurance Policies or, to the
knowledge of the Company, by any other party to the Company Insurance Policies, except for
any such breach or default that would not reasonably be expected to have, individually or in
the aggregate, a material impact on the Company, the Bank or any Subsidiary. None of the
Company, the Bank or any of the Subsidiaries has received any written notice of cancellation
or non-renewal of any Company Insurance Policy nor, to the knowledge of the Company, is the
termination of any such policies threatened, and, except as set forth in Section 2.2(x) of
the Company Disclosure Schedule, there is no claim for coverage by the Company, the Bank or
any of the Subsidiaries, pending under any of such Company Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such Company Policies or in
respect of which such underwriters have reserved their rights.
(y) Intellectual Property. The Company, the Bank and the Subsidiaries own, or
are licensed or otherwise possess rights to use free and clear of all Liens all patents,
patent rights, licenses, inventions, copyrights, know-how (including trade secrets,
applications and other unpatented or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names (collectively,
Proprietary Rights) used in the conduct of the business of the Company, the Bank
and the Subsidiaries as now conducted, except where the failure to own such Proprietary
Rights would not have any material impact on the Company, the Bank or any Subsidiary. The
Company, the Bank and the Subsidiaries have the right to use all Proprietary Rights used in
or necessary for the conduct of their respective businesses without infringing the rights of
any person or violating the terms of any licensing or other agreement to which the Company,
the Bank or any Subsidiary
is a party, except for such infringements or violations that have not had a Material
Adverse Effect, and, to the Companys knowledge, no person is infringing upon any of the
Proprietary Rights, except where the infringement of or lack of a right to use such
Proprietary Rights would not have any material impact on the Company, the Bank or any
Subsidiary. Except as Previously Disclosed, no charges, claims or litigation have been
asserted or, to the Companys knowledge, threatened against the Company, the Bank or any
Subsidiary contesting the right of the Company, the Bank or any Subsidiary to use, or the
validity of, any of the Proprietary Rights or challenging or questioning the validity or
effectiveness of any license or agreement pertaining thereto or asserting the misuse
thereof, and, to the Companys knowledge, no valid basis exists for the assertion of any
such charge, claim or litigation. All licenses and other agreements to which the Company,
the Bank or any Subsidiary is a party relating to Proprietary Rights are in full force and
effect and constitute valid, binding and enforceable obligations of the Company, the Bank or
such Subsidiary, 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, as the case may be, and there have not been and
there currently are not any defaults (or any event that, with notice or lapse of time, or
both, would constitute a default) by the Company, the Bank or any Subsidiary under any
license or other agreement affecting Proprietary Rights used in or necessary for the conduct
of the business of the Company, the Bank or any Subsidiary, except for defaults, if any,
which would not have any material impact on the Company, the Bank or any Subsidiary. The
validity, continuation and effectiveness of all licenses and other agreements relating to
the Proprietary Rights and the current terms thereof will not be affected by the
transactions contemplated by this Agreement.
(z) Anti-takeover Provisions Not Applicable. The Company has taken all action
required to be taken by it in order to exempt this Agreement, the purchase of the Purchased
Shares, the merger of the Bank into a depository subsidiary of the Purchaser and the other
transactions to be consummated pursuant to the express terms of this Agreement from, and
this Agreement and the transactions contemplated hereby are exempt from, any anti-takeover
or similar provisions of the Charter, and its bylaws and the requirements of any
moratorium, control share, fair price, affiliate transaction, business
A-21
combination
or other antitakeover Laws and regulations of any state, including the Tennessee Business
Corporation Act.
(aa) Knowledge as to Conditions. As of the date of this Agreement, each of the
Company and the Bank knows of no reason why any regulatory approvals and, to the extent
necessary, any other approvals, authorizations, filings, registrations and notices required
for the consummation of the transactions contemplated by this Agreement will not be obtained
or that any Required Approval will not be granted without the imposition of a Burdensome
Condition, provided, however, that neither the Company nor the Bank makes
any representation or warranty with respect to the management, capital or ownership
structure of Purchaser or any of its Affiliates.
(bb) Brokers and Finders. Except as set forth in Section 2.2(bb) of the
Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary or any of their
respective officers, directors, employees or agents has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees, commissions or
finders fees, and no broker or finder has acted directly or indirectly for the Company, the
Bank or any Subsidiary, in connection with this Agreement or the transactions contemplated
hereby.
(cc) Related Party Transactions.
(1) Except as set forth in Section 2.2(cc) of the Company Disclosure Schedule
or as part of the normal and customary terms of an individuals employment or
service as a director, none of the Company, the Bank or any of the Subsidiaries is
party to any extension of credit (as debtor, creditor, guarantor or otherwise),
contract for goods or services, lease or other agreement with any (A) affiliate, (B)
insider or related interest of an insider, (C) shareholder owning 5% or more of the
outstanding Common Stock or related interest of such a shareholder, or (D) to the
knowledge of the Company, and other than credit and consumer banking transactions in
the ordinary course of business, employee who is not an executive officer. For
purposes of the preceding sentence, the term affiliate shall have the meaning
assigned in Regulation W issued
by the Federal Reserve, as amended, and the terms insider, related
interest, and executive officer shall have the meanings assigned in the Federal
Reserves Regulation O, as amended.
(2) Except as set forth in Section 2.2(cc) of the Company Disclosure Schedule,
the Bank is in compliance with, and has since December 31, 2008, complied with,
Sections 23A and 23B of the Federal Reserve Act, its implementing regulations, and
the Federal Reserves Regulation O.
(dd) Foreign Corrupt Practices. None of the Company, the Bank or any
Subsidiary, or, to the knowledge of the Company, any director, officer, agent, employee or
other person acting on behalf of the Company, the Bank or any Subsidiary has, in the course
of its actions for, or on behalf of, the Company, the Bank or any Subsidiary (A) used any
corporate funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (B) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds; (C) violated
or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (D) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or employee.
(ee) Customer Relationships.
(1) Each trust or wealth management customer of the Company, the Bank or any
Subsidiary has been in all material respects originated and serviced (A) in
conformity with the applicable policies of the Company, the Bank and the
Subsidiaries, (B) in accordance with the terms of any applicable instrument or
agreement governing the relationship with such customer, (C) in accordance with any
instructions received from such customers, (D) consistent with each customers risk
profile and (E) in compliance with all applicable laws and the Companys, the Banks
and the Subsidiaries constituent documents, including any policies and procedures
A-22
adopted thereunder. Each instrument or agreement governing a relationship with a
trust or wealth management customer of the Company, the Bank or any Subsidiary has
been duly and validly executed and delivered by the Company, the Bank and each
Subsidiary and, to the knowledge of the Company, the other contracting parties, each
such instrument of agreement constitutes a valid and binding obligation of the
parties thereto, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium and other similar Laws affecting creditors rights generally
and by general principles of equity, and the Company, the Bank and the Subsidiaries
and the other parties thereto have duly performed in all material respects their
obligations thereunder and the Company, the Bank and the Subsidiaries and such other
person is in compliance with each of the terms thereof.
(2) No instrument or agreement governing a relationship with a trust or wealth
management customer of the Company, the Bank or any Subsidiary provides for any
material reduction of fees charged (or in other compensation payable to the Company,
the Bank or any Subsidiary thereunder) at any time subsequent to the date of this
Agreement.
(3) None of the Company, the Bank or any Subsidiary or any of their respective
directors or senior officers (A) is the beneficial owner of any interest in any of
the accounts maintained on behalf of any trust or wealth management customer of the
Company, the Bank or any Subsidiary or (B) is a party to any contract pursuant to
which it is obligated to provide service to, or receive compensation or benefits
from, any of the trust or wealth management customers of the Company, the Bank or
any Subsidiary after the Closing Date.
(4) Each account opening document, margin account agreement, investment
advisory agreement and customer disclosure statement with respect to any trust or
wealth management customer of the Company, the Bank or any Subsidiary conforms in
all material respects to the forms provided to Purchaser prior to the Closing Date.
(5) Except as would not have any material impact on the Company, the Bank or
any Subsidiary, all other books and records primarily related to the trust and
wealth management businesses of the Company, the Bank and each Subsidiary include
documented risk profiles signed by each such customer.
(ff) Investment Company; Investment Adviser. Neither the Company, the Bank nor
any Subsidiary is required to be registered as, and is not an affiliate of, and immediately
following the Closing will not be required to register as, an investment company within
the meaning of the Investment Company Act of 1940, as amended. Neither the Company, the
Bank nor any Subsidiary is required to be registered, licensed or qualified as an investment
adviser under the Investment Advisers Act of 1940, as amended, or in another capacity
thereunder with the SEC or any other Governmental Entity.
2.3 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to the Company and the Bank, as of the date of this
Agreement and as of the Closing Date (except to the extent made only as of a specified date, in
which case as of such date), that, except as Previously Disclosed:
(a) Organization and Authority. Purchaser is duly organized, validly existing
and in good standing under the Laws of the jurisdiction of its organization, is duly
qualified to do business and is in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so qualified, and
Purchaser has the power and authority and governmental authorizations to own its properties
and assets and to carry on its business in all material respects as it is now being
conducted.
(b) Authorization. (1) Purchaser has the power and authority to enter into
this Agreement and the other agreements referenced herein to which it will be a party and to
carry out its obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and the other agreements referenced herein to which it will be a party by
Purchaser and the consummation of the transactions contemplated hereby and thereby have been
duly authorized by Purchasers board of directors,
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and no further approval or authorization
by any of its shareholders or other equity owners, as the case may be, is required. This
Agreement has been, and the other agreements referenced herein to which it will be a party,
when executed, will be, duly and validly executed and delivered by Purchaser and assuming
due authorization, execution and delivery by both the Company and the Bank, is and will be a
valid and binding obligation of Purchaser enforceable against Purchaser in accordance with
its terms (except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general applicability
relating to or affecting creditors rights or by general equity principles).
(2) Neither the execution, delivery and performance by Purchaser of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by Purchaser with any of the provisions hereof, will (A) violate,
conflict with, or result in a breach of any provision of, or constitute a default
(or an event that, 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 upon any of the properties or assets of Purchaser under any of the terms,
conditions or provisions of (i) its certificate of incorporation or similar
governing documents or (ii) any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Purchaser is a party or by which it may be bound, or to which Purchaser or any of
the properties or assets of Purchaser may be subject, or (B) subject to compliance
with the statutes and regulations referred to in Section 2.3(b)(3), violate any Law,
statute, ordinance, rule or regulation, permit, concession, grant, franchise or any
judgment, ruling, order, writ, injunction or decree applicable to Purchaser or any
of its properties or assets except in the case of clauses (A)(ii) and (B) for such
violations, conflicts and breaches as would not reasonably be expected to
materially and adversely affect Purchasers ability to perform its obligations
under this Agreement or consummate the transactions contemplated hereby.
(3) Assuming the Companys and the Banks representations contained in Section
2.2(f) are true and correct and other than the securities or blue sky Laws of the
various states or as set forth in Section 2.3(b)(3) of the Purchaser Disclosure
Schedule, no material notice to, registration, declaration or filing with, exemption
or review by, or authorization, order, consent or approval of, any Governmental
Entity, or expiration or termination of any statutory waiting period, is necessary
for the consummation by Purchaser of the transactions contemplated by this
Agreement.
(c) Restricted Securities; Limitation on Resale. Purchaser acknowledges that
the Purchased Shares have not been registered under the Securities Act or under any state
securities Laws and Purchaser understands that the Purchased Shares are restricted
securities under applicable federal and state securities Laws and that, pursuant to these
Laws, the Purchaser must hold the Purchased Shares indefinitely unless they are registered
with the SEC and qualified by state authorities, or an exemption from such registration and
qualification requirements is available.
(d) Purchase for Investment. Purchaser (1) is acquiring the Purchased Shares
pursuant to an exemption from registration under the Securities Act solely for investment
with no present intention to resell or distribute any of the Purchased Shares to any person,
(2) will not sell or otherwise dispose of any of the Purchased Shares, except in compliance
with the registration requirements or exemption provisions of the Securities Act and any
other applicable securities Laws, (3) has such knowledge, sophistication and experience in
financial and business matters and in investments of this type that it is capable of
evaluating the merits and risks of its investment in the Purchased Shares, of making an
informed investment decision and of bearing the economic risk of such investment for an
indefinite period of time, and (4) is an accredited investor (as that term is defined by
Rule 501 of the Securities Act ). Purchaser has not been formed for the specific purpose of
acquiring the Purchased Shares. Purchaser has had an opportunity to discuss the business,
management, financial affairs of the Company and of the Bank and the terms and conditions of
the offering of the Purchased Shares with management of the Company and of the Bank and has
had an opportunity to review the facilities of the Company and the Bank. The foregoing,
however, does
A-24
not limit or modify the representations and warranties of the Company or of
the Bank in Section 2.2 of this Agreement or the right of Purchaser to rely thereon.
(e) Financial Capability. Purchaser currently has, and at the Closing will
have, available funds necessary to pay the funds described in Section 1.2(b)(2) and to
consummate the Closing on the terms and conditions contemplated by this Agreement.
(f) No General Solicitation. Neither Purchaser, nor any of its officers,
directors, employees, agents, stockholders or partners has either directly or indirectly,
including through a broker or finder (i) engaged in any general solicitation, or (ii)
published any advertisement in connection with the offer and sale of the Purchased Shares.
(g) Brokers and Finders. Neither Purchaser nor its Affiliates, any of their
respective officers, directors, employees or agents has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees, commissions or
finders fees, and no broker or finder has acted directly or indirectly for Purchaser, in
connection with this Agreement or the transactions contemplated hereby, in each case, whose
fees the Company, the Bank or any Subsidiary would be required to pay (other than pursuant
to the reimbursement of expenses provisions of Section 6.2).
(h) Litigation and Other Proceedings. Neither Purchaser nor any Affiliate of
Purchaser is a party to any, and there are no pending or, to Purchasers knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature (i) against Purchaser or any
Affiliate of Purchaser (excluding those of the type contemplated by the following clause
(ii)) that, if adversely determined, would reasonably be expected to have a material adverse
effect on Purchaser or (ii) challenging the validity or propriety of the transactions
contemplated by this Agreement.
There is no material injunction, order, judgment, decree or regulatory restriction
(other than regulatory restrictions of general application that apply to similarly situated
companies) imposed upon Purchaser or any of its Affiliates or their respective assets.
There is no material unresolved violation, criticism or exception by any Governmental Entity
with respect to any report or relating to any examinations or inspections of Purchaser or
any of its Affiliates.
(i) Compliance with Laws. Each of Purchaser and its Affiliates is and has been
in compliance in all material respects with and is not in default or violation in any
material respect of, and none of them is, to the knowledge of Purchaser, under investigation
with respect to or, to the knowledge of Purchaser, has been threatened to be charged with or
given notice of any material violation of, any applicable material domestic (federal, state
or local) or foreign Law, statute, ordinance, license, rule, regulation, policy or
guideline, order, demand, writ, injunction, decree or judgment of any Governmental Entity,
except for such noncompliance that has not had nor reasonably would be expected to have a
material adverse effect on Purchaser.
(j) Agreements with Regulatory Agencies. None of Purchaser or any of its
Affiliates is subject to any Regulatory Agreement, nor has Purchaser or any of its
Affiliates been advised since December 31, 2009 by any Governmental Entity or SRO that it is
considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.
Purchaser and its Affiliates are in compliance in all material respects with each Regulatory
Agreement to which it is a party or subject, and none of Purchaser and its Affiliates has
received any notice from any Governmental Entity or SRO indicating that either Purchaser or
its Affiliates is not in compliance in all material respects with any such Regulatory
Agreement.
(k) Information in the Proxy Statement. The information supplied in writing by
Purchaser expressly for inclusion in the Proxy Statement will not contain at the time it is
first mailed to the shareholders of the Company or at the time of the Shareholder Meeting,
any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.
(l) Knowledge as to Conditions. As of the date of this Agreement, Purchaser
knows of no reason why any regulatory approvals and, to the extent necessary, any other
approvals, authorizations,
A-25
filings, registrations, and notices required for the consummation
of the transactions contemplated by this Agreement will not be obtained.
ARTICLE III
COVENANTS
3.1 Filings; Other Actions.
(a) Subject to the conditions set forth in this Agreement and the last sentence of this
Section 3.1(a), Purchaser, on the one hand, and the Company and the Bank, on the other hand,
will cooperate and consult with the other and use reasonable best efforts to prepare and
file all necessary documentation, to effect all necessary applications, notices, petitions,
filings and other documents, and to obtain all necessary permits, consents, orders,
approvals and authorizations of, or any exemption by, all third parties and Governmental
Entities, including, without limitation, the Required Approvals, and the expiration or
termination of any applicable waiting period, necessary or advisable to consummate the
transactions contemplated by this Agreement, at the earliest practicable date, and to
perform the covenants contemplated by this Agreement. Each party shall execute and deliver
both before and after the Closing such further certificates, agreements and other documents
and take such other actions as the other party may reasonably request to consummate or
implement such transactions or to evidence such events or matters. In furtherance (but not
in limitation) of the foregoing, Purchaser shall use reasonable best efforts to file any
required applications, notices or other filings with the Federal Reserve Board and the
Tennessee
DFI within twenty (20) calendar days of the date hereof. Purchaser, the Company and
the Bank will have the right to review in advance, and to the extent practicable, each will
consult with the others with respect to, in each case subject to applicable Laws relating to
the exchange of information, all the information relating to such other party, and any of
their respective Affiliates, which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the transactions
to which it will be party contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as practicable.
Each party hereto agrees to keep the other party apprised of the status of matters referred
to in this Section 3.1(a). Purchaser shall promptly furnish the Company and the Bank, and
the Company and the Bank shall promptly furnish Purchaser, to the extent permitted by
applicable Law, with copies of written communications received by it or their subsidiaries
from, or delivered by any of the foregoing to, any Governmental Entity in respect of the
transactions contemplated by this Agreement. Notwithstanding anything in this Agreement to
the contrary, Purchaser shall not be required to furnish the Company with any (1) personal
biographical or financial information of any of the directors, officers, employees, managers
or partners of Purchaser or any of its present of former Affiliates (other than the personal
biographical information of any of the directors, officers, employees, managers, investors
or partners of Purchaser or any of its present of former Affiliates required to be disclosed
by the Company by reason of the fact that such person will be appointed or elected to the
Companys Board of Directors) or (2) proprietary and non-public information related to the
organizational terms of, or investors in, Purchaser or any of its present or former
Affiliates. Notwithstanding anything to the contrary herein, nothing contained in this
Agreement shall require Purchaser or any of its present or former Affiliates to take or
refrain from taking or agree to take or refrain from taking any action or suffer to exist
any condition, limitation, restriction or requirement that individually or in the aggregate
with any other actions, conditions, limitations, restrictions or requirements would or would
be reasonably likely to result in a Burdensome Condition.
(b) The Company shall call and hold a special meeting of its shareholders (the
Shareholder Meeting), as promptly as practicable following the date hereof to vote
on a proposal (the Shareholder Proposal) to (1) amend the Charter to (i) increase
the number of authorized shares of Common Stock to at least 300,000,000 shares, (ii) reduce
the par value per share of Common Stock to an amount equal to or less than $0.01 and (iii)
expressly exempt Purchaser, its Affiliates and associates and their respective successors
and assigns from the provisions Section 9 of the Charter (the form of such amendment being
acceptable to the Purchaser in its sole discretion), (2) approve the issuance and sale of
the Purchased Shares and any shares purchased pursuant to Section 4.7, (3) approve the
merger of the Bank with and into a subsidiary of
A-26
Purchaser on terms consistent with
Exhibit D and (4) remove Section 8(j) from the Charter. The Board of Directors of
the Company shall recommend to the Companys shareholders that such shareholders vote in
favor of the Shareholder Proposal (subject to any legally required abstentions and subject
to Section 3.4(b)) (such recommendation, the Company Recommendation) and Purchaser
shall, to the extent permitted by applicable Law, vote all shares owned by it in favor of
the Shareholder Proposal. In connection with such meeting, the Company shall promptly
prepare (and Purchaser will reasonably cooperate with the Company to prepare) and file with
the SEC a preliminary proxy statement, shall use its reasonable best efforts to respond to
any comments of the SEC or its staff and to cause a definitive proxy statement related to
such shareholders meeting to be mailed to the Companys shareholders not more than five
business days after clearance thereof by the SEC, and shall use its reasonable best efforts
to solicit proxies for such shareholder approval. The Company shall notify Purchaser
promptly of the receipt of any comments from the SEC or its staff with respect to the proxy
statement and of any request by the SEC or its staff for amendments or supplements to such
proxy statement or for additional information and will supply Purchaser with copies of all
correspondence between the Company or any of its representatives, on the one hand, and the
SEC or its staff, on the other hand, with respect to such proxy statement. If at any time
prior to the Shareholder Meeting there shall occur any event that should, upon the advice of
the Companys outside legal counsel, be set forth in an amendment or supplement to the Proxy
Statement so that the Proxy Statement shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they are made, not
misleading, the Company shall as promptly as practicable prepare and mail to its
shareholders such an amendment or supplement. Each of Purchaser 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, and the Company shall, as promptly as practicable,
prepare and mail to its shareholders an amendment or supplement to correct such information
to the extent required by applicable Laws and regulations. The Company shall consult with
Purchaser prior to filing any proxy statement, or any amendment or supplement thereto, and
provide Purchaser with a reasonable opportunity to comment thereon. For the avoidance of
doubt, the obligations of the Company to call and hold the Shareholder Meeting and to file,
finalize and mail the proxy statement related thereto shall not be affected by the receipt
of any Acquisition Proposal or by any Adverse Recommendation Change.
3.2 Access, Information and Confidentiality.
(a) From the date hereof until the Closing Date, the Company and the Bank will permit
Purchaser and Purchasers officers, directors, employees, accountants, counsel, financial
advisors, agents and other representatives to visit and inspect, at Purchasers expense
(subject to Section 6.2), the properties of the Company, the Bank and the Subsidiaries, to
examine the corporate books and records and to discuss the affairs, finances and accounts of
the Company, the Bank and the Subsidiaries with the officers, directors, employees,
accountants, counsel, financial advisors, agents and other representatives of the Company
(the Company Representatives), all upon reasonable advance notice and at such
reasonable times and as often as Purchaser may reasonably request. Any investigation
pursuant to this Section 3.2 shall be conducted during normal business hours and in such
manner as not to interfere unreasonably with the conduct of the business of the Company, the
Bank or any Subsidiary, and nothing herein shall require any Company Representative to
disclose any information to the extent (1) prohibited by applicable Law or regulation, or
(2) that such disclosure would reasonably be expected to cause a violation of any agreement
to which the Company, the Bank or such Company Representative is a party as of the date of
this Agreement or would cause a material risk of a loss of privilege to the Company, the
Bank or any Subsidiary (provided that the Company and the Bank shall use
commercially reasonable efforts to make appropriate substitute disclosure arrangements that
would not cause such a violation under circumstances where such restrictions apply).
(b) All information furnished by the Company, the Bank or any Subsidiary to Purchaser
or any of its representatives pursuant hereto shall be subject to, and Purchaser shall hold
all such information in confidence in accordance with, the provisions of the confidentiality
agreement between North American Financial Holdings, Inc. and the Company dated September
28, 2010 (the Confidentiality Agreement).
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3.3 Conduct of the Business. Each of the Company and the Bank agree that, prior to the earlier of the Closing Date and the
termination of this Agreement pursuant to Section 5.1, except as Previously Disclosed in Section
3.3 of the Company Disclosure Schedule or as otherwise expressly permitted or required by this
Agreement, without the prior written consent of Purchaser (not to be unreasonably withheld,
conditioned or delayed), it will not, and will cause each of the Subsidiaries not to:
(1) Ordinary Course. Fail to carry on its business in the ordinary and
usual course of business and in all material respects consistent with past practice
or fail to use reasonable best efforts to maintain and preserve its business
(including its organization, assets, properties, goodwill and insurance coverage)
and to preserve its current business relationships with customers, strategic
partners, suppliers, distributors and others with whom it has significant business
dealings.
(2) Operations. Enter into any new line of business or materially
change its lending, investment, underwriting, risk and asset liability management,
and other banking and operating policies in effect as of December 31, 2010, except
as required by applicable Law or policies imposed by any Governmental Entity.
(3) Deposits. Alter materially its interest rate or fee pricing
policies with respect to depository accounts of the Bank or waive any material fees
with respect thereto, in each case except as required by applicable Law or policies
imposed by any Governmental Entity.
(4) Capital Expenditures. Make any capital expenditures on information
technology or systems or in excess of $100,000 individually or $1,000,000 in the
aggregate in any fiscal quarter, other than as required pursuant to Previously
Disclosed commitments already entered into.
(5) Material Contracts. Except as permitted by Section 4.5(a),
terminate, enter into, amend, modify (including by way of interpretation) or renew
any contract that would be a Company Significant Agreement if entered into prior to
the date hereof, other than in the ordinary course of business and consistent with
past practice.
(6) Capital Stock. Issue, sell or otherwise permit to become
outstanding, or dispose of or encumber or pledge, or authorize or propose the
creation of, any additional shares of its stock or any additional options or other
rights, grants or awards with respect to the Common Stock, and any shares of Common
Stock issued pursuant to the exercise of stock options, warrants or vesting of
restricted stock, in each case only to the extent outstanding as of the date of this
Agreement and set forth in Section 2.2(b) of the Company Disclosure Schedule.
(7) Dividends, Distributions, Repurchases. Make, declare, pay or set
aside for payment any dividend on or in respect of, or declare or make any
distribution on any shares of its capital stock (other than dividends from its
wholly owned Subsidiaries to it or another of its wholly owned Subsidiaries) or
directly or indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its stock or any options or other rights, grants or
awards with respect to the Common Stock or other securities other than (i) the
repurchase or cancellation of restricted stock or other shares of Common Stock in
accordance with the terms of the applicable award agreements or similar arrangements
to satisfy withholding obligations upon the vesting of restricted stock, stock
appreciation rights or the exercise of options or (ii) the acceptance of shares of
Common Stock as payment of the exercise price of options or for withholding taxes
incurred in connection with the exercise of options provided that nothing
herein shall prohibit the making, declaration, payment, or setting aside for payment
of dividends or distributions with respect to the Series A Preferred or the Trust
Preferred Securities in accordance with the terms thereof.
(8) Dispositions. Sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its material assets, deposits, business or
properties, except for sales, transfers,
A-28
mortgages, encumbrances or other
dispositions or discontinuances (including without limitation dispositions of
problem assets or mortgage loans held for sale which are sold at or above the value
reflected for such assets or loans on the Companys books as of the date hereof) in
the ordinary and usual course of business consistent with past practice and in a
transaction that individually or taken together with all other such transactions is
not material to it and the Subsidiaries, taken as a whole.
(9) Incurrence of Indebtedness. Incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise
become responsible for the obligations of, any other person, except in the ordinary
and usual course of business and consistent with past practice.
(10) Extensions of Credit and Interest Rate Instruments. Make, renew
or amend (except in the ordinary and usual course of business and consistent with
past practice where there has been no material change in the relationship with the
borrower or in an attempt to mitigate loss with respect to the borrower) any
extension of credit in excess of $2,500,000 for any new extension of credit and
$7,500,000 for any renewal of an existing extension of credit in accordance with the
Banks policies (except for commitments in writing made prior to the date of this
Agreement and disclosed to Purchaser prior to the execution of this Agreement)
or enter into, renew or amend any interest rate swaps, caps, floors or option
agreements or other interest rate risk management arrangements, whether entered into
for the account of it or for the account of a customer of it or one of the
Subsidiaries, except in the ordinary and usual course of business and consistent
with past practice.
(11) Acquisitions. Acquire (other than by way of foreclosures, deeds
in lieu of foreclosure, acquisitions of control in a fiduciary or similar capacity,
acquisitions of loans or participation interests, or in satisfaction of debts
previously contracted in good faith, in each case in the ordinary and usual course
of business and consistent with past practice) all or any portion of the assets,
business, deposits or properties of any other person.
(12) Banking Offices. File any application to establish, or to
relocate or terminate the operations of, any banking office.
(13) Constituent Documents. Except for such amendments as have been
proposed in the Companys proxy statement on Form DEF14A filed with the SEC on April
8, 2011, amend its certificate of incorporation or bylaws or similar organizational
documents.
(14) Accounting Practices. Implement or adopt any change in its
accounting principles, practices or methodologies, other than as may be required by
GAAP (or any interpretation thereof), or applicable accounting requirements of a
Governmental Entity or by Law.
(15) Tax Matters. Make, change or revoke any Tax accounting method or
Tax election, prepare any Tax Returns inconsistent in any material respect with past
practice, file any amended Tax Return, consent to any extension or waiver of any
statute of limitations with respect to Tax, enter into any closing agreement, settle
any material Tax claim or assessment, or surrender any right to claim a refund of
Taxes.
(16) Claims. Settle any action, suit, claim or proceeding against it,
except for an action, suit, claim or proceeding that is settled in the ordinary and
usual course of business and consistent with past practice in an amount or for
consideration not in excess of $150,000 individually or $1,500,000 in the aggregate
and that would not impose any material restriction on the business of the Company,
the Bank or the Subsidiaries or, after the Closing, Purchaser or any of its
Affiliates.
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(17) Compensation. Terminate, enter into, amend, modify (including by
way of interpretation) or renew any employment, officer, consulting, severance,
change in control or similar contract, agreement or arrangement with any director,
officer, employee or consultant, or grant any salary or wage increase or increase
any employee benefit, including incentive or bonus payments (or, with respect to any
of the preceding, communicate any intention to take such action) or pay to any such
individual any amount or benefit not due, except to make changes that are required
by applicable Law or by the terms of a Benefit Plan existing as of the date hereof
and disclosed on Section 2.2(s)(1)(A) of the Company Disclosure Schedule.
(18) Benefit Arrangements. Terminate, enter into, establish, adopt,
amend, modify (including by way of interpretation), make new grants or awards under
or renew any Benefit Plan (or any arrangement that would following the applicable
action be a Benefit Plan), amend the terms of any outstanding equity-based award,
take any action to accelerate the vesting, exercisability or payment (or fund or
secure the payment) of stock options, restricted stock or other compensation or
benefits payable thereunder or add any new participants to any non-qualified
retirement plans (or, with respect to any of the preceding, communicate any
intention to take such action), except as required by applicable Law or by the terms
of a Benefit Plan existing as of the date hereof and disclosed on Section
2.2(s)(1)(A) of the Company Disclosure Schedule.
(19) Labor Matters. Effectuate (1) a plant closing (as defined in the
Worker Adjustment and Retraining Notification Act of 1988, and any other similar
applicable foreign, state, or local Laws relating to plant closings and
layoffs)affecting any site of employment or one or more facilities or operating
units within any site of employment of the Company, the Bank or any of the
Subsidiaries; (2) a mass layoff as defined in such Laws affecting any site of
employment of the Company, the Bank or any of the Subsidiaries; or (3) any similar
action under such Laws requiring notice to employees in the event of an employment
loss or layoff.
(20) Intellectual Property. (1) Grant, extend, amend (except as
required in the diligent prosecution of the Proprietary Rights owned (beneficially,
and of record where applicable) by or developed for the Company, the Bank and the
Subsidiaries), waive, or modify any material rights in or to, sell, assign, lease,
transfer, license, let lapse, abandon, cancel, or otherwise dispose of, or extend or
exercise any option to sell, assign, lease, transfer, license, or otherwise dispose
of, any Proprietary Rights, or (2) fail to exercise a right of renewal or extension
under any material agreement under which the Company, the Bank or any of the
Subsidiaries is licensed or otherwise permitted by a third party to use any
Proprietary Rights (other than shrink wrap or click through licenses).
(21) Communication. Make any written or oral communications to the
officers or employees of the Company, the Bank or any of the Subsidiaries pertaining
to compensation or benefit matters that are affected by the transactions
contemplated by this Agreement without providing Purchaser with a copy or written
description of the intended communication and a reasonable period of time to review
and comment on such communication; provided, however, that the
foregoing shall not prevent senior management or human resources personnel of the
Company, the Bank or any Subsidiary from orally answering questions of individual
employees pertaining to compensation or benefit matters with respect to such
individual employee that are affected by the transactions contemplated by this
Agreement on an individual basis with such employee.
(22) Related Party Transactions. Engage in (or modify in a manner
adverse to the Company, the Bank or the Subsidiaries) any transactions (except for
any ordinary course banking relationships permitted under applicable Law) with any
Affiliate of the Company or any director or officer (senior vice president or above)
of the Company, the Bank or the Subsidiaries (or any Affiliate of any such person).
(23) Receivership or Liquidation. Commence a voluntary procedure for
reorganization, arrangement, adjustment, relief or composition of indebtedness or
bankruptcy,
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receivership or a similar proceeding, or consent to the entry of an
order for relief in an involuntary procedure for reorganization, arrangement,
adjustment, relief or composition of indebtedness or bankruptcy, receivership or a
similar proceeding or consent to the appointment of a receiver, liquidator,
custodian or trustee, in each case, with respect to the Company, the Bank or any of
the Subsidiaries, or any other liquidation or dissolution of the Company, the Bank
or any of the Subsidiaries.
(24) Credit Policy; Underwriting. Make or permit any material
exceptions or changes to the Companys or the Banks credit, underwriting, lending,
investment, risk and asset-liability management and other material banking or
operating policies in effect as of the date hereof except as to update these
policies to conform to recent regulatory or accounting guidance or to update these
policies to address recently identified internal audit or regulatory examination
deficiencies, in each case to reduce the Banks risk exposure.
(25) Adverse Actions. Notwithstanding any other provision hereof,
knowingly take any action that is reasonably likely to materially impair its ability
to perform its obligations under this Agreement or to consummate the transactions
contemplated hereby, except as required by applicable Law or this Agreement.
(26) Commitments. Enter into any contract with respect to, or
otherwise agree or commit to do, any of the foregoing.
3.4 Acquisition Proposals.
(a) No Solicitation or Negotiation. The Company and the Bank agree that none
of the Company, the Bank or any of the Subsidiaries or any of the officers or directors of
the Company, the Bank or any of the Subsidiaries shall, and that they shall instruct and use
their reasonable best efforts to cause their and the Subsidiaries employees, investment
bankers, attorneys, accountants and other advisors or representatives (such directors,
officers, employees, investment bankers, attorneys, accountants and other advisors or
representatives, collectively, Representatives) not to (it being understood and
agreed that any violation of the restrictions set forth in this Section 3.4 by a
Representative, whether or not such Representative is so authorized and whether or not such
Representative is purporting to act on behalf of the Company, the Bank or any Subsidiary or
otherwise, shall be deemed to be a breach of this Agreement by the Company and the Bank),
directly or indirectly:
(1) initiate, solicit or knowingly facilitate or encourage any inquiries or the
making of any proposal or offer that constitutes, or could reasonably be expected to
lead to, any Acquisition Proposal;
(2) make or authorize any statement, recommendation or solicitation in support
of any Acquisition Proposal;
(3) engage in, continue or otherwise participate in any discussions or
negotiations or enter into an agreement regarding, or provide any non-public
information or data to any person relating to, any Acquisition Proposal; or
(4) otherwise knowingly facilitate any effort or attempt to make an Acquisition
Proposal.
Notwithstanding the foregoing, at any time prior to obtaining the approval of the
Shareholder Proposal (other than the proposal set forth in clause (1)(iii) of the definition
of Shareholder Proposal), in response to a bona fide written Acquisition Proposal that the
Board of Directors of the Company determines in good faith (after consultation with outside
counsel and a financial advisor of nationally recognized reputation) constitutes or is
reasonably likely to lead to a Superior Proposal, and which Acquisition Proposal was not
solicited after the date of this Agreement and was made after the date of this Agreement and
prior to the
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Shareholder Meeting and did not otherwise result from a breach of this Section
3.4(a), the Company and the Bank may, subject to compliance with Section 3.4(f), (x) furnish
information with respect to the Company and the Bank to the person making such Acquisition
Proposal (provided that all such information has previously been provided to the Purchaser
or is provided to the Purchaser prior to or substantially concurrent with the time it is
provided to such person) pursuant to a customary confidentiality agreement not less
restrictive of such person than the Confidentiality Agreement (other than with respect to
standstill provisions), and (y) participate in discussions regarding the terms of such
Acquisition Proposal and the negotiation of such terms with, and only with, the person
making such Acquisition Proposal.
(b) Change in Recommendation. Except as set forth below, neither the Board of
Directors of the Company nor any committee thereof shall (i) (A) withdraw (or modify in any
manner adverse to the Purchaser), or propose publicly to withdraw (or modify in any manner
adverse to the Purchaser), the Company Recommendation or any other approval, recommendation
or declaration of advisability by the Board of Directors of the Company or any such
committee thereof with respect to this Agreement or (B) approve, recommend or declare
advisable, or propose publicly to approve, recommend or declare advisable, any Acquisition
Proposal (any action in this clause (i) being referred to as a Adverse Recommendation
Change) or (ii) approve, recommend or declare advisable, or propose publicly to
approve, recommend or
declare advisable, or allow the Company, the Bank, or any of their Affiliates to
execute or enter into, any letter of intent, memorandum of understanding, agreement in
principle, merger agreement, acquisition agreement, option agreement, joint venture
agreement, alliance agreement, partnership agreement or other agreement or arrangement (an
Acquisition Agreement) constituting or related to, or that is intended to or would
reasonably be expected to lead to, any Acquisition Proposal, or requiring, or reasonably
expected to cause, the Company or the Bank to abandon, terminate, delay or fail to
consummate, or that would otherwise impede, interfere with or be inconsistent with, the
transactions contemplated by this Agreement, or requiring, or reasonably expected to cause,
the Company or the Bank to fail to comply with this Agreement (other than a confidentiality
agreement referred to in Section 3.4(a)). Notwithstanding the foregoing, at any time prior
to obtaining the approval of the Shareholder Proposal (other than the proposal set forth in
clause (1)(iii) of the definition of Shareholder Proposal), the Board of Directors of the
Company may make an Adverse Recommendation Change in favor of a Superior Proposal if the
Board of Directors of the Company determines in good faith (after consultation with outside
counsel and a financial advisor of nationally recognized reputation) that the failure to do
so would be a breach of its fiduciary duties under applicable Law; provided, however, that
the Company shall not be entitled to exercise its right to make an Adverse Recommendation
Change until after the second Business Day following the Purchasers receipt of written
notice (a Notice of Recommendation Change) from the Company advising the Purchaser
that the Board of Directors of the Company intends to take such action and specifying the
reasons therefor, including the terms and conditions of the Superior Proposal that is the
basis of the proposed action by the Board of Directors of the Company (it being understood
and agreed that any amendment to any material term of such Superior Proposal shall require a
new Notice of Recommendation Change and a new two business-day period). In determining
whether to make an Adverse Recommendation Change, the Board of Directors of the Company
shall take into account any changes to the terms of this Agreement proposed by the Purchaser
in response to a Notice of Recommendation Change or otherwise.
(c) Definitions. For purposes of this Agreement, the term Acquisition
Proposal means (1) any proposal or offer with respect to a merger, joint venture,
partnership, consolidation, dissolution, liquidation, tender offer, recapitalization,
reorganization, rights offering, share exchange, business combination or similar transaction
involving the Company, the Bank or any of the Subsidiaries and (2) any acquisition by any
person resulting in, or proposal or offer, that, if consummated, would result in any person
becoming the beneficial owner, directly or indirectly, in one or a series of related
transactions, of ten percent (10%) or more of the total voting power of any class of equity
securities of the Company or the Bank or those of any of the Subsidiaries, or ten percent
(10%) or more of the consolidated total assets (including, without limitation, equity
securities of any subsidiaries) of the Company, in each case other than the transactions
contemplated by this Agreement. For purposes of this Agreement, the term Superior
Proposal means any bona fide written proposal or offer made by a third party or group
pursuant to which such third party or group would acquire, directly or indirectly more than
50% of the Common Stock or assets of the Company, the Bank, or their Subsidiaries (i) on
terms which the Board of Directors of the Company determines in good faith (after
consultation with the Companys outside legal counsel and its
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financial advisor) to be
superior from a financial point of view to the holders of Common Stock than the transactions
contemplated by this Agreement (including any changes proposed by the Purchaser to the terms
of this Agreement) and (ii) that is reasonably likely to be completed, on a timely basis,
taking into account all material financial, regulatory, legal and other aspects of such
proposal on or before the date that the transactions contemplated by this Agreement are
reasonably likely to be completed.
(d) Federal Securities Laws. Nothing contained in this Section 3.4 shall
prohibit the Company from (i) taking and disclosing to its shareholders a position required
by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act or (ii) making any
disclosure to its shareholders if the Board of Directors of the Company has determined in
good faith, after consultation with outside legal counsel, that the failure to do so would
be inconsistent with any applicable Law; provided, that the Board of Directors of the
Company may not effect an Adverse Recommendation Change unless permitted to do so by Section
3.4(b); provided, however, that compliance with such Rule 14e-2(a) or Rule
14d-9 shall not in any way limit or modify the effect that any action taken pursuant to
such rules has under any other provision of this Agreement, including under Article V
hereof.
(e) Existing Discussions. The Company and the Bank each agrees that it will
immediately cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any Acquisition Proposal
and, between the date hereof and the Closing, take such action as is necessary to enforce
any standstill provisions or provisions of similar effect to which the Company is a party
or of which the Company is a beneficiary. The Company and the Bank each agrees that it will
take the necessary steps to promptly inform the individuals or entities referred to in the
first sentence hereof of the obligations undertaken in this Section 3.4. The Company and
the Bank each also agrees that it will promptly request each person that has heretofore
executed a confidentiality agreement in connection with its consideration of acquiring the
Company, the Bank or any of the Subsidiaries to return or destroy all confidential
information heretofore furnished to such person by or on behalf of it or any of the
Subsidiaries.
(f) Notice; Specific Performance. The Company and the Bank each agrees that it
will promptly (and, in any event, within 24 hours) notify Purchaser if any inquiries,
proposals or offers with respect to an Acquisition Proposal are received by, any such
information is requested from, or any such discussions or negotiations are sought to be
initiated or continued with, the Company, the Bank or any Subsidiary or any of their
respective Representatives indicating, in connection with such notice, the name of such
person and the material terms and conditions of any proposals or offers (including, if
applicable, copies of any written requests, proposals or offers, including proposed
agreements) and thereafter shall keep Purchaser informed, on a current basis, of the status
and terms of any such proposals or offers (including any amendments thereto) and the status
of any such discussions or negotiations, including any change in the Companys or the Banks
intentions as previously notified. Notwithstanding anything contained herein to the
contrary, each of the Company and the Bank agrees that a non-exclusive right and remedy for
noncompliance with this Section 3.4 is to have such provision specifically enforced by any
court having equity jurisdiction; it being acknowledged and agreed that any such breach will
cause irreparable injury to Purchaser and that money damages may not provide an adequate
remedy to Purchaser.
3.5 Repurchase. The Company and the Bank shall use reasonable best efforts to facilitate the entry into and
maintenance in effect of a definitive agreement with the Treasury providing for the Repurchase on
the terms set forth in Exhibit B prior to the Closing; provided that Purchaser from and
after the date hereof shall be responsible for all communications and/or negotiations with the
Treasury in respect of such definitive agreement and neither the Company nor the Bank shall,
without the prior written consent of Purchaser, contact or communicate with the Treasury in respect
of the Repurchase. Purchaser shall provide the Company and the Bank with the reasonable
opportunity to participate in substantive telephone conversations and meetings that Purchaser or
its representatives may have from time to time with the Treasury with respect to the Repurchase and
shall advise the Company and the Bank of the material terms of any discussions between Purchaser
and the Treasury. Subject to the foregoing, Purchaser will permit the Company to review in
advance, and to the extent practicable, will consult with the Company with respect to, in each case
subject to applicable Laws relating to the exchange of information, all the information and
documentation relating to the Repurchase.
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3.6 D&O Indemnification.
(a) On or before the Closing, the Company shall offer to enter into a Directors &
Officers Indemnification Agreement, containing terms no less favorable than those set out in
the Charter and the Companys bylaws as of the date hereof, with each director serving on
its Board of Directors, including each of the Purchaser Designees and any other directors or
officers of the Company, the Bank or any of the Subsidiaries designated by or affiliated
with Purchaser in form and substance reasonably satisfactory to such individuals.
(b) From and after the Closing, to the extent permitted by applicable Law and in
accordance with the Charter in effect as of the date hereof and the Companys bylaws in
effect as of the date hereof, the Company (and any successor or assign thereof) shall and
from and after any merger of the Company into
Purchaser, to the extent permitted by applicable Law and in accordance with the Amended
and Restated Articles of Incorporation of Purchaser and Amended and Restated Bylaws of
Purchaser (which shall provide for indemnification and advancement rights no less favorable
than those contained in the Charter in effect as of the date hereof and the Companys bylaws
in effect as of the date hereof), the Purchaser (and any successor or assign thereof) shall,
indemnify, defend and hold harmless, and provide advancement of defense costs and other
expenses (including attorneys fees) to, each person who is now, or has been at any time
prior to the date hereof or who becomes prior to the Closing, an officer or director of the
Company or any of its subsidiaries against all losses, claims, damages, costs, expenses
(including attorneys fees), liabilities or judgments or amounts that are paid in settlement
of or in connection with any claim, action, suit, proceeding or investigation based in whole
or in part on or arising in whole or in part out of the fact that such person is or was a
director or officer of the Company, the Bank or any of its Subsidiaries, and pertaining to
any matter existing or occurring, or any acts or omissions occurring, at or prior to the
Closing, whether asserted or claimed prior to, at or after the Closing (including matters,
acts or omissions occurring in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby). Notwithstanding anything in this
Agreement to the contrary, prior to the Closing, the Company may purchase tail insurance
coverage under its current policies of directors and officers liability insurance or a
comparable policy from another insurer for a term not to exceed six years from the Closing
with respect to claims arising from facts or events which occurred prior to the Closing;
provided, however, that the total premium payment for such insurance shall
not exceed three times the amount of the last premium paid by the Company in respect of such
insurance prior to the date hereof; provided further that if the Company is
unable to maintain such policy (or any substitute policy) as a result of the preceding
proviso, the Company shall obtain as much comparable insurance as is available for such
annual premium amount.
3.7 Notice of Developments. Each party to this Agreement will give prompt written notice to each of the other parties of any
adverse development causing a breach of any of its own representations and warranties contained in
Article II of this Agreement. No disclosure by any party pursuant to this Section 3.7 shall be
deemed to amend or supplement the Disclosure Schedules or to prevent or cure any misrepresentation
or breach of warranty.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Governance Matters.
(a) Prior to the Closing, the Company and the Bank shall use reasonable best efforts to
cause the Resigning Directors to resign from their respective Boards of Directors and, if
such Resigning Directors do not resign, the Company and the Bank shall take all requisite
corporate action to remove such Resigning Directors or increase the size of their respective
Boards of Directors to accommodate the appointment of each of the Purchaser Designees to
their respective Boards of Directors effective as of the Closing, to elect or appoint each
of the Purchaser Designees to their respective Boards of Directors effective as of the
Closing, and to permit the Purchaser Designees to constitute a majority of each of their
respective Boards of Directors immediately after the Closing.
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(b) Following the Closing, the Purchaser, the Company and the Bank shall take all
requisite action to re-elect two members of the Companys board as of the date hereof
designated by the Purchaser (the Nominees) to the Companys, the Banks and the
Purchasers Boards of Directors until the consolidation of the Company and the Bank with the
other bank holding companies and banks controlled by the Purchaser, at which time the
Purchaser shall take all requisite action to elect the Nominees to such consolidated bank
and bank holding company Boards of Directors.
(c) Following the Closing, the Purchaser, the Company and the Bank shall take all
requisite action to (i) establish a Loan Portfolio Committee (the Loan Portfolio
Committee) as a committee of the
Board of Directors of the Bank, which Loan Portfolio Committee shall monitor and review
the status of the Banks loan portfolio and any the level of credit losses, payments,
collections and savings realized in such portfolio and (ii) elect or appoint Stephen M.
Rownd as the chairman of the Loan Portfolio Committee.
4.2 Legend. (a) Purchaser agrees that all certificates or other instruments representing the Purchased
Shares will bear a legend substantially to the following effect:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR 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.
(b) Upon request of Purchaser, upon receipt by the Company of an opinion of counsel
reasonably satisfactory to the Company to the effect that such legend is no longer required
under the Securities Act and applicable state Laws, the Company shall promptly cause the
legend set forth above to be removed from any certificate for any securities purchased
pursuant to this Agreement (or issued upon exercise thereof).
4.3 Exchange Listing. The Company shall promptly use its reasonable best efforts to cause the Purchased Shares to be
approved for listing on the NASDAQ or such other nationally recognized securities exchange on which
the Common Stock may be listed, if any, subject to official notice of issuance, as promptly as
practicable, and in any event before the Closing if permitted by the rules of the NASDAQ.
4.4 Registration Rights. Prior to the Closing, the Company shall enter into the Registration Rights Agreement with
Purchaser in substantially the form attached as Exhibit C (the Registration Rights
Agreement).
4.5 Employees. It is the intention of Purchaser to maintain in place the management team of the Bank,
subject to the establishment of, and acceptance of, performance criteria in accordance with the
Purchasers anticipated business plan. Notwithstanding the foregoing, nothing in this Agreement,
including this Section 4.5, shall be construed to guarantee or extend any offer of employment to,
or to prevent the termination of employment of any employee or the amendment or termination of any
particular Benefit Plan to the extent permitted by its terms.
4.6 Reservation for Issuance. The Company will reserve that number of shares of Common Stock sufficient for issuance of the
Purchased Shares; provided that solely to the extent the Company is unable to reserve such
number of shares under the Charter the Company will reserve such sufficient number of shares of
Common Stock following the approval of the Shareholder Proposal (other than the proposal set forth
in clause (1)(iii) of the definition of Shareholder Proposal) pursuant to Section 3.1(b).
4.7 Additional Investment. Following the Closing and until the Bank is combined with another bank controlled by the
Purchaser, in the event that the tier 1 leverage ratio of either the Company or the Bank falls
below 10% (or such other capital ratio as may be required to be maintained by applicable
Governmental Entities), the Purchaser will be permitted to purchase a sufficient quantity of shares
of Common Stock from the Company to cause the Company or the Bank (as applicable) to meet such
capital ratio. The purchase price for any shares of Common Stock purchased pursuant to the
preceding sentence shall be equal to the lesser of (i) $1.81 per share of
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Common Stock and (ii) the
Companys tangible book value per share of Common Stock as of end of the then most recently
completed fiscal quarter.
ARTICLE V
TERMINATION
5.1 Termination. This Agreement may be terminated prior to the Closing:
(a) by mutual written agreement of the Company, the Bank and Purchaser;
(b) by Purchaser, upon written notice to the Company and the Bank, or by the Company,
upon written notice to Purchaser, in the event that the Closing Date does not occur on or
before the date that is 150 calendar days from the date hereof; provided,
however, that the respective rights to terminate this Agreement pursuant to this
Section 5.1(b) shall not be available to any party whose failure, in any material respect,
(or, in the case of the Company, the failure of the Bank) to fulfill any obligation under
this Agreement shall have been the proximate cause of, or shall have resulted in, the
failure of the Closing Date to occur on or prior to such date;
(c) by the Company or Purchaser, upon written notice to the other, in the event that
any Governmental Entity shall have issued any order, decree or injunction or taken any other
action restraining, enjoining or prohibiting any of the transactions contemplated by this
Agreement, and such order, decree, injunction or other action shall have become final and
nonappealable;
(d) by Purchaser or the Company, if Purchaser or any of its Affiliates, or the Company,
receives written notice from or is otherwise advised by a Governmental Entity that it will
not grant (or intends to rescind or revoke if previously approved) any Required Approval or
receives written notice from such Governmental Entity that it will not grant such Required
Approval on the terms contemplated by this Agreement without imposing any Burdensome
Condition, provided that, (A) prior to Purchaser terminating this Agreement, Purchaser shall
have complied with its obligations under Section 3.1(a) in all material respects, and (B)
prior to the Company terminating this Agreement, the Company shall have complied with its
obligations under Section 3.1(a) in all material respects;
(e) by the Company, if neither the Company nor the Bank is in material breach of any of
the terms of this Agreement, and there has been a breach of any representation, warranty,
covenant or agreement made by Purchaser in this Agreement, or any such representation and
warranty shall have become untrue after the date of this Agreement, such that the condition
set forth in Section 1.2(c)(3)(A) or (B) would not be satisfied and such breach is not
curable or, if curable, is not cured within thirty (30) days after written notice thereof is
given by the Company to Purchaser;
(f) by Purchaser, if Purchaser is not in material breach of any of the terms of this
Agreement, and there has been a breach of any representation, warranty, covenant or
agreement made by the Company or the Bank in this Agreement, or any such representation and
warranty shall have become untrue after the date of this Agreement, such that the condition
set forth in Section 1.2(c)(2)(A) or (B) would not be satisfied and such breach is not
curable or, if curable, is not cured within thirty (30) days after written notice thereof is
given by Purchaser to the Company and the Bank;
(g) by Purchaser on or prior to the day before the date of the Shareholder Meeting (as
may be adjourned or postponed), if the Company or the Bank shall have breached the covenants
contained in Section 3.4 hereof or if the Companys Board of Directors shall have made any
Adverse Recommendation Change; and
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(h) by Purchaser or the Company, if the approval of the Shareholder Proposal (other
than the proposal set forth in clause (1)(iii) of the definition of Shareholder Proposal)
is not obtained at the Shareholder Meeting.
5.2 Effects of Termination. In the event of any termination of this Agreement as provided in Section 5.1, subject to Section
5.3, this Agreement (other than Section 3.2(b) and Articles V and VI, which shall remain in full
force and effect) shall forthwith become wholly void and of no further force and effect;
provided that nothing herein shall relieve any party from liability (x) for fraud or (y)
except to the extent set forth in the third sentence of Section 5.3(d) in the case an expense
reimbursement is payable by Purchaser, for intentional breach of this Agreement.
5.3 Fees.
(a) If, after the date hereof, an Acquisition Proposal is made to the Company, the
Bank, any Subsidiary, or the Companys shareholders generally, or becomes public and
thereafter this Agreement is terminated pursuant to Section 5.1(f) on the basis of a breach
of a covenant or agreement made by the Company or the Bank in this Agreement, Section 5.1(g)
or Section 5.1(h), the Company and the Bank shall be jointly and severally obligated to pay
to Purchaser (1) an amount equal to the Expense Reimbursement and, in the case of such a
termination pursuant to Section 5.1(g) because the Companys Board of Directors shall have
made any Adverse Recommendation Change, 50% of the Termination Fee, promptly, but in any
event not later than two (2) business days, following such termination and (2), in the case
of a termination referred to in this subsection, if within twelve months after such
termination the Company and/or the Bank enters into a definitive agreement to effect, or
consummates, an Acquisition Proposal, an amount equal to the Termination Fee minus the
portion of the Termination Fee already paid by the Company to Purchaser pursuant to the
preceding clause (1) promptly, but in any event not later than two (2) business days,
following the consummation of such Acquisition Proposal.
(b)
(1) If this Agreement is terminated pursuant to Section 5.1(e) due to a breach
of a covenant, Purchaser shall be obligated to pay to the Company an amount equal to
eight million dollars ($8,000,000) in respect of the Companys and the Banks
out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby promptly, but in any event not later than two (2)
business days, following such termination.
(2) If this Agreement is terminated pursuant to Section 5.1(f) due to a breach
of a covenant other than in circumstances where fees are payable pursuant to 5.3(a),
the Company and the Bank shall be jointly and severally obligated to pay to
Purchaser an amount equal to the Expense Reimbursement promptly, but in any event no
later than two (2) business days, following such termination.
(c) Termination Fee means an amount in cash equal to eight million dollars
($8,000,000), which Termination Fee shall be paid by wire transfer of immediately available
funds to the account or accounts designated by Purchaser at the time specified in this
Section 5.3. Expense Reimbursement means an amount in cash equal to seven hundred
and fifty thousand dollars ($750,000) in respect of Purchasers out-of-pocket expenses
incurred in connection with due diligence, the negotiation and preparation of this
Agreement. To the extent not paid when due, any amount payable
pursuant to this Section 5.3 shall accrue interest at a rate equal to eighteen percent
(18%) per annum or, if lower, the maximum rate allowable by Law.
(d) Each of the Company, the Bank and Purchaser acknowledges that the agreements
contained in this Section 5.3 are an integral part of the transactions contemplated by this
Agreement. The amounts payable pursuant to Section 5.3 hereof constitute liquidated damages
and not a penalty and shall be the sole monetary remedy in the event a Termination Fee or
Expense Reimbursement paid in connection with a termination of this Agreement on the bases
specified in Section 5.3 hereof. The amounts payable pursuant to Section 5.3 hereof
constitute liquidated damages and not a penalty and shall be the sole remedy
A-37
in the event an
expense reimbursement by Purchaser is paid in connection with a termination of this
Agreement on the bases specified in Section 5.3 hereof. In the event that the Company or
the Bank shall fail to make any payment pursuant to this Section 5.3 when due, the Company
and the Bank shall be jointly and severally obligated to reimburse Purchaser for all
reasonable expenses actually incurred or accrued by Purchaser (including reasonable expenses
of counsel) in connection with the collection under and enforcement of this Section 5.3. In
the event Purchaser fails to make any payment pursuant to this Section 5.3 when due,
Purchaser shall be obligated to reimburse the Company and the Bank for all reasonable
expenses actually incurred or accrued by the Company and the Bank (including reasonable
expenses of counsel) in connection with the collection under and enforcement of this Section
5.3.
ARTICLE VI
MISCELLANEOUS
6.1 No Survival. None of the representations and warranties set forth in this Agreement shall survive the
Closing. Except as otherwise provided herein, all covenants and agreements contained herein, other
than those which by their terms are to be performed in whole or in part after the Closing Date,
shall terminate as of the Closing Date.
6.2 Expenses. Subject to Section 5.3, each of the parties will bear and pay all other costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated pursuant to this
Agreement; except that if the Closing occurs, the Company and the Bank shall jointly and severally
be obligated to reimburse Purchaser, without duplication, for all of its reasonable out-of-pocket
expenses incurred in connection with due diligence, the negotiation and preparation of this
Agreement and undertaking of the transactions contemplated pursuant to this Agreement (including
all stamp and other Taxes payable with respect to the issuance of the Purchased Stock, the Option
and CVRs, filing fees, fees and expenses of attorneys, consultants and accounting and financial
advisers incurred by or on behalf of Purchaser or its Affiliates in connection with the
transactions contemplated pursuant to this Agreement) (the Closing Expense
Reimbursement).
6.3 Amendment; Waiver. No amendment or waiver of any provision of this Agreement will be effective with respect to any
party unless made in writing and signed by an officer or a duly authorized representative of such
party. 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 thereof or the exercise of any other right, power or privilege. The
conditions to each partys obligation to consummate the Closing 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 of any party to this Agreement, as the case may be, 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. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by Law.
6.4 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 or pdf and such facsimiles or pdfs will be deemed as
sufficient as if actual signature pages had been delivered.
6.5 Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of
Delaware applicable to contracts made and to be performed entirely within such State. The parties
hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the
federal courts of the United States of America located in the State of Delaware, or, if
jurisdiction in such federal courts is not available, the courts of the State of Delaware, for any
actions, suits or proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby.
6.6 Notices. Any notice, request, instruction or other document to be given hereunder by any party to another
will be in writing and will be deemed to have been duly given (a) on the date of delivery if
delivered personally or by telecopy or facsimile, upon confirmation of receipt, (b) on the first
business day following the date
A-38
of dispatch if delivered by a recognized next-day courier service,
or (c) on the second business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. 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.
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(a) |
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If to Purchaser: |
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North American Financial Holdings, Inc.
4725 Piedmont Row Drive
Charlotte, North Carolina 28210
Attention: Christopher G. Marshall
Telephone: (704) 554-5901
Fax: (704) 964-2442 |
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with a copy to (which copy alone shall not constitute notice): |
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Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: David E. Shapiro
Telephone: (212) 403-1000
Fax: (212) 403-2000 |
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(b) |
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If to the Company or the Bank: |
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Green Bankshares, Inc.
100 North Main Street
Greeneville, Tennessee 37743
Attention: Stephen M. Rownd
Telephone: (423) 278-3323
Fax: (866) 550-2336 |
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with a copy to (which copy alone shall not constitute notice): |
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Bass, Berry & Sims PLC
150 Third Avenue South, Suite 2800
Nashville, Tennessee 37201
Attention: D. Scott Holley
Telephone: (615) 742-7721
Fax: (615) 742-2813 |
6.7
Entire Agreement, Assignment.
(a) This Agreement (including the Exhibits, Schedules and Disclosure Schedules hereto)
constitutes the entire agreement, and except for the Confidentiality Agreement, supersedes all
other prior agreements, understandings, representations and warranties, both written and oral,
among the parties, with respect to the subject matter hereof; and (b) this Agreement will not be
assignable by operation of Law or otherwise (any attempted assignment in contravention hereof being
null and void); provided that Purchaser may assign its rights and obligations under this
Agreement to any person, but only if immediately after the Closing, North American Financial
Holdings, Inc. and/or its Affiliates shall collectively own at least a majority of the pro forma
outstanding Common Stock of the Company; provided further, that no such assignment shall
relieve Purchaser of its obligations hereunder.
6.8 Interpretation; Other Definitions. Wherever required by the context of this Agreement, the singular shall include the plural and
vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa,
and references to any agreement, document or instrument shall be deemed to refer to such agreement,
document or instrument as amended, supplemented or modified from time to time. All article,
section, paragraph or clause references not attributed to a particular document shall be references
to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a
particular document shall be references to such exhibits,
A-39
annexes and schedules to this Agreement.
The disclosure of any matter or item in the Company Disclosure Schedule shall not be deemed to
constitute an acknowledgement that such matter or item is required to be disclosed therein or is a
material exception to a representation, warranty, covenant or condition set forth in this Agreement
and shall not be used as a basis for interpreting the terms material, materially,
materiality, Material Adverse Effect or any word or phrase of similar import and does not mean
that such matter or item would, with any other matter or item, have or be reasonably expected,
individually or in the aggregate, to have a Material Adverse Effect. Certain matters have been
disclosed in the Company Disclosure Schedule for informational purposes only. In addition, the
following terms are ascribed the following meanings:
(a) 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 or policies of such person, whether through the ownership of
voting securities by contract or otherwise;
(b) the word or is not exclusive;
(c) the words including, includes, included and
include are deemed to be followed by the words without limitation; and
(d) the terms herein, hereof and hereunder and other
words of similar import refer to this Agreement as a whole and not to any particular
section, paragraph or subdivision;
(e) business day means any day except Saturday, Sunday and any day that shall
be a legal holiday or a day on which banking institutions in the State of New York or in the
State of Tennessee generally are authorized or required by Law or other governmental action
to close;
(f) person has the meaning given to it in Section 3(a)(9) of the Exchange Act
and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act; and
(g) a person shall be deemed to beneficially own any securities of which such
person is considered to be a beneficial owner under Rule 13d-3 under the Exchange
Act.
6.9 Captions. The article, section, paragraph and clause captions herein are for convenience of reference
only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect
any of the provisions hereof.
6.10 Severability. If any provision of this Agreement or the application thereof to any person (including the
officers and directors of the parties hereto) 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.
6.11 No Third Party Beneficiaries. Nothing contained in this Agreement, express or implied, including Section 4.5 hereof, is
intended to confer upon any person other than the parties hereto, any benefit, right or remedies,
except that the provisions of Sections 3.6, 4.1(b) and 4.1(c) shall inure to the benefit of the
persons referred to in such Sections.
6.12 Time of Essence. Time is of the essence in the performance of each and every term of this Agreement.
A-40
6.13 Certain Adjustments. Without limiting the generality of Purchasers rights and remedies under this Agreement, if the
representations and warranties set forth in Section 2.2(b) shall not be true and correct as of the
Closing Date, the number of shares of Common Stock to be purchased hereunder, and the number of
shares of Common Stock for which the Option is exercisable, shall be, at Purchasers option,
proportionately adjusted to provide Purchaser the same economic effect as contemplated by this
Agreement in the absence of such failure to be true and correct.
6.14 Public Announcements. Subject to each partys disclosure obligations imposed by Law or the rules of any stock exchange
upon which its securities are listed, the parties hereto will cooperate with each other in the
development and distribution of all news releases and other public information disclosures with
respect to this Agreement and any of the transactions contemplated by this Agreement, and none of
the Company, the Bank or Purchaser will make any such news release or public disclosure without
first consulting with the other two parties, and, in each case, also receiving the others consent
(which shall not be unreasonably withheld or delayed) and each party shall coordinate with the
party whose consent is required with respect to any such news release or public disclosure.
6.15 Specific Performance; Limitation on Damages.
(a) The Company and the Bank agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed by them in accordance with
their specific terms. It is accordingly agreed that Purchaser shall be entitled to specific
performance of the terms hereof, this being in addition to any other remedies to which
Purchaser is entitled at law or equity. Notwithstanding anything to the contrary herein, in
no event shall Purchaser be responsible to the Company or the Bank for any consequential,
special or punitive damages or any fees or expenses other than pursuant to Section
5.3(b)(1).
(b) Notwithstanding anything to the contrary in this Agreement, the parties acknowledge
that neither the Company nor the Bank shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by Purchaser or any remedy to enforce specifically the
terms and provisions of this Agreement.
[Remainder of Page Intentionally Left Blank]
A-41
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized
officers of the parties hereto as of the date first herein above written.
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GREEN BANKSHARES, INC.
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By: |
/s/ Stephen M. Rownd
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Name: |
Stephen M. Rownd |
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Title: |
Chairman and CEO |
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GREENBANK
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By: |
/s/ Stephen M. Rownd
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Name: |
Stephen M. Rownd |
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Title: |
Chairman and CEO |
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[Signature Page to Investment Agreement]
A-42
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized
officers of the parties hereto as of the date first herein above written.
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NORTH AMERICAN FINANCIAL HOLDINGS, INC.
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By: |
/s/ Christopher G. Marshall
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Name: |
Christopher G. Marshall |
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Title: |
EVP, CFO |
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[Signature Page to Investment Agreement]
A-43
Schedule A
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State or Other Jurisdiction of |
Name of Subsidiary |
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Incorporation/Organization |
Company Subsidiaries |
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Greene County Capital Trust I
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Delaware |
Greene County Capital Trust II
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Delaware |
GreenBank Capital Trust I
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Delaware |
Civitas Statutory Trust I
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Delaware |
Cumberland Capital Statutory Trust II
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Connecticut |
Bank Subsidiaries |
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Superior Financial Services, Inc.
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Tennessee |
GCB Acceptance Corporation
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Tennessee |
Fairway Title Company
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Tennessee |
GB Holdings, LLC
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Tennessee |
Schedule A
Exhibit A
Form of Contingent Value Rights
Exhibit A
Term Sheet for Contingent Value Rights
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Recipients
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Immediately prior to the Closing, existing shareholders of the Company
as of a predetermined record date mutually agreeable to the Purchaser
and the Company will be issued one right (a CVR) for each share of
Common Stock owned by such shareholder. Each CVR would entitle the
holder to a cash payment based on the amount of Credit Losses (as
defined below) prior to the Maturity Date up to a maximum of $0.75 per
CVR in the aggregate. |
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Maturity Date
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5 years from the Closing Date |
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Settlement
Obligation at
Maturity
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If the amount of Credit Losses is less than the Stipulated Amount, the
Issuer will pay to holders of the CVRs, within 60 days of the Maturity
Date, an amount equal to: |
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(A) If the difference between the Stipulated Amount and the amount of
Credit Losses expressed on a per CVR basis (such difference, the Loss
Shortfall) is less than or equal to $0.50, then 100% of the Loss
Shortfall; and |
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(B) If the Loss Shortfall is greater than $0.50, then $0.50 plus 50% of
the excess of the Loss Shortfall over $0.50 with a maximum of $0.75 per
CVR. |
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If the amount of Credit Losses equals or exceeds the Stipulated Amount
(as defined below), the CVRs will expire and the Company shall not be
required to make any payment with respect to them. |
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Credit Losses
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Credit Losses means the Charge-Offs for any loans existing as of the
date hereof for the period commencing on the date hereof and ending on
the Maturity Date less any recoveries in respect of such Charge-Offs. |
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Stipulated Amount
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$178,000,000. |
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Determinations
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All determinations with respect to Credit Losses calculations for
purposes of the CVRs and amounts payable in respect of the CVRs shall
be made by the Loan Portfolio Committee of the Companys Board of
Directors in its sole discretion. |
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Early Redemption
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The Company may redeem the CVRs at any time at a price of $0.75 per CVR. |
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Voting rights
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Any modifications of the terms of the CVRs that are adverse to the
holders will require the consent of the holders of a majority of the
CVRs. Otherwise, no voting rights attach to the CVRs. |
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Dividend rights
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None. |
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Merger, Acquisition
or Change in
Control
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In the event that the Company experiences a Change in Control, all
rights under the CVRs shall be redeemed upon closing at $0.75 per CVR. |
Exhibit A-1
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Change in Control
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A Change in Control shall mean any transaction resulting in the
holders of the equity interests of the Parent immediately prior to such
transaction owning, directly or indirectly, less than 50% of the equity
interests of the Parent immediately following such transaction. For
purposes of the preceding sentence, the Parent shall mean the
ultimate holder that directly or indirectly owns or controls, by share
ownership, contract or otherwise, a majority of the equity interests of
the Company. |
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Transferability;
Attachment; Death
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The rights of a holder of a CVR may not be assigned or transferred
except by will or the laws of descent or distribution. The CVR shall
not be subject, in whole or in part, to attachment, execution, or levy
of any kind, and any attempt to sell, pledge, assign, hypothecate,
transfer or otherwise dispose of the CVR shall be void. If a holder of
a CVR should die, the designee, legal representative, or legatee, the
successor trustee of such holders inter vivos trust or the person who
acquired the right to the CVR by reason of the death of such holder
(individually, a Successor) shall succeed to such holders rights
with respect to the CVR. |
Exhibit A-2
Exhibit B
Terms of Repurchase
Purchaser shall have entered into a binding definitive agreement with the Treasury to purchase
substantially contemporaneous with the Closing, on terms and conditions consistent with those
disclosed to the Companys Board of Directors by Purchasers representatives on April 26, 2011, all
of the outstanding shares of the Series A Preferred (including all obligations with respect to
accrued but unpaid dividends on the Series A Preferred) and the Treasury Warrants. For the
avoidance of doubt, at the Closing, such agreement shall remain in full force and effect.
Exhibit B
Exhibit C
Form of Registration Rights Agreement
Exhibit C
Exhibit D
Subsequent Transactions
Merger of the Bank
The Bank and a Subsidiary of the Purchaser (the Purchaser Entity) propose to engage
in a merger transaction pursuant to an agreement and plan of merger on terms and conditions
reasonably satisfactory to Purchaser, the Company and the Bank in which merger transaction each
share of capital stock of the Bank will be exchanged for shares of capital stock of the Purchaser
Entity at an exchange ratio that is equal to the ratio of the tangible book value per share of the
Bank to the tangible book value per share of the Purchaser Entity. In the event that the financial
terms of such merger transaction are materially different than as set forth in the preceding
sentence such that they are not within the approval of the Board of Directors of the Bank and the
Company as of the date hereof, the Board of Directors of the Bank and the Board of Directors of the
Company following the Closing shall approve the terms of such merger prior to its consummation.
Merger of the Company
Subsequent to the merger of the Bank and the Purchaser Entity, the Purchaser intends to cause
the Company to merge with and into Purchaser in a stock-for-stock transaction on terms and
conditions reasonably satisfactory to Purchaser in which transaction the Purchaser expects the
merger to be effected based on the ratio of the relative tangible book values per share of the
Purchaser and the Company. In the event that the financial terms of such merger transaction are
materially different than as set forth in the preceding sentence such that they are not within the
approval of the Board of Directors of the Company as of the date hereof, the Board of Directors of
the Company after the Closing shall approve the terms of such merger prior to its consummation.
Exhibit D
Appendix B
ARTICLES OF AMENDMENT
TO THE CHARTER
OF
GREEN BANKSHARES, INC.
In accordance with the provisions of Section 48-20-106 of the Tennessee Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment (the Articles of
Amendment) to its Charter (the Charter):
1. Name of Corporation. The name of the Corporation is Green Bankshares, Inc.
2. Section 6 of the Charter is hereby deleted in its entirety and replaced with the following:
6. The maximum number of shares which the Corporation shall have the authority to issue is:
a) One Hundred Thirty (130) shares of Organizational Common Stock with a par value of Ten
Dollars ($10.00) per share, which stock shall be callable by the Corporation at any time at the
par value thereof by action of a majority of the Board of Directors.
b) Three hundred million (300,000,000) shares of Common Stock, with a par value of $0.01 per
share. Each share of Common Stock shall be entitled to one vote. No holder of any Common Stock of
the Corporation, now or hereafter authorized, shall have any right, as such holder, to purchase,
subscribe for or otherwise acquire any shares of stock of the Corporation, or any securities or
obligations convertible into, or exchangeable for, or any right, warrant or option to purchase,
any shares of any class which the Corporation may at any time hereafter issue or sell, whether now
or hereafter authorized, but any and all such stock, securities, obligations, rights, warrants or
options may be issued and disposed of by the Board of Directors to such persons, firms or
corporations, and for such lawful consideration and on such terms as the Board of Directors in its
discretion may, from time to time, determine, without first offering the same to the shareholders
of the Corporation.
c) One million (1,000,000) shares of preferred stock, no par value per share. The preferred
stock may be issued by the Corporation from time to time in one or more series and in such amounts
as may be determined by the Board of Directors. The designations, voting rights, amounts of
preference upon distribution of assets, rates of dividends, premiums of redemption, conversion
rights and other variations, if any, the qualifications, limitations or restrictions thereof, if
any, of the preferred stock, and of each series thereof, shall be such as are fixed by the Board
of Directors, authority so to do being hereby expressly granted, and as are stated and expressed
in a resolution or resolutions adopted by the Board of Directors providing for the issue of such
series of preferred stock.
3. Except as amended by these Articles of Amendment, the Charter of the Corporation shall remain in
full force and effect.
4. Adoption. These Articles of Amendment were duly adopted by the Board of Directors on May 5,
2011, and by the shareholders of the Corporation on ________, 2011.
5. Effective Date. These Articles of Amendment will be effective when filed with the Secretary of
State.
Date: , 2011
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GREEN BANKSHARES, INC.
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By: |
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Name: |
Stephen M. Rownd |
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Title: |
Chief Executive Officer |
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B-1
Appendix C
ARTICLES OF AMENDMENT
TO THE CHARTER
OF
GREEN BANKSHARES, INC.
In accordance with the provisions of Section 48-20-106 of the Tennessee Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment (the Articles of
Amendment) to its Charter (the Charter):
1. Name of Corporation. The name of the Corporation is Green Bankshares, Inc.
2. Article 9 of the Amended and Restated Charter is amended to replace Section 9(c)(4) with the
following:
(4) Interested Shareholder means any Person (as defined herein) or member of a Group of
Persons (as defined herein) who or which, together with any Affiliate or Associate (as defined
herein) of such Person or member, Beneficially Owns (within the meaning of Subsection c(3) above)
ten percent or more of the outstanding Voting Stock of the Corporation; provided,
that, neither North American Financial Holdings, Inc., its Subsidiaries, Affiliates,
Associates nor any of their respective successors or assigns, shall at any time be deemed to be an
Interested Shareholder for purposes of this Section 9.
3. Except as amended by these Articles of Amendment, the Charter of the Corporation shall remain in
full force and effect.
4. Adoption. These Articles of Amendment were duly adopted by the Board of Directors on May 5,
2011, and by the shareholders of the Corporation on ________, 2011.
5. Effective Date. These Articles of Amendment will be effective when filed with the Secretary of
State.
Date: , 2011
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GREEN BANKSHARES, INC.
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By: |
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Name: |
Stephen M. Rownd |
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Title: |
Chief Executive Officer |
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C-1
Appendix D
ARTICLES OF AMENDMENT
TO THE CHARTER
OF
GREEN BANKSHARES, INC.
In accordance with the provisions of Section 48-20-106 of the Tennessee Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment (the Articles of
Amendment) to its Charter (the Charter):
1. Name of Corporation. The name of the Corporation is Green Bankshares, Inc.
2. Section 8(j) of the Charter is hereby deleted in its entirety and replaced with the following:
(j). (Intentionally omitted)
3. Except as amended by these Articles of Amendment, the Charter of the Corporation shall remain in
full force and effect.
4. Adoption. These Articles of Amendment were duly adopted by the Board of Directors on May 5,
2011, and by the shareholders of the Corporation on ________, 2011.
5. Effective Date. These Articles of Amendment will be effective when filed with the Secretary of
State.
Date: , 2011
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GREEN BANKSHARES, INC.
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By: |
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Name: |
Stephen M. Rownd |
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Title: |
Chief Executive Officer |
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D-1
Appendix E
MERGER AGREEMENT
AGREEMENT OF MERGER OF
GREENBANK
WITH AND INTO
NAFH NATIONAL BANK
This Agreement of Merger (the Agreement) dated as of ________, 2011, adopted and
made by and between NAFH NATIONAL BANK (NAFH Bank), a national banking association with
its main office located in Miami, Florida, and GREENBANK (GreenBank), a Tennessee state
chartered nonmember bank, each acting pursuant to resolutions adopted by the vote of a majority of
its directors in accordance with 12 U.S.C. § 215a.
WITNESSETH:
WHEREAS, GreenBank is a Tennessee state chartered nonmember bank, the authorized capital stock
of which consists of 129,000 shares of common stock, with a par value of $10.00 each, and all of
the issued and outstanding shares of which are owned as of the date hereof directly by Green
Bankshares, Inc. (Green); and
WHEREAS, NAFH is a national banking association organized and existing under the laws of the
United States, the authorized capital stock of which consists of 1,000 shares of common stock, with
a par value of $1.00 each, and all of the issued and outstanding shares of which are owned as of
the date hereof by North American Financial Holdings, Inc. (NAFH) and its subsidiary, TIB
Financial Corp.; and
WHEREAS, NAFH and Green have entered into an Investment Agreement, dated as of May 5, 2011
(the Investment Agreement), pursuant to which NAFH will acquire approximately 90.09% of
the outstanding common stock of Green (the Acquisition); and
WHEREAS, the shareholders of each of NAFH Bank and GreenBank wish to merge GreenBank into NAFH
Bank (the Bank Merger) subsequent to the Acquisition; and
WHEREAS, the respective Boards of Directors of GreenBank and NAFH Bank deem the merger of
GreenBank with and into NAFH Bank, which shall occur simultaneously with the Acquisition, under and
pursuant to the terms and conditions herein set forth or referred to, desirable and in the best
interest of the respective banks, and the Boards of Directors of GreenBank and NAFH Bank have
authorized and approved the execution and delivery of this Agreement by their respective officers;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein
contained, the parties hereto do hereby agree as follows:
I. BANK MERGER
Subject to the terms and conditions of this Agreement, on the Effective Date (as hereinafter
defined), following the Acquisition, on a date to be determined by NAFH Bank, GreenBank shall be
merged with and into NAFH Bank pursuant to the provisions of, and with the effect provided in, 12
U.S.C. § 215a. On the Effective Date, the separate existence of GreenBank shall cease, and NAFH
Bank, as the surviving entity, shall continue unaffected and unimpaired by the Bank Merger, and
shall be liable for all of the liabilities of GreenBank, including liabilities arising from the
operation of a trust department, existing at the Effective Date (NAFH Bank being hereinafter
sometimes referred to as the Surviving Bank). The business of the Surviving Bank shall
be that of a national banking association and shall be conducted at its main office and legally
established branches.
II. ARTICLES OF ASSOCIATION AND BY-LAWS
The Articles of Association and the By-Laws of NAFH Bank in effect immediately prior to the
Effective Date shall be the Articles of Association and the By-Laws of the Surviving Bank, in each
case until amended in
E-1
accordance with applicable law. The Articles of Association of NAFH Bank as
in effect immediately prior to the Effective Date are set forth as Exhibit A hereto and
incorporated by reference.
III. BOARD OF DIRECTORS
On the Effective Date, the Board of Directors of the Surviving Bank shall consist of those
persons serving as directors of NAFH Bank immediately prior to the Effective Date as well as two
individuals who are currently directors of GreenBank will also join the board of NAFH Bank. These
individuals have not yet been designated.
IV. CAPITAL
The shares of capital stock of NAFH Bank issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date, continue to be issued and outstanding.
The shares of capital stock of GreenBank issued and outstanding immediately prior to the
Effective Date shall, on the Effective Date, be converted into the right to receive [] fully paid
and nonassessable shares of capital stock of NAFH Bank (the Merger Consideration). As of
the Effective Date, all such shares of GreenBank capital stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist. Promptly following the
Effective Date, the Surviving Bank shall deliver certificates representing the Merger Consideration
to the former holder(s) of outstanding shares of GreenBank capital stock.
V. EFFECTIVE DATE OF THE BANK MERGER
The Bank Merger shall be effective at the time and on the date specified in the certificate
issued by the Office of the Comptroller of the Currency with respect thereto or, if such
certificate cannot theretofore be obtained, on the date of consummation determined by NAFH Bank
(such date and time being herein referred to as the Effective Date).
VI. MAIN OFFICE
The main office of the Surviving Bank shall be 9366 South Dixie Highway, Miami, Florida
33156.
VII. FURTHER ASSURANCES
If at any time the Surviving Bank shall consider or be advised that any further assignments,
conveyances or assurances are necessary or desirable to vest, perfect or confirm in the Surviving
Bank title to any property or rights of GreenBank, or otherwise carry out the provisions hereof,
the proper officers and directors of GreenBank, as of the Effective Date, and thereafter the
officers of the Surviving Bank acting on behalf of GreenBank shall execute and deliver any and all
proper assignments, conveyances and assurances, and do all things necessary or desirable
to vest, perfect or confirm title to such property or rights in the Surviving Bank and
otherwise carry out the provisions hereof. This Agreement shall be ratified and confirmed by the
shareholders of GreenBank and NAFH Bank.
VIII. TERMINATION
Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be
terminated by the mutual consent of the parties hereto and shall terminate automatically with no
further action by either party in the event that the Investment Agreement is terminated in
accordance with its terms.
IX. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.
E-2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in
counterparts by their duly authorized officers and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
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ATTEST:
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NAFH NATIONAL BANK |
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Name:
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Name: |
Title:
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Title: |
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ATTEST:
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GREENBANK |
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Name:
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Name: |
Title:
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Title: |
E-3
Appendix F
CERTAIN INFORMATION REGARDING GREEN BANKSHARES, INC. AND GREENBANK
BUSINESS
Presentation of Amounts
All dollar amounts set forth below, other than share and per-share amounts, are in thousands
unless otherwise noted. Unless this Appendix F indicates otherwise or the context otherwise
requires, the terms we, our, us, the Company or Green Bankshares as used herein refer to
Green Bankshares, Inc. and its subsidiaries, including GreenBank, which we sometimes refer to as
GreenBank, the Bank or our Bank.
Green Bankshares, Inc.
We are the third-largest bank holding company headquartered in Tennessee, with $2.4 billion in
assets as of December 31, 2010. Incorporated in 1985, Green Bankshares is the parent of GreenBank
(the Bank) and owns 100% of the capital stock of the Bank. The primary business of the Company
is operating the Bank.
As a bank holding company, we are subject to regulation by the Board of Governors of the
Federal Reserve System, or the Federal Reserve Board (the FRB). We are required to file reports
with the Federal Reserve Bank of Atlanta (the FRB-Atlanta) and are subject to regular
examinations by that agency. Shares of our common stock are traded on the NASDAQ Global Select
Market under the trading symbol GRNB.
At December 31, 2010, the Company maintained a main office in Greeneville, Tennessee and 64
full-service bank branches (of which eleven are leased operating premises), a location for mortgage
banking and nine separate locations operated by the Banks subsidiaries.
The Companys assets consist primarily of its investment in the Bank and liquid investments.
Its primary activities are conducted through the Bank. At December 31, 2010, the Companys
consolidated total assets were $2,406,040, its consolidated net loans were $1,745,378, its total
deposits were $1,976,854 and its total shareholders equity was $143,897.
The Companys net income, or net loss, is dependent primarily on the earnings, or loss, of its
wholly-owned subsidiary, GreenBank and its level of net income, or net loss. GreenBanks net
income, or net loss, is dependent upon its level of net interest income, which is the difference
between the interest income earned on its loans and other interest-earning assets and the interest
paid on deposits and other interest-bearing liabilities plus the Banks non-interest income, the
sum of which is either partially, or fully, offset by the amount of the Banks loan loss provision
plus the Banks total operating expenses.
Lending Activities:
General: The Banks lending activities reflect its community banking philosophy, emphasizing
secured loans to individuals and businesses in its primary market areas.
Commercial Real Estate Lending: Commercial real estate loans are loans originated by the Bank that
are secured by commercial real estate and includes commercial real estate construction loans to
developers, mainly to borrowers based in its primary markets.
Residential Real Estate Lending: The Bank originates traditional one-to-four family, owner
occupied, residential mortgages secured by property located in its primary market area. Further
detail on consumer residential real estate lending may be found on page F-5 of this Appendix F.
Commercial Business Lending: Commercial business loans are loans originated by the Bank that are
generally secured by various types of business assets including inventory, receivables, equipment,
financial instruments and
F-1
commercial real estate. In limited cases, loans may be made on an
unsecured basis. Commercial business loans are used for a variety of purposes including working
capital and financing the purchase of equipment.
The Bank concentrates on originating commercial business loans to middle-market companies with
borrowing requirements of less than $25 million. Substantially all of the Banks commercial
business loans outstanding at December 31, 2010, were to borrowers based in its primary markets.
Consumer Lending: The Bank makes consumer loans for personal, family or household purposes, such as
debt consolidation, automobiles, vacations and education. Consumer lending loans are typically
secured by personal property but may also be unsecured personal loans. They may also be made on a
revolving line of credit or fixed-term basis.
Investment Activities:
The Bank has authority to invest in various types of liquid assets, including U.S. Treasury
obligations and securities of various federal agencies and U.S. Government sponsored enterprises,
deposits of insured banks and federal funds. The Banks investments do not include commercial
paper, asset-backed commercial paper, asset-backed securities secured by credit cards, or car
loans. The Bank also does not participate in structured investment vehicles. Liquidity may increase
or decrease depending upon the availability of funds and comparative yields on investments in
relation to the returns on loans and leases. The Bank must also meet reserve requirements of the
FRB, which are imposed based on amounts on deposit in various deposit categories.
Sources of Funds:
Deposits: Deposits are the primary source of the Banks funds for use in lending and for other
general business purposes. Deposit inflows and outflows are significantly influenced by economic
and competitive conditions, interest rates, money market conditions and other factors, including
depositor confidence. Consumer, small business and commercial deposits are attracted principally
from within the Banks primary market areas through the offering of a broad selection of deposit
instruments including consumer, small business and commercial demand deposit accounts,
interest-bearing checking accounts, money market accounts, regular savings accounts, certificates
of deposit and retirement savings plans.
The Banks marketing strategy emphasizes attracting core deposits held in checking, savings,
money- market and certificate of deposit accounts. These accounts are a source of low-interest cost
funds and in some cases, provide significant fee income. The composition of the Banks deposits has
a significant impact on the overall cost of funds. At December 31, 2010, interest-bearing deposits
comprised 92% of total deposits, as compared with 91% at December 31, 2009.
Borrowings: Borrowings may be used to compensate for reductions in deposit inflows or net deposit
outflows, or to support expanded lending activities. These borrowings include Federal Home Loan
Bank (FHLB) advances, repurchase agreements, federal funds and other borrowings.
The Bank, as a member of the FHLB system, is required to own a minimum level of FHLB stock and
is authorized to apply for advances on the security of such stock, mortgage-backed securities,
loans secured by real estate and other assets (principally securities which are obligations of, or
guaranteed by, the United States Government), provided certain standards related to
creditworthiness have been met. FHLB advances are made pursuant to several different credit
programs. Each credit program has its own interest rates and range of maturities. The FHLB
prescribes the acceptable uses to which the advances pursuant to each program may be made as well
as limitations on the size of advances. In addition to the program limitations, the amounts of
advances for which an institution may be eligible are generally based on the FHLBs assessment of
the institutions creditworthiness.
As an additional source of funds, the Bank may sell securities subject to its obligation to
repurchase these securities (repurchase agreements) with major customers utilizing government
securities or mortgage-backed securities as collateral. Generally, securities with a value in
excess of the amount borrowed are required to be maintained as collateral to a repurchase
agreement.
Information concerning the Banks FHLB advances, repurchase agreements, junior subordinated
notes (trust preferred) and other borrowings is set forth in Managements Discussion and Analysis
of Financial Condition and
F-2
Results of Operations Liquidity and Capital Resources and in Note 8
of Notes to Consolidated Financial Statements.
We are significantly impacted by prevailing economic conditions, competition and the monetary,
fiscal and regulatory policies of governmental agencies. Lending activities are influenced by the
general credit needs of individuals and small and medium-sized businesses in the Companys market
areas, competition among lenders, the level of interest rates and the availability of funds.
Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily
the rates paid on competing funding alternatives, account maturities and the levels of personal
income and savings in the Companys market areas.
Our principal executive offices are located at 100 North Main Street, Greeneville, Tennessee
37743-4992 and our telephone number at these offices is (423) 639-5111. Our internet address is
www.greenbankusa.com. Please note that our website is provided as an inactive textual
reference and the information on our website is not incorporated by reference herein.
GreenBank and its Subsidiaries
Our Bank is a Tennessee-chartered commercial bank established in 1890 which has its principal
executive offices in Greeneville, Tennessee. The principal business of the Bank consists of
attracting deposits from the general public and investing those funds, together with funds
generated from operations and from principal and interest payments on loans, primarily in
commercial and residential real estate loans, commercial loans and installment consumer loans. At
December 31, 2010, the Bank had 63 Tennessee-based full-service banking offices located in Greene,
Blount, Cocke, Hamblen, Hawkins, Knox, Loudon, McMinn, Monroe, Sullivan, and Washington Counties in
East Tennessee and in Davidson, Lawrence, Macon, Montgomery, Rutherford, Smith, Sumner and
Williamson Counties in Middle Tennessee. The Bank also operates two other full service
branchesone located in nearby Madison County, North Carolina and the other in nearby Bristol,
Virginia. Further, the Bank operates a mortgage banking operation in Knox County, Tennessee.
Our Bank also offers other financial services through three wholly-owned subsidiaries.
Through Superior Financial Services, Inc. (Superior Financial), the Bank operates eight consumer
finance company offices located in Greene, Blount, Hamblen, Washington, Sullivan, Sevier, Knox and
Bradley Counties, Tennessee. Through GCB Acceptance Corporation (GCB Acceptance), the Bank
operates a sub-prime automobile lending company with a sole office in Johnson City, Tennessee.
Through Fairway Title Co., the Bank operates a title company headquartered in Knox County,
Tennessee. At December 31, 2010, these three subsidiaries had total combined assets of $42,995 and
total combined loans, net of unearned interest and loan loss reserve, of $40,671.
As described in more detail below, deposits of our Bank are insured by the Deposit Insurance
Fund (DIF) of the Federal Deposit Insurance Corporation (FDIC). Our Bank is subject to
comprehensive regulation, examination and supervision by the Tennessee Department of Financial
Institutions (the TDFI), the FRB and the FDIC.
Business Strategy
In 2011, the Company expects that its primary business strategy will be on managing through
the current asset quality issues affecting the Companys performance and strengthening the
Companys capital position, including, if necessary, through the issuance of additional equity
securities. Accordingly, the Company expects that over the short term, given the current economic
environment and high levels of nonperforming assets, there will be little to no loan growth until
the current economic environment in the Companys markets stabilizes and the economy begins to
improve.
The Companys intermediate term prospects depend principally on the Companys ability to deal
with the asset quality issues currently facing the Company and the Companys ability to raise
capital in amounts sufficient to allow the Company and the Bank to achieve capital levels in excess
of those required by federal banking regulations and the informal commitments that the Bank has
made to the TDFI and FDIC described in more detail below.
The Bank had historically operated under a single bank charter while conducting business under
18 bank brands with a distinct community-based brand in almost every market. On March 31, 2007 the
Bank announced that
F-3
it had changed all brand names to GreenBank throughout all the communities it
serves to better enhance recognition and customer convenience. The Bank continues to offer local
decision making through the presence of its regional executives in each of its markets, while
maintaining a cost effective organizational structure in its back office and support areas.
The Bank focuses its lending efforts predominately on individuals and small to medium-sized
businesses while it generates deposits primarily from individuals in its local communities. To aid
in deposit generation efforts, the Bank offers its customers extended hours of operation during the
week as well as Saturday and Sunday banking in many of its markets. The Bank also offers free
online banking along with its High Performance Checking Program which since its inception has
generated a significant number of core transaction accounts.
In addition to the Companys business model, which is described herein, the Company is
continuously investigating and analyzing other lines and areas of business. Conversely, the
Company frequently evaluates and analyzes the profitability, risk factors and viability of its
various business lines and segments and, depending upon the results of these evaluations and
analyses, may conclude to exit certain segments and/or business lines. Further, in conjunction with
these ongoing evaluations and analyses, the Company may decide to sell, merge or close certain
branch facilities.
Lending Activities
General. The loan portfolio of the Company is comprised of commercial real estate,
residential real estate, commercial and consumer loans. Such loans are primarily originated within
the Companys market areas of East and Middle Tennessee and are generally secured by residential or
commercial real estate or business or personal property located in its market footprint.
Loan Composition. Given the on-going challenging economic environment which began
during the second half of 2007 as the recession emerged and the resulting precipitous decline in
residential real estate construction values through 2010, the Company significantly reduced its
commercial real estate concentration levels, as noted in the table below for each of the periods
presented at December 31:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Commercial real estate |
|
$ |
1,080,805 |
|
|
$ |
1,306,398 |
|
|
$ |
1,430,225 |
|
|
$ |
1,549,457 |
|
|
$ |
921,190 |
|
Residential real estate |
|
|
378,783 |
|
|
|
392,365 |
|
|
|
397,922 |
|
|
|
398,779 |
|
|
|
281,629 |
|
Commercial |
|
|
222,927 |
|
|
|
274,346 |
|
|
|
315,099 |
|
|
|
320,264 |
|
|
|
258,998 |
|
Consumer |
|
|
75,498 |
|
|
|
83,382 |
|
|
|
89,733 |
|
|
|
97,635 |
|
|
|
87,111 |
|
Other |
|
|
1,913 |
|
|
|
2,117 |
|
|
|
4,656 |
|
|
|
3,871 |
|
|
|
2,203 |
|
Unearned interest |
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|
(14,548 |
) |
|
|
(14,801 |
) |
|
|
(14,245 |
) |
|
|
(13,630 |
) |
|
|
(11,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned interest |
|
$ |
1,745,378 |
|
|
$ |
2,043,807 |
|
|
$ |
2,223,390 |
|
|
$ |
2,356,376 |
|
|
$ |
1,539,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
(66,830 |
) |
|
$ |
(50,161 |
) |
|
$ |
(48,811 |
) |
|
$ |
(34,111 |
) |
|
$ |
(22,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the segment information listed above, the Company monitors commercial real
estate speculative and construction by purpose code as noted in the loan migration table below for
each of the periods presented:
Higher Risk Loan Migration Table:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Speculative 1-4 family residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and development |
|
$ |
131,669 |
|
|
$ |
185,087 |
|
|
$ |
242,343 |
|
|
$ |
285,592 |
|
|
$ |
159,760 |
|
Lot warehouse |
|
|
42,796 |
|
|
|
66,104 |
|
|
|
79,555 |
|
|
|
104,201 |
|
|
|
64,429 |
|
Commercial 1-4 family residential |
|
|
31,511 |
|
|
|
70,434 |
|
|
|
160,786 |
|
|
|
279,680 |
|
|
|
134,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
205,976 |
|
|
|
321,625 |
|
|
|
482,684 |
|
|
|
669,473 |
|
|
|
358,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial vacant land |
|
|
77,081 |
|
|
|
101,679 |
|
|
|
103,160 |
|
|
|
69,298 |
|
|
|
37,461 |
|
Commercial construction non-owner occupied |
|
|
63,881 |
|
|
|
164,887 |
|
|
|
144,344 |
|
|
|
157,374 |
|
|
|
80,032 |
|
Commercial construction owner
occupied |
|
|
5,407 |
|
|
|
28,213 |
|
|
|
55,305 |
|
|
|
58,814 |
|
|
|
37,515 |
|
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Consumer residential construction |
|
|
14,161 |
|
|
|
19,073 |
|
|
|
27,632 |
|
|
|
38,231 |
|
|
|
25,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
160,530 |
|
|
|
313,852 |
|
|
|
330,441 |
|
|
|
323,717 |
|
|
|
180,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total speculative and construction |
|
$ |
366,506 |
|
|
$ |
635,477 |
|
|
$ |
813,125 |
|
|
$ |
993,190 |
|
|
$ |
538,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Maturities. The following table reflects at December 31, 2010 the dollar amount
of loans maturing based on their contractual terms to maturity. Demand loans, loans having no
stated schedule of repayments and loans having no stated maturity are reported as due in one year
or less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in One |
|
|
Due After One Year |
|
|
Due After |
|
|
|
|
|
|
Year or Less |
|
|
Through Five Years |
|
|
Five Years |
|
|
Total |
|
Commercial real estate |
|
$ |
437,374 |
|
|
$ |
613,259 |
|
|
$ |
30,172 |
|
|
$ |
1,080,805 |
|
Residential real estate (1) |
|
|
42,826 |
|
|
|
93,735 |
|
|
|
235,732 |
|
|
|
372,293 |
|
Commercial |
|
|
148,500 |
|
|
|
68,752 |
|
|
|
5,675 |
|
|
|
222,927 |
|
Consumer (1) |
|
|
19,110 |
|
|
|
45,815 |
|
|
|
2,515 |
|
|
|
67,440 |
|
Other |
|
|
1,629 |
|
|
|
236 |
|
|
|
48 |
|
|
|
1,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
649,439 |
|
|
$ |
821,797 |
|
|
$ |
274,142 |
|
|
$ |
1,745,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of unearned interest |
The following table sets forth the dollar amount of the loans maturing subsequent to the year
ended December 31, 2011 distinguished between those with predetermined interest rates and those
with floating, or variable, interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
Variable Rate |
|
|
Total |
|
Commercial real estate |
|
$ |
432,141 |
|
|
$ |
211,290 |
|
|
$ |
643,431 |
|
Residential real estate |
|
|
111,198 |
|
|
|
218,269 |
|
|
|
329,467 |
|
Commercial |
|
|
46,740 |
|
|
|
27,687 |
|
|
|
74,427 |
|
Consumer |
|
|
47,696 |
|
|
|
634 |
|
|
|
48,330 |
|
Other |
|
|
236 |
|
|
|
48 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
638,011 |
|
|
$ |
457,928 |
|
|
$ |
1,095,939 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans. The Company has significantly curtailed the origination
of residential real estate construction and development loans over the past three years as noted in
the higher risk loan migration table above. The Company had historically originated commercial real
estate loans, including residential real estate construction and development loans, generally to
existing business customers, secured by real estate located in the Companys market area. At
December 31, 2010, commercial real estate loans totaled $1,080,805, or 62%, of the Companys net
loan portfolio. Commercial real estate loans were generally underwritten by addressing cash flow
(debt service coverage), primary and secondary source of repayment, financial strength of any
guarantor, and strength of the tenant (if any), liquidity, leverage, management experience,
ownership structure, economic conditions and collateral. Generally, the Company would loan up to
80-85% of the value of improved property, 65% of the value of raw land and 75% of the value of land
to be acquired and developed. A first lien on the property and assignment of lease is required if
the collateral is rental property, with second lien positions considered on a case-by-case basis.
Residential Real Estate. The Company also originates one-to-four family,
owner-occupied residential mortgage loans secured by property located in the Companys primary
market areas. The majority of the Companys residential mortgage loans consists of loans secured
by owner-occupied, single-family residences. At December 31, 2010, the Company had $378,783, or
21%, of its net loan portfolio in residential real estate loans, net of unearned income.
Residential real estate loans generally have a loan-to-value ratio of 85% or less. These loans are
underwritten by giving consideration to the ability to pay, stability of employment, source of
income, credit history and loan-to-value ratio. Home equity loans make up approximately 52% of
residential real estate loans. Home equity loans may have higher loan-to-value ratios when the
borrowers repayment capacity and credit history conform to underwriting standards. Superior
Financial extends sub-prime mortgages to borrowers who generally have a higher risk of default than
mortgages extended by the Bank. Sub-prime mortgages totaled $11,742, or 3%, of the Companys
residential real estate loans, net of unearned income, at December 31, 2010.
F-5
The Company sells most of its one-to-four family mortgage loans in the secondary market to
Freddie Mac and other mortgage investors through the Banks mortgage banking operation. Sales of
such loans to Freddie Mac and other mortgage investors totaled $47,881 and $43,050 during 2010 and
2009, respectively, and the related mortgage servicing rights were sold together with the loans.
All mortgage loans sales are without recourse and all notes are endorsed to the investor stating
without recourse. Certain contingencies do come into play for early prepayment or early payment
defaults and would involve a refund of the yield spread premium earned on the transaction given
certain events of default. During 2010, no refunds or events of default occurred.
Commercial Loans. Commercial loans are made for a variety of business purposes,
including working capital, inventory and equipment and capital expansion. At December 31, 2010,
commercial loans outstanding totaled $222,927, or 13%, of the Companys net loan portfolio. Such
loans are usually amortized over one to seven years and generally mature within five years.
Commercial loan applications must be supported by current financial information on the borrower
and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by
addressing cash flow (debt service coverage), primary and secondary sources of repayment, financial
strength of any guarantor, liquidity, leverage, management experience, ownership structure,
economic conditions and industry-specific trends and collateral. The loan to value ratio depends
on the type of collateral. Generally speaking, accounts receivable are financed between 70% and
80% of accounts receivable less than 90 days past due. If other collateral is taken to support the
loan, the loan to value of accounts receivable may approach 85%. Inventory financing will range
between 50% and 60% depending on the borrower and nature of the inventory. The Company requires a
first lien position for such loans. These types of loans are generally considered to be a higher
credit risk than other loans originated by the Company.
Consumer Loans. At December 31, 2010, the Companys consumer loan portfolio, net of
unearned income, totaled $67,440, or 4%, of the Companys total net loan portfolio. The Companys
consumer loan portfolio is composed of secured and unsecured loans originated by the Bank, Superior
Financial and GCB Acceptance. The consumer loans of the Bank generally have a higher risk of
default than other loans originated by the Bank. Further, consumer loans originated by Superior
Financial and GCB Acceptance, which are finance companies rather than banks, generally have a
greater risk of default than such loans originated by commercial banks and, accordingly, carry a
higher interest rate. Superior Financial and GCB Acceptance consumer loans totaled approximately
$32,194, or 48%, of the Companys installment consumer loans, net of unearned income, at December
31, 2010. The performance of consumer loans will be affected by the local and regional economy as
well as the rates of personal bankruptcies, job loss, divorce and other individual-specific
characteristics.
Past Due, Special Mention, Classified and Nonaccrual Loans. The Company classifies
its loans of concern into three categories: past due loans, special mention loans and classified
loans (both accruing and non-accruing interest).
When management determines that a loan is no longer performing and that collection of interest
appears doubtful, the loan is placed on nonaccrual status. All loans that are 90 days past due are
considered nonaccrual unless they are adequately secured and there is reasonable assurance of full
collection of principal and interest. Management closely monitors all loans that are contractually
90 days past due, treated as special mention or otherwise classified or on nonaccrual status.
Nonaccrual loans that are 120 days past due without assurance of repayment are charged off against
the allowance for loan losses.
The Company may elect to formally restructure a loan due to the weakening credit status of a
borrower so that the restructuring may facilitate a repayment plan that minimizes the potential
losses that the Company may have to otherwise incur. At December 31, 2010 and 2009, the Company
had $49,537 and $16,061 of restructured loans of which $9,597 and $4,429 were classified as
non-accrual and the remaining were performing.
The following table sets forth information with respect to the Companys nonperforming assets
at the dates indicated.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Loans accounted for on a non-accrual
basis |
|
$ |
143,707 |
|
|
$ |
75,411 |
|
|
$ |
30,926 |
|
|
$ |
32,060 |
|
|
$ |
3,479 |
|
Accruing loans which are contractually
past due 90 days or more as to interest
or principal payments |
|
|
2,112 |
|
|
|
147 |
|
|
|
509 |
|
|
|
18 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
145,819 |
|
|
|
75,558 |
|
|
|
31,435 |
|
|
|
32,078 |
|
|
|
3,507 |
|
Real estate owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosures |
|
|
59,965 |
|
|
|
56,952 |
|
|
|
44,964 |
|
|
|
4,401 |
|
|
|
1,445 |
|
Other real estate held and
repossessed assets |
|
|
130 |
|
|
|
216 |
|
|
|
407 |
|
|
|
458 |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
205,914 |
|
|
$ |
132,726 |
|
|
$ |
76,806 |
|
|
$ |
36,937 |
|
|
$ |
5,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans not included above |
|
$ |
39,940 |
|
|
$ |
11,632 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets increased by $73,188 from December 31, 2009 to December 31, 2010.
This increase was principally driven by deterioration in the economy during 2010 which was
reflected principally in the Companys residential real estate construction and development
portfolio. In 2010, the Company devoted significant attention to our asset quality issues,
including having segregated these assets within our Special Assets Group so that we may diligently
work through the resolution of each on an asset-by-asset basis. The Special Assets Group meets
monthly to discuss the performance of the portfolio and specific relationships with emphasis on the
underperforming assets. The Special Assets Group is responsible for the resolution of problem
credits by creating action plans, which could include foreclosure, restructuring the loan, issuing
demand letters or other actions. If nonaccrual loans at December 31, 2010 had been current
according to their original terms and had been outstanding throughout 2010, or since origination if
originated during the year, interest income on these loans in 2010 would have been approximately
$5,948. Interest actually recognized on these loans during 2010 was $4,843. Interest income not
recognized on restructured loans was not significant for 2010.
OREO increased by $2,927 from December 31, 2009 to December 31, 2010. The real estate
consists of 122 properties, of which 49 are 1-4 family residential properties with a carrying value
of $3,966; 38 are construction development of 1-4 residential properties with a carrying value of
$37,481; two are multi-family residential properties with a carrying value of $648; four are
parcels of commercial vacant land with a carrying value of $3,192; 23 are vacant 1-4 family
residential lots with a carrying value of $7,038; five are commercial buildings with a carrying
value of $5,321; and one is a commercial construction project with a carrying value of $2,318.
Management has recorded these properties at estimated fair market value, based on current
appraisals, less estimated selling costs. Other repossessed assets decreased from $216 at December
31, 2009 to $130 at December 31, 2010. The decrease is due primarily to the disposition of
repossessed automobiles at one of the Companys subsidiaries.
The recorded investment of impaired loans, defined under Accounting Standards Codification
(ASC) Topic ASC 310 as loans which, based upon current information and events, it is considered
probable that the Company will be unable to collect all amounts of contractual interest and
principal as scheduled in the loan agreement, increased by $70,753 from $115,238 at December 31,
2009 to $185,991 at December 31, 2010. The related allowance on the recorded investment of
impaired loans also increased by $19,097 from $5,737 at December 31, 2009 to $24,834 at December
31, 2010. Under accounting guidance for impaired loans, the impairment is probable if the future
events indicate that the Bank will not collect principal and interest in accordance with
contractual terms. Impaired loans are included in non-performing loans. This increase is primarily
attributable to the continued deterioration throughout 2010 in residential real estate construction
loans located in the Companys urban markets. The recorded investment of impaired loans of
$185,991 at December 31, 2010 and $115,238 at December 31, 2009 are net of balances previously
charged-off of $36,574 and $27,937 respectively.
Allowance for Loan Losses. The allowance for loan losses is maintained at a level
which management believes is adequate to absorb all probable losses on loans then present in the
loan portfolio. The amount of the allowance is affected by: (1) loan charge-offs, which decrease
the allowance; (2) recoveries on loans previously charged-off, which increase the allowance; and
(3) the provision for possible loan losses charged against income, which increases the allowance.
In determining the provision for possible loan losses, it is necessary for management to monitor
fluctuations in the allowance resulting from actual charge-offs and recoveries, and to periodically
review the size and composition of the loan portfolio in light of current and anticipated economic
conditions, including residential real estate prices and transaction volume in the Companys market
areas, in an effort to evaluate portfolio
F-7
risks. In evaluating residential real estate market
conditions, the Companys internal policies require new appraisals on adversely rated collateral
dependent loans to be obtained at least annually. On a quarterly basis, the Company receives a
written report from an independent nationally recognized organization which provides updated
valuation trends, by price point and by zip code, for each of the major markets in which the
Company is conducting business. The information is then used in the Companys impairment analysis
of collateral dependent loans. If actual losses exceed the amount of the allowance for loan
losses, earnings of the Company could be adversely affected. The amount of the provision is based
on managements judgment of those risks. During the year ended December 31, 2010, the Companys
provision for loan losses increased by $20,861 to $71,107 from $50,246 for the year ended December
31, 2009 and the allowance for loan losses increased by $16,669 to $66,830 at December 31, 2010
from $50,161 at December 31, 2009.
The elevated allowance for loan losses was attributable primarily to continuing weakened
economic conditions experienced in the Companys urban markets, principally the Nashville and
Knoxville markets, beginning in the fourth quarter of 2007 and continuing through 2010,
accompanied by deteriorating credit quality associated primarily with residential real estate
construction and development loans in these markets. The allowance for loan losses as a percentage
of total loans was 3.83% at the end of 2010 versus 2.45% at December 31, 2009. The loan loss
reserves reflected the higher level of non-performing banking assets, and losses inherent in this
segment of the Companys business, as noted in Notes 3 and 17 of Notes to Consolidated Financial
Statements. Although Management believes that the allowance for loan losses is adequate to cover
estimated losses inherent in the portfolio, there can be no assurances that additional reserves may
not be required in the future.
The following is a summary of activity in the allowance for loan losses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance at beginning of year |
|
$ |
50,161 |
|
|
$ |
48,811 |
|
|
$ |
34,111 |
|
|
$ |
22,302 |
|
|
$ |
19,739 |
|
Reserve acquired in acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
50,161 |
|
|
|
48,811 |
|
|
|
34,111 |
|
|
|
31,324 |
|
|
|
19,739 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
(48,617 |
) |
|
|
(40,893 |
) |
|
|
(28,759 |
) |
|
|
(7,516 |
) |
|
|
(494 |
) |
Commercial |
|
|
(3,210 |
) |
|
|
(6,941 |
) |
|
|
(6,177 |
) |
|
|
(2,065 |
) |
|
|
(879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
(51,827 |
) |
|
|
(47,834 |
) |
|
|
(34,936 |
) |
|
|
(9,581 |
) |
|
|
(1,373 |
) |
Residential real estate |
|
|
(3,102 |
) |
|
|
(3,176 |
) |
|
|
(2,275 |
) |
|
|
(840 |
) |
|
|
(947 |
) |
Consumer |
|
|
(2,889 |
) |
|
|
(3,880 |
) |
|
|
(4,058 |
) |
|
|
(3,050 |
) |
|
|
(2,009 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
(57,818 |
) |
|
|
(54,890 |
) |
|
|
(41,269 |
) |
|
|
(13,471 |
) |
|
|
(4,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
1,301 |
|
|
|
3,066 |
|
|
|
1,691 |
|
|
|
289 |
|
|
|
17 |
|
Commercial |
|
|
909 |
|
|
|
1,669 |
|
|
|
221 |
|
|
|
227 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
2,210 |
|
|
|
4,735 |
|
|
|
1,912 |
|
|
|
516 |
|
|
|
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
287 |
|
|
|
402 |
|
|
|
138 |
|
|
|
213 |
|
|
|
284 |
|
Consumer |
|
|
882 |
|
|
|
853 |
|
|
|
1,106 |
|
|
|
1,038 |
|
|
|
936 |
|
Other |
|
|
1 |
|
|
|
4 |
|
|
|
3 |
|
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
3,380 |
|
|
|
5,994 |
|
|
|
3,159 |
|
|
|
1,775 |
|
|
|
1,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(54,438 |
) |
|
|
(48,896 |
) |
|
|
(38,110 |
) |
|
|
(11,696 |
) |
|
|
(2,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
71,107 |
|
|
|
50,246 |
|
|
|
52,810 |
|
|
|
14,483 |
|
|
|
5,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
66,830 |
|
|
$ |
50,161 |
|
|
$ |
48,811 |
|
|
$ |
34,111 |
|
|
$ |
22,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average
loans outstanding, net of
unearned discount, during
the period |
|
|
2.84 |
% |
|
|
2.25 |
% |
|
|
1.63 |
% |
|
|
.57 |
% |
|
|
.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to
non-performing loans |
|
|
45.83 |
% |
|
|
66.39 |
% |
|
|
155.28 |
% |
|
|
106.34 |
% |
|
|
635.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to
total loans, net of unearned income |
|
|
3.83 |
% |
|
|
2.45 |
% |
|
|
2.20 |
% |
|
|
1.45 |
% |
|
|
1.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-8
Breakdown of allowance for loan losses by portfolio segment. The following table presents an
allocation among the listed loan categories of the Companys allowance for loan losses at the dates
indicated and the percentage of loans in each category to the total amount of loans at the
respective year-ends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of loans |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
of loans |
|
|
|
|
|
|
of loans |
|
|
|
|
|
|
|
in each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
in each |
|
|
|
|
|
|
in each |
|
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
Balance at end of period |
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
applicable to: |
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
Commercial real estate |
|
$ |
54,203 |
|
|
|
61.93 |
% |
|
$ |
36,527 |
|
|
|
63.93 |
% |
|
$ |
35,714 |
|
|
|
64.33 |
% |
|
$ |
20,489 |
|
|
|
65.38 |
% |
|
$ |
10,619 |
|
|
|
59.38 |
% |
Residential real estate |
|
|
4,431 |
|
|
|
21.33 |
% |
|
|
4,350 |
|
|
|
18.88 |
% |
|
|
3,669 |
|
|
|
17.63 |
% |
|
|
2,395 |
|
|
|
16.83 |
% |
|
|
1,639 |
|
|
|
18.16 |
% |
Commercial |
|
|
5,080 |
|
|
|
12.78 |
% |
|
|
5,840 |
|
|
|
13.42 |
% |
|
|
6,479 |
|
|
|
14.17 |
% |
|
|
7,575 |
|
|
|
13.51 |
% |
|
|
6,645 |
|
|
|
16.70 |
% |
Consumer |
|
|
3,108 |
|
|
|
3.86 |
% |
|
|
3,437 |
|
|
|
3.67 |
% |
|
|
2,927 |
|
|
|
3.66 |
% |
|
|
3,635 |
|
|
|
4.12 |
% |
|
|
3,384 |
|
|
|
5.62 |
% |
Other |
|
|
8 |
|
|
|
0.11 |
% |
|
|
7 |
|
|
|
0.10 |
% |
|
|
22 |
|
|
|
0.21 |
% |
|
|
17 |
|
|
|
0.16 |
% |
|
|
15 |
|
|
|
0.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
66,830 |
|
|
|
100.00 |
% |
|
$ |
50,161 |
|
|
|
100.00 |
% |
|
$ |
48,811 |
|
|
|
100.00 |
% |
|
$ |
34,111 |
|
|
|
100.00 |
% |
|
$ |
22,302 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
General. The Company maintains a portfolio of investments for general liquidity
purposes and to cover minimum pledging requirements for municipal deposits and borrowings.
Securities by Category. The following table sets forth the carrying value of the
securities, by major categories, held by the Company at December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
$ |
215 |
|
|
$ |
251 |
|
|
$ |
404 |
|
Other securities |
|
|
250 |
|
|
|
375 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
465 |
|
|
$ |
626 |
|
|
$ |
657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
83,299 |
|
|
$ |
52,048 |
|
|
$ |
98,806 |
|
State and political subdivisions |
|
|
31,501 |
|
|
|
32,192 |
|
|
|
31,804 |
|
Collateralized mortgage obligations |
|
|
67,575 |
|
|
|
44,677 |
|
|
|
68,373 |
|
Mortgage-backed securities |
|
|
17,964 |
|
|
|
16,892 |
|
|
|
2,086 |
|
Trust preferred securities |
|
|
1,663 |
|
|
|
1,915 |
|
|
|
2,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
202,002 |
|
|
$ |
147,724 |
|
|
$ |
203,562 |
|
|
|
|
|
|
|
|
|
|
|
Maturity Distributions of Securities. The following table sets forth the
distributions of maturities of securities at amortized cost as of December 31, 2010:
F-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After One |
|
|
|
|
|
|
|
|
|
|
|
|
Due in One |
|
|
Year through |
|
|
Due After Five Years |
|
|
Due |
|
|
|
|
|
|
Year or Less |
|
|
Five Years |
|
|
through 10 Years |
|
|
After 10 Years |
|
|
Total |
|
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
$ |
215 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
215 |
|
Other securities |
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
|
|
|
|
|
|
|
|
|
39,004 |
|
|
|
45,102 |
|
|
|
84,106 |
|
State and political subdivisions |
|
|
1,005 |
|
|
|
4,067 |
|
|
|
21,986 |
|
|
|
4,133 |
|
|
|
31,191 |
|
Collateralized mortgage obligations |
|
|
|
|
|
|
651 |
|
|
|
1,584 |
|
|
|
63,809 |
|
|
|
66,044 |
|
Mortgage-backed securities |
|
|
|
|
|
|
5,989 |
|
|
|
4,012 |
|
|
|
7,167 |
|
|
|
17,168 |
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850 |
|
|
|
1,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
1,470 |
|
|
$ |
10,707 |
|
|
$ |
66,586 |
|
|
$ |
122,061 |
|
|
$ |
200,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value adjustment on available for sale securities |
|
|
3 |
|
|
|
535 |
|
|
|
554 |
|
|
|
553 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,473 |
|
|
$ |
11,242 |
|
|
$ |
67,140 |
|
|
$ |
122,614 |
|
|
$ |
202,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield (a) |
|
|
7.08 |
% |
|
|
4.83 |
% |
|
|
3.94 |
% |
|
|
3.44 |
% |
|
|
3.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted average yields on tax-exempt obligations have been computed on a fully
taxable-equivalent basis using a tax rate of 35%. |
Expected maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties.
Deposits
Deposits are the primary source of funds for the Company. Such deposits consist of
noninterest bearing and interest-bearing demand deposit accounts, regular savings deposits, Money
Market accounts and market rate certificates of deposit. Deposits are attracted from individuals,
partnerships and corporations in the Companys market areas. In addition, the Company obtains
deposits from state and local entities and, to a lesser extent, U.S. Government and other
depository institutions. The Companys Asset/Liability Management Policy permits the acceptance of
limited amounts of brokered deposits. At December 31, 2010 the percentage of the Companys
brokered deposits to total deposits was 0.07%, which was within the limits of the Asset/Liability
Management Policy. The Companys brokered deposits were also within the limits of the
Asset/Liability Management Policy at December 31, 2009 and 2008, respectively.
The following table sets forth the average balances and average interest rates based on daily
balances for deposits for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
|
Balance |
|
|
Rate Paid |
|
|
Balance |
|
|
Rate Paid |
|
|
Balance |
|
|
Rate Paid |
|
Types of deposits (all in domestic offices): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand deposits |
|
$ |
166,814 |
|
|
|
|
|
|
$ |
162,765 |
|
|
|
|
|
|
$ |
187,058 |
|
|
|
|
|
Interest-bearing demand deposits |
|
|
881,978 |
|
|
|
1.01 |
% |
|
|
700,586 |
|
|
|
1.30 |
% |
|
|
577,024 |
|
|
|
1.57 |
% |
Savings deposits |
|
|
98,900 |
|
|
|
1.02 |
% |
|
|
83,549 |
|
|
|
1.13 |
% |
|
|
68,612 |
|
|
|
.77 |
% |
Time deposits |
|
|
841,458 |
|
|
|
2.20 |
% |
|
|
1,166,640 |
|
|
|
3.06 |
% |
|
|
1,317,362 |
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
1,989,150 |
|
|
|
|
|
|
$ |
2,113,540 |
|
|
|
|
|
|
$ |
2,150,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-10
The following table indicates the amount of the Companys certificates of deposit and brokered
certificates of deposit of $100 or more by time remaining until maturity as of December 31, 2010:
|
|
|
|
|
Maturity Period |
|
Certificates of Deposits |
|
Three months or less |
|
$ |
41,190 |
|
Over three through six months |
|
|
43,741 |
|
Over six through twelve months |
|
|
112,097 |
|
Over twelve months |
|
|
112,673 |
|
|
|
|
|
Total |
|
$ |
309,701 |
|
|
|
|
|
Competition
The Company seeks to compete effectively through its reliance on local commercial activity;
personal contacts by its directors, officers, other employees and shareholders; personalized
services; and its reputation in the communities it serves.
According to data as of June 30, 2010 published by SNL Financial LC and using information from
the FDIC, the Bank ranked as the largest independent commercial bank headquartered in East
Tennessee, and its major market areas include Greene, Blount, Davidson, Hamblen, Hawkins, Knox,
Lawrence, Loudon, Macon, McMinn, Montgomery, Rutherford, Smith, Sullivan, Sumner, Washington and
Williamson Counties, Tennessee and portions of Cocke and Monroe Counties, Tennessee. In Greene
County, in which the Company enjoyed its largest deposit share as of June 30, 2010, there were
seven commercial banks and one savings bank, operating 26 branches and holding an aggregate of
approximately $1.0 billion in deposits as of June 30, 2010. The following table sets forth the
Banks deposit share, excluding credit unions, in each county in which it has a full-service
branch(s) as of June 30, 2010, according to data published by the FDIC:
|
|
|
|
|
County |
|
Deposit Share |
Greene, TN |
|
|
28.72 |
% |
Hawkins, TN |
|
|
19.36 |
% |
Lawrence, TN |
|
|
17.53 |
% |
Smith, TN |
|
|
10.58 |
% |
Sumner, TN |
|
|
10.12 |
% |
Hamblen, TN |
|
|
8.78 |
% |
Blount, TN |
|
|
8.15 |
% |
Cocke, TN |
|
|
8.15 |
% |
Macon, TN |
|
|
7.10 |
% |
Madison, NC |
|
|
6.66 |
% |
Montgomery, TN |
|
|
6.36 |
% |
Loudon, TN |
|
|
6.00 |
% |
Washington, TN |
|
|
5.91 |
% |
McMinn, TN |
|
|
5.63 |
% |
Bristol, VA1 |
|
|
4.39 |
% |
Sullivan, TN |
|
|
2.82 |
% |
Williamson, TN |
|
|
2.80 |
% |
Rutherford, TN |
|
|
2.62 |
% |
Monroe, TN |
|
|
1.49 |
% |
Knox, TN |
|
|
0.82 |
% |
Davidson, TN |
|
|
0.79 |
% |
|
|
|
1 |
|
Bristol, VA is deemed a city. |
F-11
Employees
As of December 31, 2010 the Company employed 730 full-time equivalent employees. None of the
Companys employees are presently represented by a union or covered under a collective bargaining
agreement. Management considers relations with employees to be good.
Regulation, Supervision and Governmental Policy
The following is a brief summary of certain statutes, rules and regulations affecting the
Company and the Bank. A number of other statutes and regulations have an impact on their
operations. These laws and regulations are generally intended to protect depositors and borrowers,
not shareholders. The following discussion describes the material elements of the regulatory
framework that currently apply. In July 2010, the Dodd-Frank Act was signed into law, incorporating
numerous financial institution regulatory reforms. Many of these reforms will be implemented over
the course of 2011 through regulations to be adopted by various federal banking and securities
regulations. The following summary of applicable statutes and regulations does not purport to be
complete and is qualified in its entirety by reference to such statutes and regulations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act implements
far-reaching reforms of major elements of the financial landscape, particularly for larger
financial institutions. Many of its most far-reaching provisions do not directly impact
community-based institutions like the Company. For instance, provisions that regulate derivative
transactions and limit derivatives trading activity of federally-insured institutions, enhance
supervision of systemically significant institutions, impose new regulatory authority over hedge
funds, limit proprietary trading by banks, and phase-out the eligibility of trust preferred
securities for Tier 1 capital are among the provisions that do not directly impact the Company
either because of exemptions for institutions below a certain asset size or because of the nature
of the Companys operations. Those provisions that will impact the Company include the following:
|
|
|
Changing the assessment base for federal deposit insurance from the amount of
insured deposits to consolidated assets less tangible capital, eliminating the ceiling
and increasing the size of the floor of the DIF, and offsetting the impact of the
increase in the minimum floor on institutions with less than $10 billion in assets; |
|
|
|
|
Making permanent the $250,000 limit for federal deposit insurance, increasing the
cash limit of Securities Investor Protection Corporation protection to $250,000 and
providing unlimited federal deposit insurance until December 31, 2012 for non-interest
bearing demand transaction accounts at all insured depository institutions; |
|
|
|
|
Repealing the federal prohibition on payment of interest on demand deposits, thereby
permitting depositing institutions to pay interest on business transaction and other
accounts; |
|
|
|
|
Centralizing responsibility for consumer financial protection by creating a new
agency, the Consumer Financial Protection Bureau, responsible for implementing federal
consumer protection laws, although banks below $10 billion in assets will continue to
be examined and supervised for compliance with these laws by their federal banking
regulator; |
|
|
|
|
Restricting the preemption of state law by federal law and disallowing national bank
subsidiaries from availing themselves of such preemption; |
|
|
|
|
Imposing new requirements for mortgage lending, including new minimum underwriting
standards, prohibitions on certain yield-spread compensation to mortgage originators,
special consumer protections for mortgage loans that do not meet certain provision
qualifications, prohibitions and limitations on certain mortgage terms and various new
mandated disclosures to mortgage borrowers; |
|
|
|
|
Applying the same leverage and risk based capital requirements that apply to insured
depository institutions to holding companies, although the Companys currently
outstanding subordinated debentures (but not new issuances) will continue to qualify as
Tier 1 capital, subject to existing limitations on the amount that may so qualify; |
F-12
|
|
|
Permitting national and state banks to establish de novo interstate branches at any
location where a bank based in that state could establish a branch, and requiring that
bank holding companies and banks be well capitalized and well managed in order to
acquire banks located outside their home state; |
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Imposing new limits on affiliated transactions and causing derivative transactions
to be subject to lending limits; and |
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Implementing corporate governance revisions, including with regard to executive
compensation and proxy access to shareholders, that apply to all public companies not
just financial institutions. |
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several
years, and their impact on the Company or the financial industry is difficult to predict before
such regulations are adopted.
Bank Holding Company Regulation. The Company is registered as a bank holding company
under the Bank Holding Company Act (the Holding Company Act) and, as such, is subject to
supervision, regulation and examination by the Board of Governors of the FRB.
Acquisitions and Mergers. Under the Holding Company Act, a bank holding company must obtain
the prior approval of the FRB before (1) acquiring direct or indirect ownership or control of any
voting shares of any bank or bank holding company if, after such acquisition, the bank holding
company would directly or indirectly own or control more than 5% of such shares; (2) acquiring all
or substantially all of the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company. Also, any company must obtain approval of the FRB
prior to acquiring control of the Company or the Bank. For purposes of the Holding Company Act,
control is defined as ownership of more than 25% of any class of voting securities of a bank
holding company or bank, the ability to control the election of a majority of the directors, or the
exercise of a controlling influence over management or policies of the a bank holding company or
bank. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but
less than 25%, of any class of voting securities and either:
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The bank holding company has registered securities under Section 12 of the Securities
Exchange Act of 1934; or |
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No other person owns a greater percentage of that class of voting securities immediately
after the transaction. |
Our common stock is registered under Section 12 of the Securities Exchange Act of 1934. The
regulations provide a procedure for challenge of the rebuttable control presumption.
The Change in Bank Control Act and the related regulations of the FRB require any person or
persons acting in concert (except for companies required to make application under the Holding
Company Act), to file a written notice with the FRB before such person or persons may acquire
control of a bank holding company or bank. The Change in Bank Control Act defines control as the
power, directly or indirectly, to vote 25% or more of any voting securities or to direct the
management or policies of a bank holding company or an insured bank.
Bank holding companies like the Company are currently prohibited from engaging in activities
other than banking and activities so closely related to banking or managing or controlling banks as
to be a proper incident thereto. The FRBs regulations contain a list of permissible nonbanking
activities that are closely related to banking or managing or controlling banks. A bank holding
company must file an application or notice with the FRB prior to acquiring more than 5% of the
voting shares of a company engaged in such activities. The Gramm-Leach-Bliley Act of 1999 (the
GLB Act), however, greatly broadened the scope of activities permissible for bank holding
companies. The GLB Act permits bank holding companies, upon election and classification as
financial holding companies, to engage in a broad variety of activities financial in nature. The
Company has not filed an election with the FRB to be a financial holding company, but may choose to
do so in the future.
Capital Requirements. The Company is also subject to FRB guidelines that require bank holding
companies to maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. The Dodd-Frank Act extended additional capital requirements to bank holding
companies on a consolidated basis. See Capital Requirements.
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Dividends. The FRB has the power to prohibit dividends by bank holding companies if their
actions constitute unsafe or unsound practices. The FRB has issued a policy statement expressing
its view that a bank holding company should pay cash dividends only to the extent that the
companys net income for the past year is sufficient to cover both the cash dividends and a rate of
earnings retention that is consistent with the companys capital needs, asset quality, and overall
financial condition.
The Company is a legal entity separate and distinct from the Bank. Over time, the principal
source of the Companys cash flow, including cash flow to pay interest to its holders of trust
preferred securities and dividends to holders of the Series A preferred stock the Company issued to
the U.S. Treasury in connection with the Capital Purchase Program (CPP) and to the Companys
common stock shareholders, will be dividends that the Bank pays to the Company as its sole
shareholder. Under Tennessee law, the Company is not permitted to pay dividends if, after giving
effect to such payment, the Company would not be able to pay its debts as they become due in the
normal course of business or the Companys total assets would be less than the sum of its total
liabilities plus any amounts needed to satisfy any preferential rights if the Company were
dissolving. In addition, in deciding whether or not to declare a dividend of any particular size,
the Companys board of directors must consider the Companys current and prospective capital,
liquidity, and other needs.
In addition to the limitations on the Companys ability to pay dividends under Tennessee law,
the Companys ability to pay dividends on its common stock is also limited by the Companys
participation in the CPP, by certain statutory or regulatory limitations and by an informal
commitment the Company has made to the FRB-Atlanta that it will not pay dividends on its common or
preferred stock (or interest on its subordinated debentures) without the prior approval of the
FRB-Atlanta. The Company also informally committed to the FRB-Atlanta that it will not incur any
indebtedness or repurchase any shares of its capital stock without the prior approval of the
FRB-Atlanta. Prior to December 23, 2011, unless the Company has redeemed the Series A preferred
stock issued to the U.S. Treasury in the CPP or the U.S. Treasury has transferred the Series A
preferred stock to a third party, the consent of the U.S. Treasury must be received before the
Company can declare or pay any dividend or make any distribution on the Companys common stock in
excess of $0.13 per quarter. Furthermore, if the Company is not current in the payment of
quarterly dividends on the Series A preferred stock, it cannot pay dividends on its common stock.
These dividend restrictions resulting from the Companys participation in the CPP are in addition
to those resulting from the Companys informal commitment to the FRB-Atlanta.
Statutory and regulatory limitations also apply to the Banks payment of dividends to the
Company. Under Tennessee law, the Bank can only pay dividends to the Company in an amount equal to
or less than the total amount of its net income for that year combined with retained net income for
the preceding two years. Payment of dividends in excess of this amount requires the consent of the
Commissioner of the TDFI (the Commissioner). Because the Bank incurred a loss in both 2010 and
2009, dividends from the Bank to the Company, including, if necessary, dividends to support the
Companys payment of interest on its subordinated debt and dividends on the Series A preferred
stock it sold to the U.S. Treasury will require prior approval by the Commissioner.
The payment of dividends by the Bank and the Company may also be affected by other factors,
such as the requirement to maintain adequate capital above regulatory guidelines. The federal
banking agencies have indicated that paying dividends that deplete a depository institutions
capital base to an inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), a depository institution
may not pay any dividend if payment would cause it to become undercapitalized or if it already is
undercapitalized. Moreover, the federal agencies have issued policy statements that provide that
bank holding companies and insured banks should generally only pay dividends out of current
operating earnings. Recent supervisory guidance from the FRB indicates that bank holding companies
that are participants in the CPP that are experiencing financial difficulty generally should
eliminate, reduce or defer dividends on Tier 1 capital instruments including trust preferred
securities, preferred stock or common stock, if the holding company needs to conserve capital for
safe and sound operation and to serve as a source of strength to its subsidiaries.
On November 9, 2010, following consultation with the FRB-Atlanta, the Company notified the
U.S. Treasury that the Company was suspending the payment of regular quarterly cash dividends on
the Series A preferred stock issued to the U.S. Treasury The dividends, which are cumulative, will
continue to be reported as a preferred dividend requirement that is deducted from net income for
financial statement purposes. Additionally, following consultation with the FRB-Atlanta, the
Company has exercised its rights to defer regularly scheduled interest payments on all of its
issues of junior subordinated notes having an outstanding principal amount of $88.6
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million,
relating to outstanding trust preferred securities (TRUPs). Under the terms of the trust
documents, the Company may defer payments of interest for up to 20 consecutive quarterly periods
without triggering an event of default. During a deferral period, the Company may not pay dividends
on its common or preferred stock or interest on indebtedness that ranks pari passu or junior to the
subordinated debentures. The regular scheduled interest payments will continue to be accrued for
payment in the future and reported as an expense for financial statement purposes. Together, the
deferral of interest payments on TRUPs and suspension of dividend payments to the U.S. Treasury
will preserve about $5.1 million per year in cash flow.
Support of Banking Subsidiaries. Under the Dodd-Frank Act, and previously under FRB policy,
the Company is expected to act as a source of financial strength to the Bank and, where required,
to commit resources to support the Bank. This support can be required at times when it would not
be in the best interest of the Companys shareholders or creditors to provide it. Further, if the
Banks capital levels were to fall below minimum regulatory guidelines, the Bank would need to
develop a capital plan to increase its capital levels and the Company would be required to
guarantee the Banks compliance with the capital plan in order for such plan to be accepted by the
federal regulatory authority. In the event of the Companys bankruptcy, any commitment by the
Company to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by
the bankruptcy trustee and entitled to a priority of payment.
Under the cross guarantee provisions of the Federal Deposit Insurance Act (the FDI Act),
any FDIC-insured subsidiary of the Company such as the Bank could be liable for any loss incurred
by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of any
other FDIC-insured subsidiary also controlled by the Company or (ii) any assistance provided by the
FDIC to any FDIC-insured subsidiary of the Company in danger of default.
Transactions with Affiliates. The Federal Reserve Act, as amended by Regulation W, imposes
legal restrictions on the quality and amount of credit that a bank holding company or its non-bank
subsidiaries (affiliates) may obtain from bank subsidiaries of the holding company. For
instance, these restrictions generally require that any such extensions of credit by a bank to its
affiliates be on non-preferential terms and be secured by designated amounts of specified
collateral. Further, a banks ability to lend to its affiliates is limited to 10% per affiliate
(20% in the aggregate to all affiliates) of the banks capital and surplus.
Bank Regulation. As a federally-insured, Tennessee banking institution, the Bank is subject
to regulation, supervision and regular examination by the TDFI and the FDIC. Tennessee and federal
banking laws and regulations control, among other things, required reserves, investments, loans,
mergers and consolidations, issuance of securities, payment of dividends, and establishment of
branches and other aspects of the Banks operations. Supervision, regulation and examination of
the Company and the Bank by the bank regulatory agencies are intended primarily for the protection
of depositors rather than for the Companys security holders.
Extensions of Credit. Under joint regulations of the federal banking agencies, including the
FDIC, banks must adopt and maintain written policies that establish appropriate limits and
standards for extensions of credit that are secured by liens or interests in real estate or are
made for the purpose of financing permanent improvements to real estate. These policies must
establish loan portfolio diversification standards, prudent underwriting standards, including
loan-to-value limits that are clear and measurable, loan administration procedures and
documentation, approval and reporting requirements. A banks real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending Policies (the
Interagency Guidelines) that have been adopted by the federal banking regulators. The
Interagency Guidelines, among other things, call upon depository institutions to establish internal
loan-to-value limits for real estate loans that are not in excess of the loan-to-value limits
specified in the Interagency Guidelines for the various types of real estate loans. The
Interagency Guidelines state that it may be appropriate in individual cases to originate or
purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits. The
aggregate amount of loans in excess of the supervisory loan-to-value limits, however, should not
exceed 100% of total capital, and the total of such loans secured by commercial, agricultural,
multifamily and other non-one-to-four family residential properties should not exceed 30% of total
capital.
Federal Deposit Insurance. The deposits of the Bank are insured by the FDIC to the maximum
extent provided by law, and the Bank is subject to FDIC deposit insurance assessments. The FDIC
has adopted a risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of assets and
liabilities. In early 2006, Congress passed the Federal Deposit Insurance Reform Act of 2005, which
made certain changes to the Federal deposit insurance program. These changes included
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merging the
Bank Insurance Fund and the Savings Association Insurance Fund, increasing retirement account
coverage to $250,000 and providing for inflationary adjustments to general coverage beginning in
2010, providing the FDIC with authority to set the funds reserve ratio within a specified range,
and requiring dividends to banks if the reserve ratio exceeds certain levels. The statute grants
banks an assessment credit based on their share of the assessment base on December 31, 1996, and
the amount of the credit can be used to reduce assessments in any year subject to certain
limitations.
Under the Dodd-Frank Act, the FDIC was required to adopt regulations that would base deposit
insurance assessments on total assets less capital rather than deposit liabilities and to include
off-balance sheet liabilities of institutions and their affiliates in risk-based assessments.
The Emergency Economic Stabilization Act of 2008 (EESA) provided for a temporary increase in
the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. This
increased level of basic deposit insurance was made permanent by the Dodd-Frank Act. In addition,
on October 14, 2008, the FDIC instituted temporary unlimited FDIC coverage of non-interest bearing
deposit transaction accounts. Following passage of the Dodd-Frank Act, an institution can provide
full coverage on non-interest bearing transaction accounts until December 31, 2012. The Dodd-Frank
Act also repealed the prohibition on paying interest on demand transaction accounts, but did not
extend unlimited insurance protection for these accounts.
The FDIC may terminate its insurance of deposits if it finds that the institution has engaged
in unsafe and 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.
Safety and Soundness Standards. The FDICIA required the federal bank regulatory agencies to
prescribe, by regulation, non-capital safety and soundness standards for all insured depository
institutions and depository institution holding companies. The FDIC and the other federal banking
agencies have adopted guidelines prescribing safety and soundness standards pursuant to FDICIA.
The safety and soundness guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. Among other things, the guidelines
require banks to maintain appropriate systems and practices to identify and manage risks and
exposures identified in the guidelines.
Participation in the Capital Purchase Program of the Troubled Asset Relief Program. On October
3, 2008, the EESA became law. Under the Troubled Asset Relief Program (TARP) authorized by EESA,
the U.S. Treasury established the CPP providing for the purchase of senior preferred shares of
qualifying U.S. controlled banks, savings associations and certain bank and savings and loan
holding companies. On December 23, 2008, the Company sold 72,278 shares of Series A preferred stock
and warrants to acquire 635,504 shares of common stock to the U.S. Treasury pursuant to the CPP for
aggregate consideration of $83 million. As a result of the Companys participation in the CPP, the
Company agreed to certain limitations on executive compensation. On February 17, 2009, President
Obama signed into law The American Recovery and Reinvestment Act of 2009 (ARRA), more commonly
known as the economic stimulus or economic recovery package. ARRA, which amends EESA, includes a
wide variety of programs intended to stimulate the economy and provide for extensive
infrastructure, energy, health, and education needs. Under ARRA, the Company is subject to
additional and more extensive executive compensation limitations and corporate governance
requirements. ARRA also permits the Company to redeem the preferred shares it sold to the U.S.
Treasury without penalty and without the need to raise new capital, subject to the U.S. Treasurys
consultation with the Companys and the Banks appropriate regulatory agency.
For as long as the U.S. Treasury owns any debt or equity securities of the Company issued in
connection with the CPP, the Company will be required to take all necessary action to ensure that
its benefit plans with respect to its senior executive officers comply in all respects with Section
111(b) of the EESA, as amended by the ARRA, and the regulations issued and in effect thereunder,
including the interim final rule related to executive compensation and corporate governance issued
by the U.S. Treasury on June 15, 2009 (the IFR). This means that, among other things, while the
U.S. Treasury owns debt or equity securities issued by the Company in connection with the CPP, the
Company must:
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Ensure that the incentive compensation programs for its senior executive officers do not
encourage unnecessary and excessive risks that threaten the value of the Company; |
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Implement a required clawback of any bonus or incentive compensation paid to the
Companys senior executive officers and the next twenty most highly compensated employees
based on materially inaccurate financial statements or any other materially inaccurate
performance metric; |
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Not make any bonus, incentive or retention payment to any of the Companys five most
highly compensated employees, except as permitted under the IFR; |
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Not make any golden parachute payment (as defined in the IFR) to any of the Companys
senior executive officers or next five most highly compensated employees; and |
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Agree not to deduct for tax purposes executive compensation in excess of $500,000 in any
one fiscal year for each of the Companys senior executive officers. |
Capital Requirements. Both the Company and the Bank are required to comply with the capital
adequacy standards established by the FRB, in the Companys case, and the FDIC, in the case of the
Bank. The FRB has established a risk-based and a leverage measure of capital adequacy for bank
holding companies, like the Company. The Bank is also subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to those adopted by the FRB for
bank holding companies. In addition, the FDIC and TDFI may require state banks that are not members
of the FRB, like the Bank, to maintain capital at levels higher than those required by general
regulatory requirements.
The risk-based capital standards are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding companies, to account for
off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and
off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance-sheet items.
The minimum statutory guideline for the ratio of total capital to risk-weighted assets is 8%.
Total capital consists of two components, Tier 1 capital and Tier 2 capital. Tier 1 capital
generally consists of common stock, minority interests in the equity accounts of consolidated
subsidiaries, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less goodwill and other specified intangible assets. The Series A preferred stock
that the Company sold to the U.S. Treasury in connection with the CPP and the TRUPs each qualifies
as Tier 1 capital, and as described below will continue to qualify as Tier 1 capital following
passage of the Dodd-Frank Act. Under statutory guidelines, Tier 1 capital must equal at least 4% of
risk-weighted assets. Tier 2 capital generally consists of subordinated debt, other preferred
stock, and a limited amount of loan loss reserves. The total amount of Tier 2 capital is limited to
100% of Tier 1 capital.
In addition, the FRB has established minimum leverage ratio guidelines for bank holding
companies. These guidelines provide for a minimum ratio of Tier 1 capital to average assets, less
goodwill and other specified intangible assets, of 3% for bank holding companies that meet
specified criteria, including having the highest regulatory rating and implementing the FRBs
risk-based capital measure for market risk. All other bank holding companies generally are required
to maintain a leverage ratio of at least 4%. The guidelines also provide that bank holding
companies experiencing high internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels. Furthermore, the FRB
has indicated that it will consider a bank holding companys Tier 1 capital leverage, after
deducting all intangibles, and other indicators of capital strength in evaluating proposals for
expansion or new activities.
In late 2010, the Basel Committee on Banking Supervision issued Basel III, a new capital
framework for banks and bank holding companies. If implemented in the United States, Basel III will
impose a stricter definition of capital, with more focus on common equity. At this time, the
Company does not know whether Basel III will be implemented in the United States, and if so
implemented whether it will be applicable to the Company and the Bank, because by its terms it is
applicable only to internationally active banks. But, if Basel III is implemented in the United
States and becomes applicable to the Company, the Company and the Bank would likely be subject to
higher minimum capital ratios than those to which the Company and the Bank are currently subject.
Failure to meet statutorily mandated capital guidelines or more restrictive ratios separately
established for a financial institution (like those that the Bank has informally agreed with the
TDFI and FDIC that it will maintain) could subject a bank or bank holding company to a variety of
enforcement remedies, including issuance of a capital directive, the termination of deposit
insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the
rates of interest that the institution may pay on its
deposits and other restrictions on its
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business. As described above, significant additional restrictions can be imposed on FDIC-insured
depository institutions that fail to meet applicable capital requirements.
Additionally, the Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a
system of prompt corrective action to resolve the problems of undercapitalized financial
institutions. Under this system, the federal banking regulators have established five capital
categories (well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) into one of which all institutions are placed.
Federal banking regulators are required to take various mandatory supervisory actions and are
authorized to take other discretionary actions with respect to institutions in the three
undercapitalized categories. The severity of the action depends upon the capital category in which
the institution is placed. Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital level for each category.
An institution that is categorized as undercapitalized, significantly undercapitalized, or
critically undercapitalized is required to submit an acceptable capital restoration plan to its
appropriate federal banking agency. A bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan, subject to various limitations. The
controlling holding companys obligation to fund a capital restoration plan is limited to the
lesser of 5% of an undercapitalized subsidiarys assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally prohibited from increasing
its average total assets, making acquisitions, establishing any branches or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC approval. The
regulations also establish procedures for downgrading an institution and a lower capital category
based on supervisory factors other than capital. As of December 31, 2010, the Bank would be
considered well capitalized under the FDICs prompt corrective action provisions; however, the
Bank has informally committed to the TDFI and the FDIC that it will maintain a Tier 1 leverage
ratio of not less than 10% and a Total risk-based capital ratio of not less than 14%. Because of
the significant losses that the Bank incurred in the second half of 2010, the Banks capital levels
fell below these required minimum levels at December 31, 2010. At December 31, 2010, the Banks
Tier 1 leverage ratio was 8.88% and its ratio of Total capital to risk-weighted assets was 13.22%.
Because the Banks capital levels at December 31, 2010 were below those that the Bank had
informally committed to its primary regulators that it would maintain, the Bank was required to
submit a Capital Action Plan to its primary regulators.
The Dodd-Frank Act contains a number of provisions dealing with capital adequacy of insured
depository institutions and their holding companies, and for the most part will result in insured
depository institutions and their holding companies being subject to more stringent capital
requirements. Under the so-called Collins Amendment to the Dodd-Frank Act, federal regulators were
directed to establish minimum leverage and risk-based capital requirements for, among other
entities, banks and bank holding companies on a consolidated basis. These minimum requirements
cant be less than the generally applicable leverage and risk-based capital requirements
established for insured depository institutions nor quantitatively lower than the leverage and
risk-based capital requirements established for insured depository institutions that were in effect
as of the date that the Dodd-Frank Act was enacted. These requirements in effect create capital
level floors for bank holding companies similar to those in place currently for insured depository
institutions. The Collins Amendment also excludes trust preferred securities issued after May 19,
2010 from being included in Tier 1 capital unless the issuing company is a bank holding company
with less than $500 million in total assets. Trust preferred securities issued prior to that date
will continue to count as Tier 1 capital for bank holding companies with less than $15 billion in
total assets, and such securities will be phased out of Tier 1 capital treatment for bank holding
companies with over $15 billion in total assets over a three-year period beginning in 2013. The
Collins Amendment did not exclude preferred stock issued to the U.S. Treasury through the CPP from
Tier 1 capital treatment. Accordingly, the Companys TRUPs and Series A preferred stock issued to
the U.S. Treasury through the CPP will continue to qualify as Tier 1 capital.
More information concerning the Companys, and the Banks, regulatory capital ratios at
December 31, 2010 is included in Note 12 to the Notes to Consolidated Financial Statements
included elsewhere in this Appendix F.
Legislative, Legal and Regulatory Developments. The banking industry is generally
subject to extensive regulatory oversight. The Company, as a publicly held bank holding company,
and the Bank, as a state-chartered
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bank with deposits insured by the FDIC, are subject to a number
of laws and regulations. Many of these laws and regulations have undergone significant change in
recent years. In July 2010, the U.S. Congress passed, and President Obama signed into law, the
Dodd-Frank Act, which includes significant consumer protection provisions related to residential
mortgage loans that is likely to increase our regulatory compliance costs. These laws and
regulations impose restrictions on activities, minimum capital requirements, lending and deposit
restrictions and numerous other requirements. Future changes to these laws and regulations, and
other new financial services laws and regulations, are likely and cannot be predicted with
certainty. With the enactments of EESA, AARA and the Dodd-Frank Act and the significant amount of
regulations that are to come from the passage of that legislation, the nature and extent of the
future legislative and regulatory changes affecting financial institutions and the resulting impact
on those institutions is very unpredictable at this time. The Dodd-Frank Act, in particular, will
require that a significant number of new regulations be adopted by various financial regulatory
agencies over 2011 and 2012.
USA Patriot Act. The President of the United States signed the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the
Patriot Act), into law on October 26, 2001. The Patriot Act establishes a wide variety of new
and enhanced ways of combating international terrorism. The provisions that affect banks (and other
financial institutions) most directly are contained in Title III of the act. In general, Title III
amended existing law primarily the Bank Secrecy Act to provide the Secretary of U.S. Treasury
and other departments and agencies of the federal government with enhanced authority to identify,
deter, and punish international money laundering and other crimes.
Among other things, the Patriot Act prohibits financial institutions from doing business with
foreign shell banks and requires increased due diligence for private banking transactions and
correspondent accounts for foreign banks. In addition, financial institutions will have to follow
new minimum verification of identity standards for all new accounts and will be permitted to share
information with law enforcement authorities under circumstances that were not previously
permitted. These and other provisions of the Patriot Act became effective at varying times and the
Treasury and various federal banking agencies are responsible for issuing regulations to implement
the new law.
Additional Information
The Company maintains a website at www.greenbankusa.com and is not including the information
contained on this website as a part of, or incorporating it by reference into, this Appendix F. The
Company makes available free of charge (other than an investors own internet access charges)
through its website its Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current
reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after the
Company electronically files such material with, or furnishes such material to, the SEC.
PROPERTIES
At December 31, 2010, the Company maintained a main office in Greeneville, Tennessee in a
building it owns, 65 full-service bank branches (of which 54 are owned premises and 11 are leased
premises) and a building for mortgage lending operations which it owns. In addition, the Banks
subsidiaries operate from nine separate locations, all of which are leased.
LEGAL PROCEEDINGS.
Securities
Class Action. On November 18, 2010, a shareholder of the Company filed a putative class action lawsuit
(styled Bill Burgraff v. Green Bankshares, Inc., et al., U.S. District Court, Eastern District of
Tennessee, Northeastern Division, Case No. 2:10-cv-00253) against the Company and certain of its
current and former officers in the United States District Court for the Eastern District of
Tennessee in Greeneville, Tennessee on behalf of all persons that acquired shares of the Companys
common stock between January 19, 2010 and November 9, 2010. On January 18, 2011, a separate
shareholder of the Company filed a putative class action lawsuit (styled Brian Molnar v. Green
Bankshares, Inc., et al., U.S. District Court, Eastern District of Tennessee, Northeastern
Division, Case No. 2:11-cv-00014) against the Company and certain of its current and former
officers in the same court on behalf of all persons that acquired shares of the Companys common
stock between January 19, 2010 and October 20, 2010. These lawsuits were filed following, and
relate to the drop in value of the Companys common stock price after, the Company announced its
third quarter performance results on October 20, 2010. The Burgraff case also complains of the
Companys decision on November 9, 2010, to suspend payment of certain quarterly cash dividends.
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The plaintiffs allege that defendants made false and/or misleading statements or failed to
disclose that the Company was purportedly overvaluing collateral of certain loans; failing to
timely take impairment charges of these certain loans; failing to properly account for loan
charge-offs; lacking adequate internal and financial controls; and providing false and misleading
financial results. The plaintiffs have asserted federal securities laws claims against all
defendants for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Rule 10b-5 promulgated thereunder. The plaintiffs have also asserted control
person liability claims against the individual defendants named in the complaints pursuant to
Section 20(a) of the Exchange Act.
The two cases were consolidated on February 4, 2011. On February 11, 2011, the Court appointed
movant Jeffrey Blomgren as lead plaintiff. On May 3, 2011, Plaintiff filed an amended and
consolidated complaint alleging a class period of January 19, 2010 to November 9, 2010. On July 11, 2011, Defendants filed a motion to dismiss the consolidated amended complaint.
Plaintiff has until August 29, 2011 to file an opposition to that motion.
The Company and the individual named defendants collectively intend to vigorously defend themselves
against these allegations.
North
American Transaction. On May 12, 2011, a shareholder of the Company filed a putative class action lawsuit (styled
Betty Smith v. Green Bankshares, Inc. et al., Case No. 11-625-III, Davidson County, Tennessee,
Chancery Court) against the Company, the Bank, the Companys Board of Directors (Steven M. Rownd,
Robert K. Leonard, Martha M. Bachman, Bruce Campbell, W.T. Daniels, Samuel E. Lynch, Bill
Mooningham, John Tolsma, Kenneth R. Vaught, and Charles E. Whitfield, Jr.) and North American on
behalf of all persons holding common stock of the Company. This
complaint, which has been subsequently amended, was filed following the Companys public announcement on May 5, 2011 of its entering
into the Investment Agreement with North American and relates to the proposed investment in the
Company by North American.
The
amended complaint alleges
that the individual defendants breached their fiduciary duties by
accepting a sale price for the shares to be sold to North American that was unfair to the Companys
shareholders and by issuing a proxy statement that contained material
omissions. The complaint also alleges that the Company, the Bank and North American aided and
abetted these breaches of fiduciary duty. It seeks injunctive relief and/or rescission of the
proposed investment by North American and fees and expenses in an unspecified amount.
On May 25, 2011, another shareholder of the Company filed a similar putative class action
lawsuit (styled Mark McClinton v. Green Bankshares, Inc. et al., Case No. 11-CV-284ktl, Greene
County Circuit Court, Greeneville, Tennessee) against the Company, the Companys Board of Directors
and North American on behalf of all persons holding the Companys common stock. The complaint
similarly alleges that the individual defendants breached their fiduciary duties to the Company by
agreeing to sell shares to North American at a price unfair to the Companys shareholders. The
complaint also alleges that the Company and North American aided and abetted these breaches of
fiduciary duty. It seeks and injunction and/or rescission of North Americans investment in the
Company and fees and expenses in an unspecified amount.
On
June 16, 2011, another shareholder of the Company filed a putative class action lawsuit
(styled Thomas W. Cook Jr. v. Green Bankshares, Inc. et al., Civil Action No. 2:11-cv-00176, United
States District Court for the Eastern District of Tennessee, Greeneville) against the Company, the
Companys Board of Directors and North American on behalf of all persons holding the Companys common stock.
The complaint alleges that the individual defendants breached their fiduciary duties to the Company
by failing to maximize shareholder value in the proposed transaction with North American. The complaint also
alleges that the Company and the individual defendants violated the securities laws by issuing a
Preliminary Proxy Statement that contains alleged material misstatements and omissions. The complaint also alleges that the Company and
North American aided and abetted the breaches of fiduciary duty. It seeks an injunction and/or rescission of
North Americans investment in the Company, monetary damages and fees and expenses in an unspecified amount.
On July 6, 2011, another shareholder of the Company filed a lawsuit
(styled Barbara N. Ballard v. Stephen M. Rownd, et al., Civil Action No.
2:11-cv-00201, United States District Court for the Eastern District of Tennessee,
Greeneville) against the Company, the Companys Board of Directors and North American asserting
an individual claim that alleges that the individual defendants violated the securities laws by
issuing a Preliminary Proxy Statement that contains alleged material misstatements and omissions.
The complaint also alleges a class action claim on behalf of all persons holding the Companys
common stock against the individual defendants for breach of fiduciary duty based on these same
alleged material misstatements and omissions. The complaint also alleges that the Company and North American aided and abetted the breaches
of fiduciary duty. It seeks an injunction and/or rescission of North Americans
investment in the Company and fees and expenses in an unspecified amount.
On July 26, 2011, the parties to the four North American transaction-related class action
lawsuits reached an agreement in principle to resolve those four lawsuits on the basis of the
inclusion of certain additional disclosures regarding the North American transaction in the proxy
statement which this appendix accompanies. The proposed settlement is subject to, among other
things, court approval.
The Company and the individual defendants collectively intend to vigorously defend themselves
against these class action allegations.
General.
The Company and its subsidiaries are subject to claims and suits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of these pending claims
and legal proceedings will not have a material adverse effect on the Companys results of
operations.
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
On February 28, 2011, Green Bankshares had 13,188,896 shares of common stock outstanding. The
Companys shares are traded on The Nasdaq Global Select Market, under the symbol GRNB. As of
February 28, 2011, the Company estimates that it had approximately 5,200 shareholders, including
approximately 2,600 shareholders of record and approximately 2,600 beneficial owners holding shares
in nominee or street name.
The following table shows the high and low sales price and closing price for the Companys
common stock as reported by The Nasdaq Global Select Market for 2010 and 2009. The table also sets
forth the dividends per share paid each quarter during 2010 and 2009.
F-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High/Low Sales Price |
|
|
Closing |
|
|
Dividends Paid |
|
|
|
During Quarter |
|
|
Price |
|
|
Per Share |
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
9.48 / 3.52 |
|
|
$ |
8.16 |
|
|
$ |
|
|
Second quarter |
|
|
15.04 / 7.96 |
|
|
|
12.77 |
|
|
|
|
|
Third quarter |
|
|
13.11 / 6.58 |
|
|
|
6.79 |
|
|
|
|
|
Fourth quarter |
|
|
7.73 / 2.39 |
|
|
|
3.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
14.71 / 4.51 |
|
|
$ |
8.80 |
|
|
$ |
0.13 |
|
Second quarter |
|
|
9.73 / 4.14 |
|
|
|
4.48 |
|
|
|
|
|
Third quarter |
|
|
6.83 / 3.25 |
|
|
|
5.00 |
|
|
|
|
|
Fourth quarter |
|
|
5.48 / 3.51 |
|
|
|
3.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Holders of the Companys common stock are entitled to receive dividends when, as and if
declared by the Companys board of directors out of funds legally available for dividends.
Historically, the Company has paid quarterly cash dividends on its common stock. On June 2, 2009
the Company announced that due to the uncertain nature of the current economic environment that it
was suspending the payment of cash dividends to common shareholders in order to prudently preserve
capital levels. In the fourth quarter of 2010, the Company informally committed to the FRB-Atlanta
that it would not pay dividends on its common or preferred stock without the prior approval of the
FRB-Atlanta. The Companys ability to pay dividends to its shareholders in the future will depend
on its earnings and financial condition, liquidity and capital requirements, the general economic
and regulatory climate, the Companys ability to service any equity or debt obligations senior to
its common stock, including its outstanding trust preferred securities and accompanying junior
subordinated debentures, and other factors deemed relevant by the Companys board of directors. In
addition, in order to pay dividends to shareholders, the Company must receive cash dividends from
the Bank. As a result, the Companys ability to pay future dividends will depend upon the earnings
of the Bank, its financial condition and its need for funds.
Moreover, there are a number of federal and state banking policies and regulations that
restrict the Banks ability to pay dividends to the Company and the Companys ability to pay
dividends to its shareholders. In particular, because the Bank is a depository institution and its
deposits are insured by the FDIC, it may not pay dividends or distribute capital assets if it is in
default on any assessment due to the FDIC. In addition, the Tennessee Banking Act prohibits the
Bank from declaring dividends in excess of net income for the calendar year in which the dividend
is declared plus retained net income for the preceding two years without the approval of the
Commissioner of the Tennessee Department of Financial Institutions. Because of the losses incurred
by the Bank in 2010 and 2009, the Bank will need to receive the approval of the Commissioner of the
TDFI before if pays dividends to the Company. Also, the Bank is subject to regulations which
impose certain minimum regulatory capital and minimum state law earnings requirements that affect
the amount of cash available for distribution to the Company.
In addition, as long as shares of Series A preferred stock are outstanding, no dividends may
be paid on our common stock unless all dividends on the Series A preferred stock have been paid in
full and in no event may dividends on our common stock exceed $0.13 per quarter without the consent
of the U.S. Treasury for the first three years following our sale of Series A preferred stock to
the U.S. Treasury. Lastly, under Federal Reserve policy, the Company is required to maintain
adequate regulatory capital, is expected to serve as a source of financial strength to the Bank and
to commit resources to support the Bank. These policies and regulations may have the effect of
reducing or eliminating the amount of dividends that the Company can declare and pay to its
shareholders in the future. For information regarding restrictions on the payment of dividends by
the Bank to the Company, see Managements Discussion and Analysis of Financial Condition and
Results of Operations Liquidity and Capital Resources and Business Regulation, Supervision
and Governmental Policy Dividends in this Appendix F. See also Note 12 of Notes of
Consolidated Financial Statements.
The Company made no repurchases of its common stock during the quarter ended December 31,
2010.
F-21
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007(1) |
|
|
2006 |
|
|
|
(in thousands, except per share data, ratios and percentages) |
|
Total interest income |
|
$ |
120,864 |
|
|
$ |
138,456 |
|
|
$ |
170,516 |
|
|
$ |
176,626 |
|
|
$ |
117,357 |
|
Total interest expense |
|
|
37,271 |
|
|
|
57,931 |
|
|
|
75,491 |
|
|
|
81,973 |
|
|
|
45,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
83,593 |
|
|
|
80,525 |
|
|
|
95,025 |
|
|
|
94,653 |
|
|
|
71,957 |
|
Provision for loan losses |
|
|
(71,107 |
) |
|
|
(50,246 |
) |
|
|
(52,810 |
) |
|
|
(14,483 |
) |
|
|
(5,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
12,486 |
|
|
|
30,279 |
|
|
|
42,215 |
|
|
|
80,170 |
|
|
|
66,450 |
|
Noninterest income |
|
|
32,544 |
|
|
|
31,578 |
|
|
|
33,614 |
|
|
|
27,602 |
|
|
|
20,710 |
|
Noninterest expense |
|
|
(110,815 |
) |
|
|
(229,587 |
) |
|
|
(85,837 |
) |
|
|
(69,252 |
) |
|
|
(52,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(65,785 |
) |
|
|
(167,730 |
) |
|
|
(10,008 |
) |
|
|
38,520 |
|
|
|
34,452 |
|
Income tax (expense) benefit |
|
|
(14,910 |
) |
|
|
17,036 |
|
|
|
4,648 |
|
|
|
(14,146 |
) |
|
|
(13,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(80,695 |
) |
|
|
(150,694 |
) |
|
|
(5,360 |
) |
|
|
24,374 |
|
|
|
21,262 |
|
Preferred stock dividend and accretion
of discount on warrants |
|
|
(5,001 |
) |
|
|
(4,982 |
) |
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
$ |
24,374 |
|
|
$ |
21,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders, basic |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.17 |
|
Net income (loss) available to common shareholders, assuming dilution |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
Net income (loss) available to common shareholders, assuming dilution
adjusted for goodwill impairment charge(7) |
|
$ |
(6.54 |
) |
|
$ |
(1.40 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
Dividends declared |
|
$ |
0.00 |
|
|
$ |
0.13 |
|
|
$ |
0.52 |
|
|
$ |
0.68 |
|
|
$ |
0.64 |
|
Common book value(2)(7) |
|
$ |
5.75 |
|
|
$ |
12.15 |
|
|
$ |
24.09 |
|
|
$ |
24.94 |
|
|
$ |
18.80 |
|
Tangible common book value(3)(7) |
|
$ |
5.23 |
|
|
$ |
11.44 |
|
|
$ |
12.23 |
|
|
$ |
12.73 |
|
|
$ |
14.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
2,406,040 |
|
|
$ |
2,619,139 |
|
|
$ |
2,944,671 |
|
|
$ |
2,947,741 |
|
|
$ |
1,772,654 |
|
Loans, net of unearned interest |
|
$ |
1,745,378 |
|
|
$ |
2,043,807 |
|
|
$ |
2,223,390 |
|
|
$ |
2,356,376 |
|
|
$ |
1,539,629 |
|
Cash and investments |
|
$ |
504,559 |
|
|
$ |
378,785 |
|
|
$ |
410,344 |
|
|
$ |
314,615 |
|
|
$ |
91,997 |
|
Federal funds sold |
|
$ |
4,856 |
|
|
$ |
3,793 |
|
|
$ |
5,263 |
|
|
$ |
|
|
|
$ |
25,983 |
|
Deposits |
|
$ |
1,976,854 |
|
|
$ |
2,084,096 |
|
|
$ |
2,184,147 |
|
|
$ |
1,986,793 |
|
|
$ |
1,332,505 |
|
FHLB advances and notes payable |
|
$ |
158,653 |
|
|
$ |
171,999 |
|
|
$ |
229,349 |
|
|
$ |
318,690 |
|
|
$ |
177,571 |
|
Subordinated debentures |
|
$ |
88,662 |
|
|
$ |
88,662 |
|
|
$ |
88,662 |
|
|
$ |
88,662 |
|
|
$ |
13,403 |
|
Federal funds purchased and repurchase agreements |
|
$ |
19,413 |
|
|
$ |
24,449 |
|
|
$ |
35,302 |
|
|
$ |
194,525 |
|
|
$ |
42,165 |
|
Shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Common shareholders equity(2)(7) |
|
$ |
75,776 |
|
|
$ |
160,034 |
|
|
$ |
315,885 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Tangible common shareholders equity(3)(7) |
|
$ |
69,025 |
|
|
$ |
150,699 |
|
|
$ |
160,411 |
|
|
$ |
164,650 |
|
|
$ |
145,931 |
|
Tangible shareholders equity(4)(7) |
|
$ |
137,146 |
|
|
$ |
217,434 |
|
|
$ |
225,757 |
|
|
$ |
164,650 |
|
|
$ |
145,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
3.79 |
% |
|
|
3.19 |
% |
|
|
3.48 |
% |
|
|
3.83 |
% |
|
|
4.32 |
% |
Net interest margin(6) |
|
|
3.86 |
% |
|
|
3.34 |
% |
|
|
3.70 |
% |
|
|
4.25 |
% |
|
|
4.77 |
% |
Total tangible equity to tangible assets(4)(5)(7) |
|
|
5.72 |
% |
|
|
8.33 |
% |
|
|
8.09 |
% |
|
|
5.90 |
% |
|
|
8.42 |
% |
Tangible common equity to tangible assets(3)(5)(7) |
|
|
2.88 |
% |
|
|
5.77 |
% |
|
|
5.75 |
% |
|
|
5.90 |
% |
|
|
8.42 |
% |
Return on average assets |
|
|
(3.41 |
)% |
|
|
(5.59 |
)% |
|
|
(0.18 |
)% |
|
|
0.98 |
% |
|
|
1.28 |
% |
Return on average equity |
|
|
(38.56 |
)% |
|
|
(50.44 |
)% |
|
|
(1.64 |
)% |
|
|
8.96 |
% |
|
|
11.91 |
% |
Return on average common equity(2)(7) |
|
|
(55.35 |
)% |
|
|
(64.25 |
)% |
|
|
(1.65 |
)% |
|
|
8.96 |
% |
|
|
11.91 |
% |
Return on average common tangible equity(3)(7) |
|
|
(58.32 |
)% |
|
|
(96.77 |
)% |
|
|
(3.14 |
)% |
|
|
15.41 |
% |
|
|
15.25 |
% |
Average equity to average assets |
|
|
8.85 |
% |
|
|
11.09 |
% |
|
|
11.24 |
% |
|
|
10.91 |
% |
|
|
10.78 |
% |
Dividend payout ratio |
|
|
N/M |
|
|
|
N/M |
|
|
|
N/M |
|
|
|
32.85 |
% |
|
|
29.49 |
% |
Ratio of nonperforming assets to total assets assets |
|
|
8.56 |
% |
|
|
5.07 |
% |
|
|
2.61 |
% |
|
|
1.25 |
% |
|
|
0.29 |
% |
Ratio of allowance for loan losses to
nonperforming loans |
|
|
45.83 |
% |
|
|
66.39 |
% |
|
|
155.28 |
% |
|
|
106.34 |
% |
|
|
635.93 |
% |
Ratio of allowance for loan losses to total loans, net
of unearned income loans |
|
|
3.83 |
% |
|
|
2.45 |
% |
|
|
2.20 |
% |
|
|
1.45 |
% |
|
|
1.45 |
% |
|
|
|
1 |
|
Information for the 2007 fiscal year includes the operations of CVBG, with which the
Company merged on May 18, 2007. |
F-22
|
|
|
2 |
|
Common shareholders equity is shareholders equity less preferred stock. |
|
3 |
|
Tangible common shareholders equity is shareholders equity less goodwill, other
intangible assets and preferred stock. |
|
4 |
|
Tangible shareholders equity is shareholders equity less goodwill and other
intangible assets. |
|
5 |
|
Tangible assets is total assets less goodwill and other intangible assets. |
|
6 |
|
Net interest margin is the net yield on interest earning assets and is the difference
between the Fully Taxable Equivalent yield earned on
interest-earning assets less the effective cost of supporting liabilities. |
|
7 |
|
Please refer to the GAAP Reconciliation and Management Explanation of Non-GAAP
Financial Measures section following Selected
Financial Data for more information, including a reconciliation of this non-GAAP financial
measure.
|
GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures
Certain financial information included in the selected financial data is determined by methods
other than in accordance with accounting principles generally accepted within the United States
(GAAP). These non-GAAP financial measures are net income (loss) per share assuming dilution
adjusted for goodwill impairment charge, common shareholders equity, tangible assets,
tangible shareholders equity, tangible common book value per share, tangible common
shareholders equity, return on average common equity, and return on average common tangible
equity. The Companys management, the entire financial services sector, bank stock analysts, and
bank regulators use these non-GAAP measures in their analysis of the Companys performance.
|
|
Net income (loss) per share available to common shareholders assuming dilution adjusted
for goodwill impairment charge is defined as net income (loss) per share available to common
shareholders reduced by goodwill impairment charge, net of tax. |
|
|
|
Common shareholders equity is shareholders equity less preferred stock. |
|
|
|
Tangible assets are total assets less goodwill and other intangible assets. |
|
|
|
Tangible shareholders equity is shareholders equity less goodwill and other intangible
assets. |
|
|
|
Tangible common book value per share is defined as total equity reduced by recorded
goodwill, other intangible assets and preferred stock divided by total common shares
outstanding. This measure discloses changes from period-to-period in book value per share
exclusive of changes in intangible assets and preferred stock. Goodwill, an intangible asset
that is recorded in a purchase business combination, has the effect of increasing total book
value while not increasing the tangible assets of a company. Companies utilizing purchase
accounting in a business combination, as required by GAAP, must record goodwill related to
such transactions. |
|
|
|
Tangible common shareholders equity is shareholders equity less goodwill, other
intangible assets and preferred stock. |
|
|
|
Return on average common equity is defined as net income (loss) available to common
shareholders for the period divided by average equity reduced by average preferred stock. |
|
|
|
Return on average common tangible equity is defined as net income (loss) available to
common shareholders for the period divided by average equity reduced by average goodwill,
other intangible assets and preferred stock. |
These disclosures should not be viewed as a substitute for results determined in accordance
with GAAP, and are not necessarily comparable to non-GAAP performance measures which may be
presented by other companies.
The following reconciliation table provides a more detailed analysis of these non-GAAP
performance measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Fiscal Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Less: Preferred stock |
|
|
(68,121 |
) |
|
|
(66,735 |
) |
|
|
(65,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity |
|
$ |
75,776 |
|
|
$ |
160,034 |
|
|
$ |
315,855 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
(143,389 |
) |
|
|
(143,140 |
) |
|
|
(31,327 |
) |
Core Deposit and other intangibles |
|
|
(6,751 |
) |
|
|
(9,335 |
) |
|
|
(12,085 |
) |
|
|
(14,687 |
) |
|
|
(7,213 |
) |
Preferred stock |
|
|
(68,121 |
) |
|
|
(66,735 |
) |
|
|
(65,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common shareholders equity |
|
$ |
69,025 |
|
|
$ |
150,699 |
|
|
$ |
160,411 |
|
|
$ |
1 64,650 |
|
|
$ |
145,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Fiscal Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
(143,389 |
) |
|
|
(143,140 |
) |
|
|
(31,327 |
) |
Core Deposit and other intangibles |
|
|
(6,751 |
) |
|
|
(9,335 |
) |
|
|
(12,085 |
) |
|
|
(14,687 |
) |
|
|
(7,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible shareholders equity |
|
$ |
137,146 |
|
|
$ |
217,434 |
|
|
$ |
225,757 |
|
|
$ |
164,650 |
|
|
$ |
145,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,406,040 |
|
|
$ |
2,619,139 |
|
|
$ |
2,944,671 |
|
|
$ |
2,947,741 |
|
|
$ |
1,772,654 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
(143,389 |
) |
|
|
(143,140 |
) |
|
|
(31,327 |
) |
Core Deposit and other intangibles |
|
|
(6,751 |
) |
|
|
(9,335 |
) |
|
|
(12,085 |
) |
|
|
(14,687 |
) |
|
|
(7,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets |
|
$ |
2,399,289 |
|
|
$ |
2,609,804 |
|
|
$ |
2,789,197 |
|
|
$ |
2,789,914 |
|
|
$ |
1,734,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common book value per share |
|
$ |
5.75 |
|
|
$ |
12.15 |
|
|
$ |
24.09 |
|
|
$ |
24.94 |
|
|
$ |
18.80 |
|
Effect of intangible assets |
|
$ |
(0.52 |
) |
|
$ |
(0.71 |
) |
|
$ |
(11.86 |
) |
|
$ |
(12.21 |
) |
|
$ |
(3.93 |
) |
Tangible common book value per share |
|
$ |
5.23 |
|
|
$ |
11.44 |
|
|
$ |
12.23 |
|
|
$ |
12.73 |
|
|
$ |
14.87 |
|
Return on average common equity |
|
|
(55.35 |
)% |
|
|
(64.25 |
)% |
|
|
(1.65 |
)% |
|
|
8.96 |
% |
|
|
11.91 |
% |
Effect of intangible assets |
|
|
(2.97 |
)% |
|
|
(32.52 |
)% |
|
|
(1.49 |
)% |
|
|
6.45 |
% |
|
|
3.34 |
% |
Return on average common tangible equity |
|
|
(58.32 |
)% |
|
|
(96.77 |
)% |
|
|
(3.14 |
)% |
|
|
15.41 |
% |
|
|
15.25 |
% |
The table below presents computations and other financial information excluding the goodwill
impairment charge that the Company incurred in 2009. The goodwill impairment charge is included in
the financial results presented in accordance with GAAP. The Company believes that the exclusion
of the goodwill impairment in expressing net operating income (loss), operating expenses and
earnings (loss) per diluted share data provides a more meaningful base for period to period
comparisons which will assist investors in analyzing the operating results of the Company. The
Company utilizes these non-GAAP financial measures to compare the operating performance with
comparable periods in prior years and with internally prepared projections. Non-GAAP financial
measures have inherent limitations, are not required to be uniformly applied and are not audited.
To mitigate these limitations, the Company has policies in place to address goodwill impairment
from other normal operating expenses to ensure that the Companys operating results are properly
reflected for period to period comparisons.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total non-interest expense |
|
$ |
110,815 |
|
|
$ |
229,587 |
|
|
$ |
85,837 |
|
|
$ |
69,252 |
|
|
$ |
52,708 |
|
Goodwill impairment charge |
|
|
|
|
|
|
(143,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
$ |
110,815 |
|
|
$ |
86,198 |
|
|
$ |
85,837 |
|
|
$ |
69,252 |
|
|
$ |
52,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
$ |
24,374 |
|
|
$ |
21,262 |
|
Goodwill impairment charge, net of tax of $5,975 |
|
|
|
|
|
|
137,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) available
to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(18,262 |
) |
|
$ |
(5,452 |
) |
|
$ |
24,374 |
|
|
$ |
21,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Diluted Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Goodwill impairment charge, net of tax of $5,975 |
|
|
|
|
|
|
10.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
(6.54 |
) |
|
$ |
(1.40 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company reported a net loss available to common shareholders of $85,696 for the full year
2010 compared with a net loss available to common shareholders of $155,676 for the full year 2009.
The loss for the year 2010 was primarily attributable to an increase in credit costs, including
both a higher loan loss provision and elevated costs associated with the disposition and
revaluation of OREO related assets along with the effects of the continued weaknesses in the
economy through 2010. This weakness was manifested primarily in the Companys residential real
estate construction and development portfolio. As a result, the Companys provision for loan losses
for the full year 2010 remained elevated at $71,107 compared to $50,246 in 2009 and $52,810 in
2008. Additionally, Other Real Estate Owned (OREO) charges totaled $29,895 in 2010 compared with
$8,156 for 2009 and $7,028 in 2008. As the economy in the Companys market areas continued to
struggle to improve during 2010, net loan charge-offs rose to $54,438 in 2010 compared with net
loan charge-offs of $48,896 in 2009 and $38,110 in 2008. On a diluted per share basis, the net
operating loss available to common shareholders in 2010 was $6.54 compared with a net operating
loss in 2009, excluding the goodwill impairment charge, of $1.40 (please see GAAP Reconciliation
and Management Explanations of Non-GAAP Financial Measures above for more information) and a net
operating loss available to common shareholders of $0.42 for 2008. The net loss available to
common shareholders on a diluted per share basis for 2010 was $6.54 and including the goodwill
impairment charge, on a diluted per share basis the net loss available to common shareholders for
2009 was $11.91 compared with a net loss available to common shareholders of $0.42 for 2008.
Net interest income for 2010 was $83,593 compared with $80,525 in 2009 including the impact of
interest reversals of $2,965 in 2010 and $2,606 in 2009. Despite the decline in average earning
assets, the improvement in net interest income was due to the Company experiencing the benefit of
interest rate floors built into loan agreements beginning in 2009 plus the re-pricing of interest
bearing liabilities in a lower market interest rate environment in 2010. As a result, the Company
experienced a widening in its net interest margin from 3.34% in 2009 to 3.86% in 2010. Noninterest
income improved modestly from $31,578 in 2009 to $32,544 in 2010 principally as a result of higher
fee income generated from the sales of annuity and investment products. Operating expenses for 2010
totaled $110,815 in 2010 compared with $229,587 in 2009, or $86,198, excluding the goodwill
impairment charge of $143,389 (please see GAAP Reconciliation and Management Explanations of
Non-GAAP Financial Measures above for more information). The increase in operating expenses of
$24,617 (excluding the goodwill impairment charge taken in 2009 of $143,389) was principally driven
by the increased costs associated with the losses incurred on the revaluations and dispositions of
OREO related assets.
Critical Accounting Policies and Estimates
The Companys consolidated financial statements and accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reported periods.
Management continually evaluates the Companys accounting policies and estimates it uses to
prepare the consolidated financial statements. In general, managements estimates are based on
current and projected economic conditions, historical experience, information from regulators and
third party professionals and various assumptions that are believed to be reasonable under the then
existing set of facts and circumstances. Actual results could differ from those estimates made by
management.
The Company believes its critical accounting policies and estimates include the valuation of
the allowance for loan losses and the fair value of financial instruments and other accounts,
including OREO. Based on managements calculation, an allowance of $66,830, or 3.83%, of total
loans, net of unearned interest was an adequate estimate of losses inherent in the loan portfolio
as of December 31, 2010. This estimate resulted in a provision for loan losses on the income
statement of $71,107 during 2010. If the mix and amount of future charge-off percentages differ
significantly from those assumptions used by management in making its determination, the allowance
for loan losses and provision for loan losses on the income statement could be materially affected.
For further discussion of the
F-26
allowance for loan losses and a detailed description of the methodology management uses in
determining the adequacy of the allowance, see Business Lending Activities Allowance for
Loan Losses located above, and Changes in Results of Operations Provision for Loan Losses
located below.
The consolidated financial statements include certain accounting and disclosures that require
management to make estimates about fair values. Estimates of fair value are used in the accounting
for securities available for sale, loans held for sale, goodwill, other intangible assets, OREO and
acquisition purchase accounting adjustments. Estimates of fair values are used in disclosures
regarding securities held to maturity, stock
compensation, commitments, and the fair values of financial instruments. Fair values are
estimated using relevant market information and other assumptions such as interest rates, credit
risk, prepayments and other factors. The fair values of financial instruments are subject to
change as influenced by market conditions.
The Company believes its critical accounting policies and estimates also include the valuation
of the allowance for the net DTA. A valuation allowance is recognized for a net DTA if, based on
the weight of available evidence, it is more-likely-than-not that some portion or the entire DTA
will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become
deductible. In making such judgments, significant weight is given to evidence that can be
objectively verified. As a result of the increased credit losses, the Company entered into a
three-year cumulative pre-tax loss position (excluding the goodwill impairment charge recognized in
the first quarter of 2009) as of December 31, 2010. A cumulative loss position is considered
significant negative evidence in assessing the realizability of a deferred tax asset which is
difficult to overcome.
The Companys estimate of the realization of its net DTA was based on the scheduled reversal
of deferred tax liabilities and taxable income available in prior carry back years, and tax
planning strategies. Based on managements calculation, a valuation allowance of $43,455, or 95.2%
of the net DTA, was an adequate estimate as of December 31, 2010. This estimate resulted in a
valuation allowance for the net DTA in the income statement of $43,455 for the period ended
December 31, 2010. Once profitability has been restored for a reasonable time, generally
considered four consecutive quarters, and such profitability is considered sustainable, the
valuation allowance would be reversed. Reversal of the valuation allowance requires a great deal of
judgment and will be based on the circumstances that exist as of that future date.
The consolidated financial statements include certain accounting disclosures that require
management to make estimates about fair values. Independent third party valuations are used for
securities available for sale and securities held to maturity as well as acquisition purchase
accounting adjustments. Third party valuations are inputs, but are not solely determinative of
value. Estimates of fair value are used in the accounting for loans held for sale, goodwill and
other intangible assets. Estimates of fair values are used in disclosures regarding stock
compensation, commitments, and the fair values of financial instruments. Fair values are
estimated using relevant market information and other assumptions such as interest rates,
credit risk, prepayments and other factors. The fair values of financial instruments are subject
to change as influenced by market conditions.
Changes in Results of Operations
Net loss. The net loss available to common shareholders was $85,696 in 2010 and
$155,676 for 2009. The net loss for the year 2009 was primarily attributable to a non-cash charge
taken for the impairment of goodwill of $137,414, net of tax of $5,975 and the continued weaknesses
in the economy through 2009. Excluding the goodwill impairment charge, net of tax, of $137,414 the
Companys net operating loss was $18,262 for 2009 (please see GAAP Reconciliation and Management
Explanations of Non-GAAP Financial Measures above for more information). When comparing the net
operating loss of $85,696 in 2010 to the net operating loss of $18,262, excluding the goodwill
impairment charge, for 2009 the principal reasons for the increased loss in 2010 were credit
related costs that continued to escalate in 2010 driven by both a higher loan loss provision
coupled with rising costs associated with the maintenance, disposition and revaluation of OREO
along with continued deterioration in economic conditions in our markets. These costs were
partially offset by improvements in both net interest income and non-interest income.
The net loss available to common shareholders for 2009 was $155,676 compared to a net loss of
$5,452 in 2008. The net loss for the year 2009 was primarily attributable to a non-cash charge
taken for the impairment of goodwill of $137,414, net of tax of $5,975 and the continued weaknesses
in the economy through 2009. Excluding the goodwill impairment charge, net of tax, of $137,414 the
Companys net operating loss was $18,262 for 2009
F-27
(please see GAAP Reconciliation and Management Explanations of Non-GAAP Financial Measures above
for more information). The increase in the net operating loss between 2009 and 2008 was primarily
attributable to a decline in net interest income of $14,500 from $95,025 in 2008 to $80,525 in 2009
due to narrowing interest rate spreads and deteriorating economic conditions throughout 2009
impacting residential real estate construction lending plus a decline in net securities gains of
$2,222 between periods due to higher other-than-temporary impairment charges taken in 2009.
Net Interest Income. The largest source of earnings for the Company is net interest
income, which is the difference between interest income on earning assets and interest paid on
deposits and other interest-bearing liabilities. The primary factors that affect net interest
income are changes in volumes and rates on earning assets and interest-bearing liabilities, which
are affected in part by managements anticipatory responses to changes in interest rates through
asset/liability management. Despite deleveraging average earning assets of the Company by $247,978
from 2009 to 2010, net interest income improved from $80,525 in 2009 to $83,593 in 2010 as interest
rate floors were triggered in loan agreements and interest-bearing liabilities were re-priced in a
lower interest rate market environment. As a result of the re-pricing characteristics of the
balance sheet plus a modest increase of $4,049 in average non-interest bearing demand deposits, the
Companys net interest margin rose from 3.34% in 2009 to 3.86% in 2010. Average loan balances in
2010 were $1,833,865 compared with $2,096,181 in 2009 and this reduction was principally
responsible for the decline in average earning assets, partially offset by an increase in
short-term investments as liquidity levels increased. Simultaneously, the Company reduced its large
certificates of deposit as average balances declined by $325,182 and further eliminated $55,764 in
borrowed funds.
During 2009, net interest income was $80,525 as compared to $95,025 in 2008. The Company
experienced a decline in average balances of interest-earning assets, with average total
interest-earning assets decreasing by $156,713, or 6%, to $2,433,476 in 2009 from $2,590,189 in
2008. Most of the decline occurred in loans, with average loan balances decreasing by $202,724, or
9%, to $2,096,181 in 2009 from $2,298,905 in 2008. The decrease was primarily due to the continued
downturn in economic conditions throughout 2009 that resulted in lower loan demand and heightened
levels of loan charge-offs. Average investment securities also decreased $83,966, or 31%, to
$189,377 in 2009 from $273,343 in 2008 as the Company focused on de-levering the balance sheet and
reducing excess liquidity. Average balances of total interest-bearing liabilities also decreased
in 2009 from 2008, with average total interest-bearing deposit balances decreasing by $12,223, or
1%, to $1,950,775 in 2009 from $1,962,998 in 2008, and average securities sold under repurchase
agreements and short-term borrowings, and subordinated debentures and FHLB advances and notes
payable decreased by $111,132, or 25%, to $337,993 in 2009 from $449,125 in 2008. These decreases
are primarily related to the reduction in securities sold under repurchase agreements and
short-term borrowings along with the maturities and early payoffs of FHLB advances.
Average Balances, Interest Rates and Yields. Net interest income is affected by (i) the
difference between yields earned on interest-earning assets and rates paid on interest-bearing
liabilities (interest rate spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Companys interest rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and deposit flows.
When the total of interest-earning assets approximates or exceeds the total of interest-bearing
liabilities, any positive interest rate spread will generate net interest income. An indication of
the effectiveness of an institutions net interest income management is its net yield on
interest-earning assets, which is net interest income on a fully taxable equivalent basis divided
by average interest-earning assets.
F-28
The following table sets forth certain information relating to the Companys consolidated
average interest-earning assets and interest-bearing liabilities and reflects the average fully
taxable equivalent yield on assets and average cost of liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average daily balance of assets
or liabilities, respectively, for the periods presented.
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|
|
|
|
|
|
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|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
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|
|
|
|
|
Average |
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|
Average |
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|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Interest-earning assets: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
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Loans(1)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Real estate loans |
|
$ |
1,517,937 |
|
|
$ |
86,904 |
|
|
|
5.73 |
% |
|
$ |
1,719,026 |
|
|
$ |
99,796 |
|
|
|
5.81 |
% |
|
$ |
1,890,209 |
|
|
$ |
121,168 |
|
|
|
6.41 |
% |
Commercial loans |
|
|
250,126 |
|
|
|
14,358 |
|
|
|
5.74 |
% |
|
|
295,913 |
|
|
|
16,284 |
|
|
|
5.50 |
% |
|
|
319,131 |
|
|
|
20,020 |
|
|
|
6.27 |
% |
Consumer and other loans-net(2) |
|
|
65,802 |
|
|
|
8,963 |
|
|
|
13.62 |
% |
|
|
81,242 |
|
|
|
9,660 |
|
|
|
11.89 |
% |
|
|
89,565 |
|
|
|
10,516 |
|
|
|
11.74 |
% |
Fees on loans |
|
|
|
|
|
|
3,563 |
|
|
|
|
|
|
|
|
|
|
|
3,532 |
|
|
|
|
|
|
|
|
|
|
|
3,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (including fees) |
|
$ |
1,833,865 |
|
|
$ |
113,788 |
|
|
|
6.20 |
% |
|
$ |
2,096,181 |
|
|
$ |
129,272 |
|
|
|
6.17 |
% |
|
$ |
2,298,905 |
|
|
$ |
155,683 |
|
|
|
6.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Investment securities(3) |
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
137,148 |
|
|
$ |
4,937 |
|
|
|
3.60 |
% |
|
$ |
144,881 |
|
|
$ |
7,035 |
|
|
|
4.86 |
% |
|
$ |
227,710 |
|
|
$ |
12,770 |
|
|
|
5.61 |
% |
Tax-exempt(4) |
|
|
30,799 |
|
|
|
1,909 |
|
|
|
6.20 |
% |
|
|
31,660 |
|
|
|
1,938 |
|
|
|
6.12 |
% |
|
|
32,743 |
|
|
|
1,995 |
|
|
|
6.09 |
% |
FHLB and other stock |
|
|
12,734 |
|
|
|
530 |
|
|
|
4.16 |
% |
|
|
12,836 |
|
|
|
573 |
|
|
|
4.46 |
% |
|
|
12,890 |
|
|
|
647 |
|
|
|
5.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities |
|
$ |
180,681 |
|
|
$ |
7,376 |
|
|
|
4.08 |
% |
|
$ |
189,377 |
|
|
$ |
9,546 |
|
|
|
5.04 |
% |
|
$ |
273,343 |
|
|
$ |
15,412 |
|
|
|
5.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other short-term investments |
|
|
170,952 |
|
|
|
435 |
|
|
|
0.25 |
% |
|
|
147,918 |
|
|
|
376 |
|
|
|
0.25 |
% |
|
|
17,941 |
|
|
|
175 |
|
|
|
0.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest- earning assets |
|
$ |
2,185,498 |
|
|
$ |
121,599 |
|
|
|
5.56 |
% |
|
$ |
2,433,476 |
|
|
$ |
139,194 |
|
|
|
5.72 |
% |
|
$ |
2,590,189 |
|
|
$ |
171,270 |
|
|
|
6.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from
banks |
|
$ |
42,743 |
|
|
|
|
|
|
|
|
|
|
$ |
45,870 |
|
|
|
|
|
|
|
|
|
|
$ |
51,181 |
|
|
|
|
|
|