Papers filed with the Securities and Exchange Commission today show that Cadence Bank forged ahead with its failed merger agreement with Trustmark Bank on the same day that it received a higher offer from Community Bancorp, which scooped up the Starkville bank weeks later.
Cadence Financial Corp. filed its proxy statement for approval of its planned merger with Community Bancorp, shedding new light on its failed agreement with Trustmark and outlining compensation for its top executives. Once the proxy is approved by the SEC, a shareholders” meeting to vote on the merger will be scheduled.
Community Bancorp, a Houston-based company formed to invest in community banks, will continue to operate under the Cadence name, and said earlier this month that it planned to keep the bank”s executive team.
Starkville-based Cadence announced the merger deal with Community Bancorp on Oct. 6, two weeks after it announced it said it would be bought by Jackson-based Trustmark.
Under the agreement with Community Bancorp, Cadence shareholders would receive $2.50 in cash for each Cadence common share, and the company would become privately held. Community Bancorp also offered to purchase the $44 million of Cadence preferred stock issued to the U.S. Department of the Treasury under the Troubled Asset Relief Program, or TARP, for $38 million in cash.
Trustmark had agreed to exchange $23.6 million in stock for Cadence stock, or about $2 per share, in a tax-free deal. Trustmark also offered to pay back $30 million in TARP money to the Treasury.
In the proxy, which will need approval by the federal government, Cadence outlines its courtship by both Trustmark and Community Bancorp dating back to August.
Community Bancorp initially wanted an exclusive right to negotiate the purchase of Cadence, but Cadence — also being courted by Trustmark — declined.
Cadence and Trustmark had an initial agreement of $3 per share, but Trustmark”s offer dropped to $2 per share after the Jackson bank negotiated the TARP payback with the government, Cadence says in the statement.
Meanwhile, Community Bancorp was still requesting to pursue a buyout. On Sept. 17, Trustmark demanded Cadence enter into a definitive agreement to be purchased at $2 per share, or it would “terminate discussions.” Cadence”s board agreed to go with Trustmark, even though Community Bancorp made its $2.50 per-share offer the same day. The Trustmark deal was announced the following week.
Two weeks later, Cadence paid Trustmark a $2 million termination fee and went with Community Bancorp”s offer.
Executive compensation
The proxy also outlines Change of Control provisions for top executives, who are compensated if they are “terminated by Cadence without cause … within one year following the merger or if his responsibilities and compensation are materially diminished as a result of the merger.”
Executives covered under the agreement are chairman Lewis F. Mallory Jr., chief operating officer Mark A. Abernathy, and executive vice president and chief financial officer Richard T. Haston.
According to the filing, “Mallory and Abernathy will be entitled to a lump sum payment equal to 2.99 times the executive”s base salary and Mr. Haston will be entitled to a lump sum payment equal to 2 times his base salary.”
The executives would also receive “an amount equal to his monthly medical insurance premium times 12.”
Vice president John Davis would receive “a payment in the amount of one time his base salary and an amount equal to his monthly medical insurance premium times 12.”
Adding in salary and benefits for the executives, who are also Cadence shareholders, the severance amounts total to $908,000 for Mallory; $828,000 for Abernathy, $405,000 for Haston, and $153,000 for Davis. None have expressed publicly that they plan to leave the company.
As a result of the sale, officers and board members would also receive “equity awards” for “options not exercised as a result of the merger.” The amounts include $135,878 for Mallory; $43,623 for Abernathy; $5,200 for Haston; $2,800 for Davis; and $1,487 for board member Clifton S. Hunt.
”More value to our shareholders”
In announcing the deal, Mallory said that the transaction would “deliver more value to our shareholders” and represented “a higher, more certain price than what had been previously offered.”
The transaction is expected to close by the first quarter of 2011.
Cadence, a $1.9 billion bank, has branches in Mississippi, Tennessee, Alabama, Florida and Georgia. Cadence”s stock is listed on the Nasdaq under the symbol CADE.
Houston-based Community Bancorp has raised equity capital commitments in excess of $900 million for the purpose of buying U.S. banks “with a particular focus on community banks that are well positioned to benefit from the equity capital and industry expertise CBC can provide,” a release said.
CBC”s management has deep roots in banking. CEO Paul Murphy Jr. was previously CEO of Amegy Bank of Texas, an $11 billion bank headquartered in Houston. He is a director of the Mississippi State University Foundation, Federal Reserve Bank of Dallas, Houston branch, and Hines Real Estate Investment Trust.
CBC”s chairman, William B. Harrison Jr., is the former chairman and chief executive officer of JPMorgan Chase, where he retired as chairman in 2006. Previously he was chief executive officer of Chase Manhattan Corp., and presided over the mergers with J.P. Morgan in 2000 and Bank One in 2004.
Trustmark had said it had decided to buy Cadence because it already had written off tens of millions of bad loans and the company fit Trustmark”s profile for acquisition targets.
Starkville-based Cadence missed a September deadline to raise capital set by the federal Office of the Comptroller that could have led to a federal takeover of the bank.
In late afternoon trading, Cadence stock was trading at $2.45 a share.
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