As filed with the Securities and Exchange Commission on June 9, 2015May 6, 2016
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PINNACLE FINANCIAL PARTNERS, INC.
(Exact name of registrant as specified in its charter)
| Tennessee | 6021 | 62-1812853 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
150 Third Avenue South
Suite 900
Nashville, Tennessee 37201
(615) 744-3700
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
M. Terry Turner
President and Chief Executive Officer
Pinnacle Financial Partners, Inc.
150 Third Avenue South
Suite 900
Nashville, Tennessee 37201
(615) 744-3700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Bob F. Thompson, Esq. Bass, Berry & Sims PLC 150 Third Avenue South, Suite 2800 Nashville, Tennessee 37201 |
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Approximate date of commencement of the proposed sale to the public: As soon as practicable following the effectiveness of this Registration Statement and the effective time of the merger described in this Registration Statement.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer x | Accelerated filer | ¨ | ||||
| Non-accelerated filer ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issue Tender Offer) ¨
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ¨
CALCULATION OF REGISTRATION FEE
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Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per unit | Proposed maximum aggregate offering price (1)(2) | Amount of registration fee (1)(2) | ||||
Common stock, $1.00 par value per share | (1)(2) | (1)(2) | $34,995,325 | $4,067 | ||||
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
Information in this proxy statement/prospectus is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
PRELIMINARY—SUBJECT TO COMPLETION—DATED JUNE 9, 2015May 6, 2016
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PROXY STATEMENT FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
MAGNA BANKAVENUE FINANCIAL HOLDINGS, INC.
and
PROSPECTUS OF
PINNACLE FINANCIAL PARTNERS, INC.
MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT
Dear Shareholder:
On behalf of the board of directors of Magna Bank,Avenue Financial Holdings, Inc. (“Avenue”), I am pleased to deliver this proxy statement/prospectus for the proposed merger of MagnaAvenue with and into Pinnacle Bank, the subsidiary bank of Pinnacle Financial Partners, Inc. (“Pinnacle”). In this document we refer to this merger as the Magna merger.
As a holder of Magna common stock and/or Magna Perpetual Noncumulative Preferred Stock, Series D (which we refer to as the Magna Series D Preferred Stock), you will have the opportunity to elect, for eachEach share of MagnaAvenue common stock that you hold (including each share of Magna common stock issuable upon the automatic conversion of the Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger), to receive either (i) 0.3369 shares of Pinnacle common stock, (ii) an amount in cash equal to $14.32, or (iii) a combination of stock and cash. The total number of shares of Magna common stock that can be converted into shares of Pinnacle common stock and cash will be capped at 75% and 25%, respectively, of Magna’s outstanding shares of common stock as of the effective time of the Magna merger, (including thewill be exchanged for 0.36 shares of Magna common stock issuable upon conversion of the Magna Series D preferred stock). As a result, if Magna shareholders elect to receive either more Pinnacle common stock or moreand an amount in cash than is availableequal to $2.00. Based upon the 10,419,888 shares of Avenue common stock outstanding as merger consideration underof May 4, 2016, Pinnacle will issue approximately 3.8 million shares of Pinnacle common stock and pay approximately $20.8 million in cash at the closing of the merger, agreement, the formin each case assuming that none of consideration that you elect may be proportionately reduced and substituted with consideration in the other form, despite your election.
Additionally, immediatelyAvenue’s outstanding stock options are exercised prior to the effective timeclosing. Based upon Pinnacle’s closing price as of May 4, 2016, the Magnatotal merger pursuantconsideration is expected to Magna’s equity incentive plan, each issued andbe approximately $200 million.
Additionally, any outstanding unvested optionoptions to purchase shares of Magna common stock of Avenue that are not vested will accelerate and become fully vested and exercisable. Atbe accelerated prior to, but conditioned on the occurrence of, the closing of the Magna merger Magna’s outstanding unexercised stockand all options willthat are not exercised prior to the closing shall be cancelled and settledthe holders of any such options shall receive an amount in cash forequal to the difference betweenproduct of (x) the options’excess, if any, of $20.00 over the exercise price of each such option and $14.32. In connection with(y) the Magna merger, Pinnacle or Pinnacle Bank intendsnumber of shares of Avenue common stock subject to redeem the $18.35 million of preferred stock Magna has issuedeach such option.
Pursuant to the U.S. Treasury pursuantterms of the merger agreement, Avenue may, in addition to the Small Business Lending Fund program.occurrence of other events, terminate the merger agreement if Pinnacle’s average closing common stock price over a time period specified in the merger agreement is less than $40.00 and the decline in the price of Pinnacle’s common stock during that period is 20% more than the decline in the price during the same period of a composite bank index specified in the merger agreement.
This proxy statement/prospectus contains important information about the Magna merger. You should read this entire proxy statement/prospectus carefully, including all appendices, the documents incorporated by reference therein and the information under the section entitled“RISK FACTORS RELATING TO THE MAGNA MERGERMERGER”” beginning on page 27.21.
The Magna merger cannot be completed unless the proposal to approve the merger agreement is approved by the affirmative vote of a majority of the outstanding shares of MagnaAvenue common stock and Magna Series D Preferred Stock, voting together as a single group.stock. As a result, failing to vote will have the same effect as a vote against the approval of the merger agreement. Whether or not you plan to attend the Magna special meeting, please take the time to vote by completing the enclosed proxy card and mailing it in the enclosed envelope.
The MagnaAvenue board of directors unanimously recommends that you voteFOR the approval of the merger agreement. We look forward to seeing you at the Magna special meeting and we appreciate your continued support.
Sincerely yours,
Kirk P. Bailey
Ron Samuels
Chairman President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities being issued by Pinnacle in connection with Magnathe merger or passed upon the adequacy or completeness of this proxy statement/prospectus. Any representation to the contrary is a criminal offense. The securities to be issued in connection with the Magna merger are not savings or deposit accounts or other obligations of any bank or nonbank subsidiary of any of the parties, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
This document is dated [ ], 2015,●], 2016, and is first being mailed on or about [ ], 2015.●], 2016.
6525 Quail Hollow Road, Suite 513
Memphis, Tennessee 38120
(901) 259-5670
Notice of Special Meeting of ShareholdersNOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
To Be Held on July [ ], 2015TO BE HELD ON June 21, 2016
To the Shareholders of Magna Bank:
WeYou are pleasedcordially invited to notify you of and invite you toattend a special meeting of the shareholders of Magna BankAvenue Financial Holdings, Inc. (“Magna”Avenue”) to be held on [ ], July [ ], 2015,June 21, 2016, at 10:0030 a.m., local time, at 6525 Quail Hollow Road, 4th Floor, Memphis,the Frist Center Auditorium, 919 Broadway, Nashville, Tennessee 38120, to37203. At the special shareholders’ meeting, holders of Avenue common stock will consider and vote upon the following matters:proposals:
| 1. | Proposal 1:Agreement and Plan of Merger |
| 2. | Proposal 2:Adjournment. To consider and vote on a proposal to |
Only shareholders of record of Magna’sAvenue common stock par value $1.00 per share (“Magna common stock”) and Magna’s Perpetual Noncumulative Preferred Stock, Series D, par value $1.00 per share (“Magna Series D Preferred Stock”), at the close of business on June [ ], 2015,April 22, 2016, will be entitled to notice of and to vote at the special shareholders’ meeting and at any adjournment or postponement of the special shareholders’ meeting.
The boardAvenue has concluded that holders of directorsrecord of Magna unanimously recommends that Magna’s shareholders vote “FOR”Avenue common stock donot have the approval and adoption ofright to dissent from the merger agreement and exercise appraisal rights under the Magna merger,Tennessee Business Corporation Act.
AVENUE’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF AVENUE COMMON STOCK VOTE “FOR” THE PROPOSALS SET FORTH ABOVE.
Your vote is very important. You can vote in one of two ways: (i) by mail by completing, dating, signing and “FOR”returning the proposal to postponeenclosed proxy card or adjourn(ii) in person at the Magna special meeting, if necessary to solicit additional votesmeeting. To vote you may complete, date and sign the enclosed proxy card and promptly return it in favor of the approval of the merger agreement.
YOUR VOTE IS VERY IMPORTANT. The merger agreement must be approved by the affirmative vote of holders of a majority of the issued and outstanding shares of Magna common stock and Magna Series D Preferred Stock (voting together as a single group) in order for the proposed Magna merger to be consummated. IF YOU DO NOT RETURN YOUR PROXY CARD OR DO NOT VOTE IN PERSON AT THE SPECIAL MEETING, THE EFFECT WILL BE A VOTE AGAINST THE PROPOSED MAGNA MERGER.Whetherenvelope provided, whether or not you plan to attend the special shareholders’ meeting. If you attend the special shareholders’ meeting, you may vote in person we urgeif you to date, sign, andwish, even if you have previously returned your proxy card. Please return promptly the enclosedyour proxy card in the accompanying envelope. You may revoke your proxy at any time before the special meeting or by attending the special meeting and voting in person.
As required by Chapter 23 of the Tennessee Business Corporation Act, Magna is notifying all shareholders entitled to vote on the merger agreement that you are or may be entitled to assert dissenters’ rights under the dissenters’ rights chapter of the Tennessee Business Corporation Act. A copy of the dissenters’ rights chapter is included with the accompanying proxy statement/prospectus asAppendix B. See also “PROPOSAL #1: THE PROPOSED MAGNA MERGER—Dissenters’ Rights” beginning on page 47 in the accompanying proxy statement/prospectus.no later than June 20, 2016.
BY ORDER OF THE BOARD OF DIRECTORS OF | ||||||
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Questions and Answers About Voting and the | 1 | ||||
Selected Historical Consolidated Financial and Other Data of Pinnacle | |||||
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i
This proxy statement/prospectus incorporates by reference important business and financial information about Pinnacle Financial Partners, Inc. and Avenue Financial Holdings, Inc. from documents that it filesthey file with the Securities and Exchange Commission (which we refer to as the SEC) but that are not included in or delivered with this proxy statement/prospectus. You can obtain copies of the documents incorporated by reference in this proxy statement/prospectus without charge upon written or oral request to:
Pinnacle Financial Partners, Inc. 150 Third Avenue South Suite 900 Nashville, Tennessee 37201 Attention: Harold R. Carpenter (615) 744-3700 | Avenue Financial Holdings, Inc. 111 10th Avenue South Suite 400 Nashville, Tennessee 37203 Attention: Barbara J. Zipperian (615) 736-6940 |
In order to timely ensure delivery of these documents, you must make your request by requesting them in writing or by telephone from Pinnacle Financial Partners, Inc. at the following address:
Pinnacle Financial Partners, Inc.
150 Third Avenue South
Suite 900
Nashville, Tennessee 37201
Attention: Harold R. Carpenter
(615) 744-3700
Shareholders of Magna requesting Pinnacle documents should do so by [ ], 2015 in orderJune 14, 2016 to receive them before the special meeting.
You may also obtain these documents at the SEC’s website (www.sec.gov) and you may obtain certain of these documents at Pinnacle’s website (www.pnfp.com) by selecting the tab entitled “Investor Relations” and then the tab entitled “SEC Filings” or at Avenue’s website (www.avenuenashville.com) by selecting the tab entitled “Investor Relations” and then the tab entitled “SEC filings”. Information contained on, or accessible from, Pinnacle’s or Avenue’s website is expressly not incorporated by reference into this proxy statement/prospectus, and you should not consider it part of this proxy statement/prospectus.
You should rely only on the information incorporated by reference into or provided in or with this proxy statement/prospectus. We have not authorized anyone to give you different information. You should not assume that the information in this proxy statement/prospectus, or in any documents delivered with this proxy statement/prospectus, or any supplement, is accurate as of any date other than the date on the front of such documents, and neither the mailing of this proxy statement/prospectus to you nor the issuance of Pinnacle common stock in connection with the merger of Magna BankAvenue with and into Pinnacle Bank shall create any implication to the contrary.
If you have any questions, or need assistance in completing and returning your proxy, you may contact Magna,Avenue at the following address and telephone number:
Magna BankAvenue Financial Holdings, Inc.
6525 Quail Hollow Road,111 Tenth Avenue South, Suite 513400
Memphis,Nashville, Tennessee 3812037203
Attention: Beth LawrenceBarbara J. Zipperian
Telephone: (901) 259-5670(615) 736-6940
For a more detailed description of the information incorporated by reference in the enclosed proxy statement/prospectus and how you may obtain it, see the section entitled “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 10194 of the enclosed proxy statement/prospectus.
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This proxy statement/prospectus relates to an Agreement and Plan of Merger, dated AprilJanuary 28, 2015,2016, as it may be amended from the time to time (which we refer to as the merger agreement), by and amongbetween Pinnacle Financial Partners, Inc., a Tennessee corporation (which we refer to as Pinnacle) and Avenue Financial Holdings, Inc., Pinnacle Bank, a Tennessee state-chartered bank and a direct, wholly owned subsidiary of Pinnaclecorporation (which we refer to as Pinnacle Bank),Avenue). Upon the terms and Magna Bank, a Tennessee state-chartered bank (which we refersubject to as Magna). A copythe conditions of the merger agreement, a copy of which is attached to this proxy statement/prospectus asAppendix A and incorporated by reference herein. Upon the terms and subject to the conditions of the merger agreement, Magnaherein, Avenue will merge with and into Pinnacle, Bank, with Pinnacle Bank being the surviving company (which we refer to as the Magnamerger). In connection with the execution of the merger agreement, Pinnacle Bank, Pinnacle’s wholly owned bank subsidiary, and Avenue Bank, Avenue’s wholly owned bank subsidiary, entered into a separate Agreement and Plan of Merger on January 28, 2016 (which we refer to as the bank merger agreement), pursuant to which Avenue Bank will merge with and into Pinnacle Bank simultaneously with the consummation of the merger (which we refer to as the bank merger).
Magna currently has outstanding sharesPursuant to the terms of the merger agreement, upon consummation of the merger each holder of Avenue common stock, par value $1.00 per share (which we refer to as the MagnaAvenue common stock), shares of Series C Preferred Stock (which are held by the United States Treasury and are expected to be redeemed by the effective time of the Magna merger) and shares of Non-Cumulative Perpetual Preferred Stock, Series D, par value $1.00 per share (which we refer to as the Magna Series D Preferred Stock). By its terms, the Magna Series D Preferred Stock will automatically convert into shares of Magna common stock, on a share-for-share basis, immediately prior to the effective time of the Magna merger. The Magna common stock and the Magna Series D Preferred Stock are sometimes referred to collectively as the “Magna stock” in this proxy statement/prospectus.
Pursuant to the terms of the merger agreement, upon consummation of the Magna merger each holder of Magna common stock, including Magna common stock that will be issued automatically upon conversion of the Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger, issued and outstanding, subject to certain exceptions, will have the right to elect to receive either (i) 0.33690.36 shares of Pinnacle common stock, par value $1.00 per share (which we refer to as Pinnacle common stock), and an amount in cash equal to $2.00 for each share of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) owned by such MagnaAvenue shareholder at the effective time of the Magna merger (which we refer to as the stockmerger consideration), or (ii) an amount in cash equal to $14.32 per share of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) outstanding at the effective time of the Magna merger (which we refer to as the cash consideration), or (iii) a combination of stock consideration and cash consideration; provided, however, that the aggregate amount of stock consideration and cash consideration issued to Magna shareholders will be prorated such that 75% of the shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) outstanding as of the effective time of the Magna merger will be converted into shares of Pinnacle common stock and 25% of the shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) outstanding as of the effective time of the Magna merger will be converted into cash.. Fractional shares will not be issued by Pinnacle, but instead will be paid in cash based on the average closing price of Pinnacle’s common stock for the 10 trading days ending on the business day immediately preceding the closing date of the Magna merger. Collectively, the stock consideration and cash consideration are referred to in this proxy statement/prospectus as the “merger consideration”.
In addition, immediately prior to the effective time of the Magna merger, each outstanding unvested option to purchase shares of Magna common stock (which we refer to as the Magna options), will accelerate and become fully vested and exercisable. At the effective time of the Magna merger, any outstanding Magna options that are not exercised will be cancelled and the holders of any such Magna options will be entitled to receive an amount in cash equal to the product of (x) the excess, if any, of $14.32 over the exercise price of each such Magna option and (y) the number of shares of Magna common stock subject to each such Magna option (which we refer to as the Stock Option Consideration).
iii
This proxy statement/prospectus serves as:
Unless the context otherwise requires, all references in this proxy statement/prospectus to “we”, “us”, or “our”, refer to Pinnacle Pinnacle Bank and Magna.
In addition to the foregoing, this proxy statement/prospectus references that certain Agreement and Plan of Merger, dated April 7, 2015, as amended from time to time, by and among CapitalMark Bank & Trust, a Tennessee state-chartered bank (which we refer to as CapitalMark), Pinnacle and Pinnacle Bank (which we refer to as the CapitalMark merger agreement). Upon the terms and subject to the conditions of the CapitalMark merger agreement, CapitalMark will merge with and into Pinnacle Bank, with Pinnacle Bank being the surviving company (which we refer to as the CapitalMark merger). See “SUMMARY—Pending Acquisition of CapitalMark Bank & Trust” beginning on page 8. Collectively, the Magna merger and the CapitalMark merger are referred to in this proxy statement/prospectus as the “mergers”. Consummation of the Magna merger is not conditioned upon the consummation of the CapitalMark merger, nor is consummation of the CapitalMark merger conditioned upon consummation of the Magna merger.Avenue.
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QUESTIONS AND ANSWERS ABOUT VOTING AND THE MAGNA MERGER AND
THE MAGNA SPECIAL MEETING
The following questions and answers are intended to address briefly some commonly asked questions regarding the Magna special meeting, the merger agreement and the Magna merger. These questions and answers may not address all questions that may be important to you as a Magnaan Avenue common shareholder. To better understand these matters, and for a description of the legal terms governing the Magna merger, you should carefully read this entire proxy statement/prospectus, including the appendices, as well as the documents that have been incorporated by reference in this proxy statement/prospectus. See “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94.
| Q: | What am I being asked to vote upon and how does my board recommend I vote? |
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Magna’sAvenue’s board of directors has determined that the merger agreement and the transactions contemplated thereby, including the Magna merger, are advisable and in the best interests of MagnaAvenue and its shareholders. The board of directors of MagnaAvenue unanimously recommends that MagnaAvenue shareholders vote “FOR” the proposal to approve the merger agreement and “FOR” the proposal to postpone orauthorize Avenue’s board of directors to adjourn the Magna special meeting if necessary, to allow time for further solicitation of proxies to approve the merger agreement. In addition, Patriot Financial Partners, an institutional shareholder of Avenue that beneficially owns approximately 8.2% of Avenue’s common stock, and the members of Magna’sAvenue’s board of directors and executive officers who collectively beneficially own approximately 12.8% of Avenue’s common stock (excluding for purposes of James Deutsch, Patriot Financial Partners’ representative on Avenue’s board of directors, the shares of Avenue common stock owned by Patriot Financial Partners that are deemed to be beneficially owned by Mr. Deutsch) have entered into agreements with Pinnacle in which they have agreed, among other things, to vote their shares of MagnaAvenue common stock and Magna Series D Preferred Stock in favor of the proposal to approve the merger agreement. Certain of the executive officers of Avenue have also entered into employment agreements with Pinnacle that will be effective upon consummation of the merger.
NoAvenue’s board of directors is not aware of any other business willto be conductedconsidered at the Magna special meeting.
| Q: | What vote is required to approve the |
| A: | Proposal to Approve the Merger Agreement by |
Proposal to Postpone orPermit theAvenue Board of Directors to Adjourn the Magna Special Meeting.Approving the proposal to postpone orauthorize the Avenue board of directors to adjourn the Magna special meeting to a later date or dates, if necessary, to allow time for further solicitation of proxies requires athe affirmative vote of holders of a majority in voting power of the shares of MagnaAvenue common stock and Magna Series D Preferred Stock (voting together as a single group) who are present and entitled to vote at the Magna special meeting in person or by proxy.on the adjournment proposal.Accordingly, abstentions will have the same effect as a vote “AGAINST” the proposal to postpone orauthorize the Avenue board of directors to adjourn the Magna special meeting, while shares not in attendance at the Magna special meeting will have no effect on the outcome of theany vote on the proposal to postpone or adjourn the Magna special meeting.
| Q: | My shares of |
No. If your shares of Avenue common stock are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street
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name.” If this is the case, this proxy statement/prospectus has been forwarded to you by your brokerage firm, bank or other nominee, or its agent. As the beneficial holder, you have the right to direct your broker, bank, nominee or other holder of record as to how to vote your shares of Avenue common stock. If you do not provide voting instructions to your broker on a particular proposal on which your broker does not have discretionary authority to vote, your shares of Avenue common stock will not be voted on that proposal. This is called a “broker non-vote.” Because brokers do not have discretionary voting authority with respect to any of the proposals described in this proxy statement/prospectus, if you, as a beneficial owner of shares of Avenue common stock held in “street name” do not give voting instructions to the broker, bank, nominee or other holder of record, then those shares of Avenue common stock will not be voted on any of the proposals described in this proxy statement/prospectus and will have the same effect as a vote against the proposal to approve the merger agreement, and will have no effect on the outcome of any vote to postpone or adjourn the special meeting. If you hold shares of Avenue common stock through a broker, bank, nominee or other holder of record with custody of your shares, follow the voting instructions you receive from that organization.
| Q: | Why is my vote important? |
| A: | Under the Tennessee Business Corporation Act (which we refer to as the TBCA) which governs |
| Q: | What do I need to do now? |
| A: | After you carefully read this proxy statement/prospectus, please respond as soon as possible by completing, signing and dating your proxy card and returning it in the enclosed postage-paid return envelope |
The board of directors of MagnaAvenue unanimously recommends that the shareholders of MagnaAvenue vote in favor of each of the proposals on which they will be voting at the Magna special meeting.
| Q: | Can I change my vote after I have delivered my proxy card? |
| A: | Yes. You may change your vote at any time before your proxy is voted at the |
| Q: | Why are Pinnacle |
| A: | The boards of directors of each of Pinnacle |
| Q: | What will |
| A: | Pursuant to the terms of the merger agreement, upon the consummation of the |
Cash will be paid in lieu of any fractional shares based on the average closing price of Pinnacle’s common stock for the 10 trading days ending on the business day immediately preceding the closing date of the Magna merger. Additionally, any outstanding options to purchase shares of MagnaAvenue common stock that are not vested will be accelerated prior to, but conditioned on the occurrence of, the closing of the merger and all options that are not exercised prior to the consummation of the Magna mergerclosing will be cancelled and the holders of any such options will be entitled to receive an amount in cash equal to the product of (x) the excess, if any, of the difference between $14.32 and$20.00 over the exercise price of each such option and (y) the number of shares of MagnaAvenue common stock subject to each such option.
See “THE MERGER AGREEMENT—Merger Consideration”MERGER CONSIDERATION” for a more complete discussion of the merger consideration to be paid in the Magna merger beginning on page 64.
See “THE MERGER AGREEMENT—Merger Consideration” for a more complete discussion of the merger consideration to be paid in the Magna merger beginning on page 64.
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The allocation of the mix of merger consideration payable to each Magna shareholder will not be finally determined until the exchange agent tallies the results of the elections made by Magna shareholders to receive (i) stock consideration, (ii) cash consideration or (iii) combination of stock and cash consideration, which will not occur until near the effective time of the Magna merger.
If Pinnacle’s common stock is trading above $42.50 per share, the stock consideration will be more valuable than the cash consideration. Because the closing price of Pinnacle’s common stock on June 8, 2015 was $52.52, the stock consideration is significantly more valuable as of the date of this proxy statement/prospectus. Accordingly, we expect that most of the Magna shareholders will elect to receive the stock consideration for all of their shares. If all Magna shareholders elect to receive the stock consideration, then, due to proration, all Magna shareholders will receive stock consideration for 75% of their Magna stock and cash consideration for 25% of their Magna stock. The following table illustrates at various price levels of Pinnacle common stock, the value per Magna share of the stock consideration, the cash consideration and a mix of 75% stock consideration and 25% cash consideration.
| Merger Consideration Per Share of Magna Common Stock | ||||||||||||
Pinnacle | 100% Stock Election | 100% Cash Election | 75% Stock/ 25% Cash Election | |||||||||
| $42.00 | $ | 14.150 | $ | 14.32 | $ | 14.193 | ||||||
| $44.00 | $ | 14.824 | $ | 14.32 | $ | 14.698 | ||||||
| $46.00 | $ | 15.497 | $ | 14.32 | $ | 15.203 | ||||||
| $48.00 | $ | 16.171 | $ | 14.32 | $ | 15.708 | ||||||
| $50.00 | $ | 16.845 | $ | 14.32 | $ | 16.214 | ||||||
| $52.00 | $ | 17.519 | $ | 14.32 | $ | 16.719 | ||||||
| $54.00 | $ | 18.193 | $ | 14.32 | $ | 17.225 | ||||||
Moreover, because the trading price for Pinnacle’s common stock (adjusted for the exchange ratio) is significantly higher than the price Pinnacle has agreed to pay to cash out the Magna options, we expect that many of the individuals that hold vested Magna options will exercise those Magna options and elect to receive the stock consideration.60.
| Q: | If the |
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| Q: | Should I send in my |
| A: | No. Shortly after |
Concurrently with submitting your Election Form, you may surrender your Magna stock certificates. If you elect not to submit your Magna stock certificates with your Election Form, if the Magna merger is consummated, you will receive a letter of transmittal and instructions for surrendering your Magna certificates in exchange for the merger consideration.You should not send in your Magna stock certificates until (i) you submit your Election Form or (ii) you receive the letter of transmittal and instructions for surrendering your Magna stock certificates following the consummation of the Magna merger.
| Q: | Will |
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Shareholders of Pinnacle are not entitled to dissenters’ rights or appraisal rights in connection with the Magna merger.
| Q: | What are the tax consequences of the |
| A: | The |
| federal income tax purposes, Avenue common shareholders |
A holder of Magna options who receives Stock Option Consideration in cancellation of such holder’s Magna options will be treated as having received ordinary compensation income in an amount equal to such Stock Option Consideration.
Magna shareholders and holders of Magna options should consult their own tax advisors for an understanding of the tax consequences that may be particular to them.
See “PROPOSAL #1: THE PROPOSED MAGNA MERGER—Material United States Federal Income Tax Consequences”MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES” beginning on page 4451 for a more complete discussion of the United States federal income tax consequences of the Magna merger.
| Q: | When do you expect the |
| A: | We anticipate that the |
| Q: | If I’ve lost my |
| A: | Yes. However, you will have to provide an affidavit attesting to the fact that you lost your |
| Q: |
| A: | Shares of Pinnacle’s common stock issued in the |
| Q: | Who can help answer my questions? |
| A: | If you want additional copies of this proxy statement/prospectus, or if you want to ask questions about the merger agreement, including the |
Pinnacle Financial Partners, Inc. 150 Third Avenue South, Suite 900 Nashville, Tennessee 37201 Attention: Harold R. Carpenter Telephone: (615) 744-3700 | or |
Attention: Telephone: |
If your shares of Magna common stock and/or Magna Series D Preferred Stock are held by a broker, bank, nominee or other holder of record, you should contact your broker, bank, nominee or other holder of record for additional information about proxy materials or voting procedures.
This brief summary highlights selected information from this proxy statement/prospectus. It does not contain all of the information that may be important to you. Accordingly, you are encouraged to carefully read this entire proxy statement/prospectus, its appendices and the documents incorporated by reference in this proxy statement/prospectus. See “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94. You may obtain the information incorporated by reference into this document without charge by following the instructions in that section. Each item in this summary includes a page reference directing you to a more complete description of that item.
Parties to the Magna Merger (Pages 9487 and 97)89)
Pinnacle Financial Partners, Inc.
Pinnacle Bank
Pinnacle,Financial Partners, Inc., a bankfinancial holding company under the laws of the United States, is a Tennessee corporation that was incorporated on February 28, 2000. Pinnacle is the parent company of Pinnacle Bank, a Tennessee state-chartered bank, and owns 100% of the capital stock of Pinnacle Bank. Pinnacle Bank started operations on October 27, 2000, in Nashville, Tennessee, and has since grown to 3444 offices, including 29 in eight Middle Tennessee counties. Pinnacle Bank also has five offices in Knoxville, Tennessee, the state’s third-largest banking market.five offices in Memphis, Tennessee and one office in Chattanooga, Tennessee, as well as other offices in nearby communities. Prior to September 4, 2012, when it converted from a national bank to a state bank, Pinnacle Bank was known as Pinnacle National Bank.
As of March 31, 2015,2016, Pinnacle had total consolidated assets of approximately $6.31$9.26 billion, total deposits of approximately $4.79$7.08 billion, and total shareholders’ equity of approximately $824.2 million.$1.23 billion.
The principal executive office of Pinnacle Financial Partners, Inc. and Pinnacle Bank is located at 150 Third Avenue South, Suite 900, Nashville, Tennessee 37201, and the telephone number is (615) 744-3700.
Magna BankAvenue Financial Holdings, Inc.
MagnaAvenue Financial Holdings, Inc., a bank holding company under the laws of the United States, is a Tennessee corporation that was incorporated in October 2006. Avenue is the parent company of Avenue Bank, a Tennessee state-chartered commercial bank, with its principaland owns 100% of the capital stock of Avenue Bank. Avenue Bank’s operations are concentrated in Nashville, Tennessee, where it has five offices in Memphis, Tennessee. Magna operates banking branches in Memphis, Germantown, and Cordova, Tennessee and mortgage origination offices in Shelby County, Tennessee,two Middle Tennessee and in Desoto County, Mississippi.counties.
AtAs of March 31, 2015, Magna2016, Avenue had total assets of approximately $589.2 million, total$1.21 billion, deposits of approximately $451.8$966.5 million, and total stockholders’shareholders’ equity of approximately $70.1$98.5 million.
The principal executiveAvenue main office of Magna is located at 6525 Quail Hollow Road, Suite 513, Memphis,111 10th Avenue South, Nashville, Tennessee 38120,37203, and the telephone number is (901) 259-5670.(615) 736-6940.
MagnaAvenue Will Merge With and Into Pinnacle Bank (Page 64)60)
We propose a merger of MagnaAvenue with and into Pinnacle. Pinnacle Bank. Pinnacle Bank will survive the Magna merger. We have attached the merger agreement which sets forth the terms and conditions of the Magna merger to this proxy statement/prospectus asAppendix A. We encourage you to read the merger agreement carefully.
Merger of Avenue Bank and Pinnacle Bank (Page 60)
Avenue Bank will simultaneously merge with and into Pinnacle Bank upon the consummation of the merger. The bank merger is subject to and contingent upon the effectiveness of the merger.
What Magna ShareholdersHolders of Avenue Common Stock will Receive in the Magna Merger (Page 64)60)
Pursuant to the terms of the merger agreement, uponUpon consummation of the Magna merger each holder of MagnaAvenue common stock, (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) issued and outstanding as of the effective time subject to certain exceptions,of the merger, except shares of Avenue common stock owned by Pinnacle or Avenue (other than those shares held in a fiduciary or representative capacity), will have
the right to elect to receive either (i) 0.33690.36 shares of Pinnacle common stock and an amount in cash equal to $2.00 for each share of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) owned by such Magnathe Avenue common shareholder at the effective time of the Magna merger, or (ii) an amount in cash equal to $14.32 per share of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) owned by such Magna shareholder at the effective time of the Magna merger, or (iii) a combination of stock consideration and cash consideration; provided, however, that the aggregate amount of stock consideration and cash consideration issued to holders of Magna common stock (including holders of the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) will be prorated such that 75% of the shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) outstanding as of the effective time of the Magna merger will be converted into shares of Pinnacle common stock and 25% of the shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) outstanding as of the effective time of the Magna merger will be converted into cash.merger. Fractional shares will not be issued by Pinnacle, but instead will be paid in cash based on the average closing price of Pinnacle’s common stock for the 10 trading days ending on the business day immediately preceding the closing date of the Magna merger.
Issued Shares of Pinnacle Common Stock Will be Eligible for Trading (page 79)(Page 73)
The shares of Pinnacle common stock to be issued upon consummation of the Magna merger will be eligible for trading on the Nasdaq Global Select Market.
Voting Agreements (Page 48)53)
As of the record date, Patriot Financial Partners, an institutional shareholder of Avenue, and the directors and executive officers of MagnaAvenue collectively beneficially owned 2,211,050 shares of MagnaAvenue common stock, or approximately 21.2% of the outstanding shares of Avenue common stock, including shares subject to Magna options currently exercisable but not exercised, and shares of Magna Series D Preferred Stock, or approximately % of the outstanding shares of Magna common stock, and % of the outstanding shares of Magna Series D Preferred Stock.exercised. In connection with the execution of the merger agreement, Patriot Financial Partners and each of the directors and executive officers of MagnaAvenue executed a voting agreement pursuant to which he or shethey agreed, among other things, to vote his or hertheir shares of MagnaAvenue common stock and Magna Series D Preferred Stock for the approval of the merger agreement.
Magna’s Financial Adviser Has Provided an Opinion to the Magna Board as to the Fairness of the Merger Consideration from a Financial Point of View (Page 54)
The Magna board of directors retained SunTrust Robinson Humphrey, Inc. (who we refer to as STRH) to render a fairness opinion in connection with the proposed Magna merger. At a meeting of the Magna board of directors on April 28, 2015, STRH delivered to the Magna board of directors (solely in its capacity as such) an oral opinion, which was confirmed by delivery of a written opinion, dated April 28, 2015, to the effect that, as of April 28, 2015 and based upon and subject to the conditions, limitations, qualifications and assumptions set forth in the opinion, the aggregate merger consideration to be received in the Magna merger by the holders, other than (i) any holders who properly perfect their dissenters’ rights under the TBCA and (ii) Magna, Pinnacle or Pinnacle Bank in their capacity as holders of Magna common stock (including shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) other than any such shares held by Magna, Pinnacle or Pinnacle Bank on behalf of third parties or as a result of debts previously contracted (we refer to the holders in clauses (i) and (ii) as Excluded Holders), of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) was fair, from a financial point of view, to such holders.
The full text of the written opinion of STRH, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion of STRH, is attached
asAppendix C to this proxy statement/prospectus and is incorporated herein by reference. Magna shareholders are urged to read STRH’s written opinion carefully and in its entirety. STRH’s opinion is limited solely to the fairness, from a financial point of view, of the aggregate merger consideration to be received in the Magna merger by the holders, other than the Excluded Holders, of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock), and does not address Magna’s underlying business decision to effect the Magna merger or the relative merits of the Magna merger as compared to any alternative business strategies or transactions that might be available with respect to Magna. STRH’s opinion does not constitute a recommendation to any Magna shareholders as to how such shareholder should vote or act with respect to any matter relating to the Magna merger or otherwise, including whether a holder of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) should elect to receive the cash consideration or the stock consideration.
The Magna Merger Generally Will Be Tax-Deferred to the Holders of MagnaAvenue Common Stock to the Extent They ReceiveWith Respect To The Shares of Pinnacle Common Stock They Receive But Will Be Taxable With Respect to AnyTo The Cash ReceivedThey Receive (Page 44)52)
It is a condition to the completion of the Magna merger that MagnaAvenue receive a legal opinion from Wyatt, Tarrant & Combs,Bradley Arant Boult Cummings LLP to the effect that the Magna merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to as the Code), for United States federal income tax purposes. It is also a condition that Pinnacle receives a similar opinion from Bass, Berry & Sims PLC. The opinions will not bind the Internal Revenue Service (which we refer to as the IRS), which could view the Magna merger differently.
Generally, for United States federal income tax purposes, MagnaAvenue common shareholders will not recognize gain or loss as a result of the exchange of their MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) for shares of Pinnacle common stock pursuant to the Magna merger. However, if any holderAvenue common shareholders will generally recognize gain or loss as a result of Magnathe exchange of their Avenue common stock (includingfor the shares of Magna common stock issuable upon conversioncash portion of the Magna Series D Preferred Stock) receives (i)merger consideration and for any cash consideration for its shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) or (ii) cashreceived in lieu of fractional shares of Pinnacle common stock or in connection with the cancellation of any holder of the Magna options receives Stock Option Consideration, such exchange generally will be treated as a taxable transaction causing such holder of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) or Magnaoutstanding options to recognize gain or loss on the exchange.purchase Avenue common stock.Holders of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) or Magna options should consult their own tax advisersadvisors for an understanding of the tax consequences that may be particular to them.
You should read “PROPOSAL #1: THE PROPOSED MAGNA MERGER—Material United States Federal Income Tax Consequences”MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES” beginning on page 4451 for a more complete discussion of the United States federal income tax consequences of the Magna merger to Magna’s shareholders.merger. Tax matters can be complicated and the tax consequences of the Magna merger to you will depend on your particular tax situation. You should consult your tax adviseradvisor to fully understand the tax consequences of the Magna merger to you.
Magna
Avenue Directors and Executive Officers Have Some Financial Interests in the Magna Merger That are Different From or in Addition to Their Interests as Shareholders (Page 48)54)
When Magna’s shareholders consider the recommendation of the Magna board of directorsconsidering whether to approve the merger agreement, and the Magna merger, you should be aware that certain of Magna’ssome directors and executive officers of Avenue have interests in the Magna merger that are differentdiffer from or in addition to, the interests of Magna’sother Avenue shareholders, including the following:
Each board member was aware of these and other interests and considered them before approving and adopting the merger agreement.
Accounting Treatment of the Merger (Page 53)
Pinnacle will account for the merger by utilizing the purchase accounting method in accordance with United States generally accepted accounting principles.
Avenue’s Board of Directors Unanimously Recommends that You Vote “FOR” the Approval of the Merger Agreement (Page 36)
Avenue’s board of directors has determined that the merger, the merger agreement and officers indemnificationthe transactions contemplated by the merger agreement are advisable and liability insurance protections. Seein the best interests of Avenue and its shareholders and has unanimously approved the merger agreement. Avenue’s board of directors unanimously recommends that Avenue common shareholders vote “FOR” the approval of the merger agreement. For the factors considered by Avenue’s board of directors in reaching its decision to approve the merger agreement, see “PROPOSAL #1: # 1—THE PROPOSED MAGNA MERGER—Interests of Magna Executive Officers and Directors in the Magna Merger” beginning on page 48.AVENUE’S REASONS FOR THE MERGER; RECOMMENDATION OF THE AVENUE BOARD OF DIRECTORS.”
Avenue’s Financial Advisor Has Provided an Opinion to the Avenue Board as to the Fairness of the Merger Consideration from a Financial Point of View (Page 39)
In connection with the merger, Avenue’s financial advisor, Keefe, Bruyette & Woods, Inc., or KBW, delivered a written opinion, dated January 28, 2016, to the Avenue board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Avenue common stock of the merger consideration in the proposed merger. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion, is attached as Appendix B to this proxy statement/prospectus.The opinion was for the information of, and was directed to, the Avenue board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of Avenue to engage in the merger or enter into the merger agreement or constitute a recommendation to the Avenue board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Avenue common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter.
Treatment of MagnaAvenue Stock Options (Page 64)60)
ImmediatelyAny outstanding options to purchase shares of Avenue common stock that are not vested will be accelerated prior to, but conditioned on the effective timeoccurrence of, the Magnaclosing of the merger each outstanding unvested Magna option will accelerate and become fully vested and exercisable. Any outstanding Magnaall options that are not exercised prior to the closing will, at the closing, be cancelled as of the effective time of the Magna merger and the holders of any such Magna options will be entitled to receive an amount in cash equal to the product of (x) the excess, if any, of $14.32$20.00 over the exercise price of each such Magna option and (y) the number of shares of MagnaAvenue common stock subject to each such Magna option.
Treatment of Avenue’s Subordinated Notes (Page 30)
Upon consummation of the merger, Pinnacle will assume Avenue’s obligations under its outstanding $20.0 million subordinated notes issued in December 2014 that mature in December 2024. These notes bear interest at a rate of 6.75% per annum until January 1, 2020 and may not be repaid prior to such date. Beginning on January 1, 2020, if not redeemed on such date, these notes will bear interest at a floating rate equal to the three-month LIBOR determined on the determination date of the applicable interest period plus 4.95%.
The Magna Merger is Expected to Occur late in the Second Quarter or early in the Third Quarter or Fourth Quarter 2015of 2016 (Page 67)61)
The Magna merger will occur after all conditions to its completion have been satisfied or waived. Currently, we anticipate the Magna merger will occur late in the second quarter or early in the third quarter or fourth quarter of 2015.2016. However, we cannot assure you when or if the Magna merger will occur. Magna’s shareholdersHolders of Avenue’s common stock must first approve the merger agreement at the Magna special meeting to which this proxy statement/prospectus relates. We also must obtain necessary regulatory approvals. If the Magna merger has not been completed by December 31, 2015,September 30, 2016, either Pinnacle or MagnaAvenue may terminate the merger agreement so long as the party electing to terminate has not caused the failure of the Magna merger to occur by failing to comply with its obligations under the merger agreement.
Completion of the Magna Merger is Subject to Customary Conditions (Page 68)62)
The completion of the Magna merger is subject to a number of customary conditions being met, including the approval by MagnaAvenue common shareholders of the merger agreement, as well as receipt of all required regulatory approvals.
Where the law permits, a party to the merger agreement could elect to waive a condition to its obligation to complete the Magna merger, even if that condition has not been satisfied. We cannot be certain when (or if) the conditions to the Magna merger will be satisfied or waived or that the Magna merger will be completed.
We May Not Complete the MagnaMerger or the Bank Merger Without All Required Regulatory Approvals (Page 52)59)
We cannot complete the Magnamerger or the bank merger unless we receive the prior approval of our applications and notices filed with the Federal Deposit Insurance Corporation (which we refer to as the FDIC), and the Tennessee Department of Financial Institutions (which we refer to as TDFI). Because the merger and the bank merger will occur simultaneously, the approval of the merger by the Board of Governors of the Federal Reserve System (which we refer to as the FRB) is not required pursuant to an exemption from such approval requirements applicable under relevant regulations of the FRB.
Termination of the Merger Agreement; Fees Payable (Page 76)71)
We may jointly agree to terminate the merger agreement at any time. Either of us also may terminate the merger agreement if:
Pinnacle may terminate the merger agreement if the board of directors of MagnaAvenue adversely changes its recommendation that its common shareholders vote “FOR” approval of the merger agreement, MagnaAvenue breaches its obligation to hold its shareholders’ meeting to approve the merger agreement or if the board of directors of MagnaAvenue authorizes, recommends proposes or publicly announces its intention to authorize recommend or proposerecommend an acquisition proposal with any person other than Pinnacle.
In addition, MagnaAvenue has the right to terminate the merger agreement:
The merger agreement provides that in limited circumstances, described more fully beginning on page 64,72, involving a change in the recommendation of the MagnaAvenue board that Magna’sAvenue’s shareholders approve the merger
agreement, Magna’sAvenue’s failure to hold a shareholders’ meeting to vote on the merger agreement, Magna’sAvenue’s authorization, recommendation or proposal of an acquisition proposal, Magna’sAvenue’s termination to enter into a definitive agreement with respect to a superior proposal or if the merger agreement is otherwise terminated (other than by MagnaAvenue for Pinnacle’s material breach) after MagnaAvenue shall have received an acquisition proposal, MagnaAvenue may be required to pay a termination fee to Pinnacle of $2.85$8.0 million. The purpose of the termination fee is to encourage the commitment of MagnaAvenue to the Magna merger, and to compensate Pinnacle if MagnaAvenue engages in certain conduct which would make the Magna merger less likely to occur. The effect of the termination fee likely will be to discourage other companies from seeking to acquire or merge with MagnaAvenue prior to completion of the Magna merger and could cause MagnaAvenue to reject any acquisition proposal which does not take into account the termination fee.
We May Amend the Terms of the Magna Merger and Waive Rights Under the Merger Agreement (Page 78)72)
We may jointly amend the terms of the merger agreement, and the parties may waive their respective rights to require the other parties to adhere to any of those terms, to the extent legally permissible. However, after the approval of the merger agreement by shareholders of Magna,Avenue, no amendment or waiver that reduces or changes the form of the consideration that will be received by MagnaAvenue shareholders may be accomplished without the further approval of such shareholders.
Dissenters’ Rights (Page 47)53)
Tennessee law permitsUnder the TBCA, holders of MagnaAvenue common stock and Magna Series D Preferred Stockdo not have the right to dissent from the Magna merger and to have the fair value of their Magna stock paid in cash. To do this, a Magna shareholder must follow certain procedures, including filing certain notices with Magna and refraining from
voting the shareholder’s shares of Magna stock in favor of the merger agreement. If a Magna shareholder properly dissents from the merger agreement that shareholder’s shares of Magna stock will not be exchanged for shares of Pinnacle common stockand seek an appraisal in connection with the Magna merger, but rather, that shareholder’s only right will be to receive the appraised value of the shareholder’s shares in cash. For a complete description of these dissenters’ rights, see page 47 andAppendix B to this proxy statement/prospectus where the full text of the Tennessee Dissenters’ Rights Statute is set out.merger.
Comparison of the Rights of MagnaAvenue Shareholders and Pinnacle Shareholders (Page 85)78)
Both Pinnacle and MagnaAvenue are incorporated under Tennessee law. MagnaAvenue shareholders, who upon completion of the Magna merger, continue as shareholders, will become Pinnacle shareholders, and their rights as shareholders of Pinnacle will be governed by Pinnacle’s charter and bylaws. See “COMPARISON OF THE RIGHTS OF SHAREHOLDERS” beginning on page 8578 for the material differences between the rights of MagnaAvenue shareholders and Pinnacle shareholders.
Board of Directors Afterafter the Magna Merger and the CapitalMark Merger (Page 87)56)
After the Magna merger and the CapitalMark merger, the board of directors of the combined company is expected to have at least 1418 members, consisting of at least 1214 current members of Pinnacle’s board of directors Thomas C. Farnsworth, III, anas well as Ronald L. Samuels, Marty Dickens, David Ingram and Joseph Galante as existing member of the Magna Bank board of directors and an existing member of the CapitalMarkAvenue board of directors.
MagnaAvenue Shareholder Meeting to be Held on [ ], 2015June 21, 2016 (Page 34)27)
The MagnaAvenue will hold a special meeting will be heldof shareholders on July [ ], 2015June 21, 2016 at 10:0030 a.m., local time. The meeting will be held at 6525 Quail Hollow Road, 4th Floor, Memphis, Tennessee, 38120. At the Magna special meeting, Magna shareholders will be asked to vote to (1) approve the merger agreement, and (2) postpone or adjourn the Magna special meeting to a later date or dates, if necessary, to permit Magna to solicit additional proxies if there are insufficient votes presenttime, at the Magna special meeting, in person or by proxy, and entitled to vote, to approve the merger agreement.
Pending Acquisition of CapitalMark Bank & Trust (Page 95)
On April 7, 2015, Pinnacle and CapitalMark announced the signing of a definitive agreement for CapitalMark to merge with and into Pinnacle Bank. The CapitalMark merger has been approved by the board of directors of each of Pinnacle and CapitalMark and is expected to close in the third quarter or fourth quarter of 2015. Completion of the CapitalMark merger is subject to customary closing conditions, including receipt of required regulatory approvals and approval of CapitalMark’s common shareholders.
Under the terms of the CapitalMark merger agreement, upon consummation of the CapitalMark merger, each holder of CapitalMark common stock, par value $1.00 per share (which we refer to as the CapitalMark common stock), issued and outstanding, subject to certain exceptions, will have the right to elect to receive either (i) 0.50 shares of Pinnacle common stock for each share of CapitalMark common stock owned by such CapitalMark shareholder at the effective time of the CapitalMark merger (which we refer to as the Pinnacle stock consideration), or (ii) an amount in cash equal to the product of 0.50 multiplied by the average closing price of Pinnacle’s common stock during the 10 trading days ending on the business day immediately preceding the closing date of the CapitalMark merger (which we refer to as the Pinnacle cash consideration), or (iii) a combination of Pinnacle stock consideration and Pinnacle cash consideration; provided, however, that the aggregate amount of Pinnacle stock consideration and Pinnacle cash consideration issued to CapitalMark shareholders will be prorated such that 90% of the shares of CapitalMark common stock outstanding as of theFrist Center Auditorium, 919 Broadway, Nashville, Tennessee 37203.
effective time of the CapitalMark merger will be converted into shares of Pinnacle common stock and 10% of the shares of outstanding CapitalMark common stock as of the effective time of the CapitalMark merger will be converted into cash. Fractional shares will not be issued by Pinnacle, but instead will be paid in cash based on the average closing price of Pinnacle’s common stock for the 10 trading days ending on the business day immediately preceding the closing date of the CapitalMark merger.
As of March 31, 2015, CapitalMark, which is headquartered in Chattanooga, Tennessee, reported $968.0 million in total assets and $840.0 million in deposits and currently operates four banking offices in Tennessee, one each in Chattanooga and Cleveland, as well as one in Knoxville and one in Oak Ridge. For the year ended December 31, 2014 and the first quarter of 2015, CapitalMark reported net income of approximately $7.4 million and approximately $2.3 million, respectively. See page 19 for “SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF CAPITALMARK BANK & TRUST”.
Subordinated Debt Issuance in Connection with the Magna merger and the CapitalMark merger (Page 96)
In connection with the consummation of the Magna merger and the CapitalMark merger, Pinnacle Bank expects to issue approximately $50.0 million in subordinated debt in a private offering to institutional investors (which we refer to as the Debt Issuance). The proceeds from the Debt Issuance, together with available cash, will be used to pay the cash amounts owed by Pinnacle as a result of the Magna merger and the CapitalMark merger, including the redemption of the preferred shares sold by Magna and CapitalMark to the U.S. Treasury pursuant to the Small Business Lending Fund program. In connection with the Debt Issuance, Pinnacle anticipates that it will repay all of its outstanding borrowings under its loan agreement with U.S. Bank, National Association.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF PINNACLE
The selected historical consolidated financial and other data presented below, as of and for the three months ended March 31, 2015 and 2014, is unaudited. The selected historical consolidated financial and other data presented below, as of and for each of the years in the five-year period ended December 31, 2014,2015, is derived from Pinnacle’s audited historical financial statements. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Pinnacle’s audited consolidated financial statements and the notes thereto incorporated by reference in this proxy statement/prospectus. Results for past periods are not necessarily indicative of results that may be expected for any future period.
(Dollars in thousands, except per share | As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | 2015(1)(2) | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 6,314,346 | $ | 5,600,933 | $ | 6,018,248 | $ | 5,563,776 | $ | 5,040,549 | $ | 4,863,951 | $ | 4,909,004 | $ | 8,715,414 | $ | 6,018,248 | $ | 5,563,776 | $ | 5,040,549 | $ | 4,863,951 | ||||||||||||||||||||||||
Loans, net of unearned income | 4,645,272 | 4,181,687 | 4,590,027 | 4,144,493 | 3,712,162 | 3,291,351 | 3,212,440 | 6,543,235 | 4,590,027 | 4,144,493 | 3,712,162 | 3,291,351 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses | 66,242 | 67,524 | 67,359 | 67,970 | 69,417 | 73,975 | 82,575 | 65,432 | 67,359 | 67,970 | 69,417 | 73,975 | ||||||||||||||||||||||||||||||||||||
Total securities | 808,294 | 774,134 | 770,730 | 733,252 | 707,153 | 897,292 | 1,018,637 | 966,442 | 770,730 | 733,252 | 707,153 | 897,292 | ||||||||||||||||||||||||||||||||||||
Goodwill, core deposit and other intangible assets | 246,109 | 247,171 | 246,422 | 247,492 | 249,144 | 251,919 | 254,795 | 442,773 | 246,422 | 247,492 | 249,144 | 251,919 | ||||||||||||||||||||||||||||||||||||
Deposits and securities sold under agreements to repurchase | 4,857,363 | 4,568,669 | 4,876,600 | 4,603,938 | 4,129,855 | 3,785,931 | 3,979,352 | 7,050,498 | 4,876,600 | 4,603,938 | 4,129,855 | 3,785,931 | ||||||||||||||||||||||||||||||||||||
Advances from FHLB | 455,444 | 150,604 | 195,476 | 90,637 | 75,850 | 226,069 | 121,393 | 300,305 | 195,476 | 90,637 | 75,850 | 226,069 | ||||||||||||||||||||||||||||||||||||
Subordinated debt and other borrowings | 135,533 | 98,033 | 96,158 | 98,658 | 106,158 | 97,476 | 97,476 | 142,476 | 96,158 | 98,658 | 106,158 | 97,476 | ||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 824,151 | 742,497 | 802,693 | 723,708 | 679,071 | 710,145 | 677,457 | 1,155,611 | 802,693 | 723,708 | 679,071 | 710,145 | ||||||||||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | $ | 54,679 | $ | 49,291 | $ | 206,170 | $ | 191,282 | $ | 185,422 | $ | 188,346 | $ | 203,348 | $ | 255,169 | $ | 206,170 | $ | 191,282 | $ | 185,422 | $ | 188,346 | ||||||||||||||||||||||||
Interest expense | 3,410 | 3,383 | 13,185 | 15,384 | 22,557 | 36,882 | 58,975 | 18,537 | 13,185 | 15,384 | 22,557 | 36,882 | ||||||||||||||||||||||||||||||||||||
Net interest income | 51,269 | 45,908 | 192,985 | 175,899 | 162,865 | 151,464 | 144,373 | 236,632 | 192,985 | 175,899 | 162,865 | 151,464 | ||||||||||||||||||||||||||||||||||||
Provision for loan losses | 315 | 488 | 3,635 | 7,856 | 5,569 | 21,798 | 53,695 | 9,188 | 3,635 | 7,856 | 5,569 | 21,798 | ||||||||||||||||||||||||||||||||||||
Net interest income after provision for loan losses | 50,954 | 45,420 | 189,350 | 168,042 | 157,296 | 129,666 | 90,678 | 227,445 | 189,350 | 168,042 | 157,296 | 129,666 | ||||||||||||||||||||||||||||||||||||
Noninterest income | 18,943 | 12,732 | 52,602 | 47,104 | 43,397 | 37,940 | 36,315 | 86,530 | 52,602 | 47,104 | 43,397 | 37,940 | ||||||||||||||||||||||||||||||||||||
Noninterest expense | 36,831 | 33,646 | 136,300 | 129,261 | 138,165 | 139,107 | 146,883 | 170,877 | 136,300 | 129,261 | 138,165 | 139,107 | ||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | 32,616 | 24,506 | 105,653 | 85,884 | 62,527 | 28,499 | (19,890 | ) | ||||||||||||||||||||||||||||||||||||||||
Income before income taxes | 143,098 | 105,653 | 85,884 | 62,527 | 28,499 | |||||||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 10,773 | 8,139 | 35,182 | 28,158 | 20,643 | (15,238 | ) | 4,410 | 47,589 | 35,182 | 28,158 | 20,643 | (15,238 | ) | ||||||||||||||||||||||||||||||||||
Net income (loss) | 21,843 | 16,367 | 70,471 | 57,726 | 41,884 | 43,737 | (24,300 | ) | ||||||||||||||||||||||||||||||||||||||||
Net income | 95,509 | 70,471 | 57,726 | 41,884 | 43,737 | |||||||||||||||||||||||||||||||||||||||||||
Preferred dividends and accretion on common stock warrants | — | — | — | — | 3,814 | 6,665 | 6,142 | — | — | — | 3,814 | 6,665 | ||||||||||||||||||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 21,843 | $ | 16,367 | $ | 70,471 | $ | 57,726 | $ | 38,070 | $ | 37,072 | $ | (30,442 | ) | |||||||||||||||||||||||||||||||||
Net income available to common shareholders | $ | 95,509 | $ | 70,471 | $ | 57,726 | $ | 38,070 | $ | 37,072 | ||||||||||||||||||||||||||||||||||||||
Per Share Data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (loss) per share available to common stockholders—basic | $ | 0.62 | $ | 0.47 | $ | 2.03 | $ | 1.69 | $ | 1.12 | $ | 1.11 | $ | (0.93 | ) | |||||||||||||||||||||||||||||||||
Weighted average common shares outstanding—basic | 34,041,203 | 34,602,337 | 34,723,335 | 34,200,770 | 33,899,667 | 33,420,015 | 32,789,871 | |||||||||||||||||||||||||||||||||||||||||
Earnings (loss) per common share available to common stockholders—diluted | $ | 0.62 | $ | 0.47 | $ | 2.01 | $ | 1.67 | $ | 1.10 | $ | 1.09 | $ | (0.93 | ) | |||||||||||||||||||||||||||||||||
Weighted average common shares outstanding—diluted | 35,380,529 | 34,966,600 | 35,126,890 | 34,509,261 | 34,487,808 | 34,060,228 | 32,789,871 | |||||||||||||||||||||||||||||||||||||||||
Earnings per share available to common shareholders–basic | $ | 2.58 | $ | 2.03 | $ | 1.69 | $ | 1.12 | $ | 1.11 | ||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding–basic | 37,015,468 | 34,723,335 | 34,200,770 | 33,899,667 | 33,420,015 | |||||||||||||||||||||||||||||||||||||||||||
Earnings per share available to common shareholders–diluted | $ | 2.52 | $ | 2.01 | $ | 1.67 | $ | 1.10 | $ | 1.09 | ||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding–diluted | 37,973,788 | 35,126,890 | 34,509,261 | 34,487,808 | 34,060,228 | |||||||||||||||||||||||||||||||||||||||||||
Common dividends per share | $ | 0.12 | $ | 0.08 | $ | 0.32 | $ | 0.08 | — | — | — | $ | 0.48 | $ | 0.32 | 0.08 | — | — | ||||||||||||||||||||||||||||||
Book value per common share | $ | 22.98 | $ | 20.88 | $ | 22.45 | $ | 20.55 | $ | 19.57 | $ | 18.56 | $ | 17.22 | $ | 28.25 | $ | 22.45 | $ | 20.55 | $ | 19.57 | $ | 18.56 | ||||||||||||||||||||||||
Tangible book value per common share | $ | 15.88 | $ | 13.93 | $ | 15.62 | $ | 13.52 | $ | 12.39 | $ | 11.33 | $ | 9.80 | $ | 17.46 | $ | 15.62 | $ | 13.52 | $ | 12.39 | $ | 11.33 | ||||||||||||||||||||||||
Common shares outstanding at end of period | 35,864,667 | 35,567,268 | 35,732,483 | 35,221,941 | 34,696,597 | 34,354,960 | 33,870,380 | 40,906,064 | 35,732,483 | 35,221,941 | 34,696,597 | 34,354,960 | ||||||||||||||||||||||||||||||||||||
Performance Ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||
Return on average assets | 1.36 | % | 1.24 | % | 1.11 | % | 0.78 | % | 0.77 | % | ||||||||||||||||||||||||||||||||||||||
Return on average stockholders’ equity | 10.06 | % | 9.19 | % | 8.22 | % | 5.46 | % | 5.27 | % | ||||||||||||||||||||||||||||||||||||||
Net interest margin (1) | 3.72 | % | 3.75 | % | 3.77 | % | 3.77 | % | 3.55 | % | ||||||||||||||||||||||||||||||||||||||
Net interest spread (2) | 3.55 | % | 3.65 | % | 3.65 | % | 3.61 | % | 3.33 | % | ||||||||||||||||||||||||||||||||||||||
Noninterest income to average assets | 1.23 | % | 0.92 | % | 0.90 | % | 0.89 | % | 0.78 | % | ||||||||||||||||||||||||||||||||||||||
Noninterest expense to average assets | 2.42 | % | 2.39 | % | 2.48 | % | 2.83 | % | 2.88 | % | ||||||||||||||||||||||||||||||||||||||
Efficiency ratio (3) | 52.88 | % | 55.50 | % | 57.96 | % | 66.99 | % | 73.45 | % | ||||||||||||||||||||||||||||||||||||||
Average loan to average deposit ratio | 96.39 | % | 93.15 | % | 93.46 | % | 92.78 | % | 86.76 | % | ||||||||||||||||||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 142.77 | % | 142.64 | % | 137.78 | % | 131.44 | % | 125.84 | % | ||||||||||||||||||||||||||||||||||||||
Average equity to average total assets ratio | 13.47 | % | 13.46 | % | 13.47 | % | 14.30 | % | 14.55 | % | ||||||||||||||||||||||||||||||||||||||
Annualized dividend payout ratio | 18.97 | % | 16.67 | % | 20.38 | % | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||||
Asset Quality Ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses to nonaccrual loans | 222.90 | % | 403.20 | % | 373.80 | % | 304.20 | % | 154.60 | % | ||||||||||||||||||||||||||||||||||||||
Allowance for loan losses to total loans | 1.00 | % | 1.47 | % | 1.64 | % | 1.87 | % | 2.25 | % | ||||||||||||||||||||||||||||||||||||||
Nonperforming assets to total assets | 0.42 | % | 0.46 | % | 0.60 | % | 0.82 | % | 1.80 | % | ||||||||||||||||||||||||||||||||||||||
Nonperforming assets to total loans and other real estate | 0.55 | % | 0.61 | % | 0.80 | % | 1.11 | % | 2.66 | % | ||||||||||||||||||||||||||||||||||||||
Net loan charge-offs to average loans | 0.21 | % | 0.10 | % | 0.24 | % | 0.29 | % | 0.94 | % | ||||||||||||||||||||||||||||||||||||||
(Dollars in thousands, except per share | As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | ||||||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Performance Ratios: | ||||||||||||||||||||||||||||
Return on average assets | 1.45 | % | 1.20 | % | 1.24 | % | 1.11 | % | 0.78 | % | 0.77 | % | (0.61 | %) | ||||||||||||||
Return on average stockholders’ equity | 10.86 | % | 8.96 | % | 9.19 | % | 8.22 | % | 5.46 | % | 5.27 | % | (4.37 | %) | ||||||||||||||
Net interest margin (1) | 3.78 | % | 3.76 | % | 3.75 | % | 3.77 | % | 3.77 | % | 3.55 | % | 3.25 | % | ||||||||||||||
Net interest spread (2) | 3.67 | % | 3.66 | % | 3.65 | % | 3.65 | % | 3.61 | % | 3.33 | % | 2.99 | % | ||||||||||||||
Noninterest income to average assets | 1.23 | % | 0.94 | % | 0.92 | % | 0.90 | % | 0.89 | % | 0.78 | % | 0.72 | % | ||||||||||||||
Noninterest expense to average assets | 2.45 | % | 2.47 | % | 2.39 | % | 2.48 | % | 2.83 | % | 2.88 | % | 2.93 | % | ||||||||||||||
Efficiency ratio (3) | 52.79 | % | 57.38 | % | 55.50 | % | 57.96 | % | 66.99 | % | 73.45 | % | 81.29 | % | ||||||||||||||
Average loan to average deposit ratio | 96.52 | % | 91.59 | % | 93.15 | % | 93.46 | % | 92.78 | % | 86.76 | % | 87.64 | % | ||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 142.14 | % | 138.56 | % | 142.64 | % | 137.78 | % | 131.44 | % | 125.84 | % | 120.27 | % | ||||||||||||||
Average equity to average total assets | 13.37 | % | 13.43 | % | 13.46 | % | 13.47 | % | 14.30 | % | 14.55 | % | 13.90 | % | ||||||||||||||
Dividend payout ratio (4) | 22.22 | % | 19.16 | % | 16.67 | % | 20.38 | % | — | — | — | |||||||||||||||||
Asset Quality Ratios: | ||||||||||||||||||||||||||||
Allowance for loan losses to nonaccrual loans | 391.61 | % | 432.68 | % | 403.20 | % | 373.80 | % | 304.20 | % | 154.60 | % | 102.10 | % | ||||||||||||||
Allowance for loan losses to total loans | 1.43 | % | 1.61 | % | 1.47 | % | 1.64 | % | 1.87 | % | 2.25 | % | 2.57 | % | ||||||||||||||
Nonperforming assets to total assets | 0.40 | % | 0.55 | % | 0.46 | % | 0.60 | % | 0.82 | % | 1.80 | % | 2.86 | % | ||||||||||||||
Nonperforming assets to total loans and other real estate | 0.54 | % | 0.73 | % | 0.61 | % | 0.80 | % | 1.11 | % | 2.66 | % | 4.29 | % | ||||||||||||||
Net loan charge-offs to average loans (5) | 0.13 | % | 0.09 | % | 0.10 | % | 0.24 | % | 0.29 | % | 0.94 | % | 1.96 | % | ||||||||||||||
Capital Ratios (Pinnacle): | ||||||||||||||||||||||||||||
Leverage (6) | 10.48 | % | 10.96 | % | 11.29 | % | 10.93 | % | 10.57 | % | 11.37 | % | 10.70 | % | ||||||||||||||
Tier 1 common equity | 9.51 | % | 10.51 | % | 10.09 | % | 10.08 | % | 9.88 | % | 9.90 | % | 11.58 | % | ||||||||||||||
Tier 1 risk-based capital | 10.96 | % | 12.20 | % | 12.10 | % | 11.76 | % | 11.77 | % | 13.84 | % | 13.78 | % | ||||||||||||||
Total risk-based capital | 12.18 | % | 13.45 | % | 13.35 | % | 13.01 | % | 13.02 | % | 15.34 | % | 15.37 | % | ||||||||||||||
| (in thousands, except per share data) | 2015(1)(2) | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Capital Ratios (Pinnacle Financial): | ||||||||||||||||||||
Common equity Tier I risk-based capital | 8.61 | % | 10.10 | % | — | — | — | |||||||||||||
Leverage (4) | 9.37 | % | 11.30 | % | 10.90 | % | 10.60 | % | 11.40 | % | ||||||||||
Tier 1 risk-based capital | 9.63 | % | 12.10 | % | 11.80 | % | 11.80 | % | 13.80 | % | ||||||||||
Total risk-based capital | 11.24 | % | 13.40 | % | 13.00 | % | 13.00 | % | 15.30 | % | ||||||||||
| (1) | Net interest margin is the result of net interest income for the period divided by average interest earning assets. |
| (2) | Net interest spread is the result of the difference between the interest earned on interest earning assets less the interest paid on interest bearing liabilities. |
| (3) | Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income. |
| (4) |
| Leverage ratio is computed by dividing Tier 1 capital by average total assets for the fourth quarter of each year for the fiscal years ended December 31, 2015, 2014, 2013, 2012 |
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF
OF MAGNA BANKAVENUE FINANCIAL HOLDINGS, INC.
The selected historical consolidated financial and other data of Magna presented below, as of and for the three months ended March 31, 2015 and 2014, is unaudited. The selected historical consolidated financial and other data of MagnaAvenue presented below, as of and for each of the years in the five-year period ended December 31, 2014,2015, is derived from Magna’sAvenue’s audited historical financial statements. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and Avenue’s audited consolidated financial statements and the notes thereto incorporated by reference in this proxy statement/prospectus. Results for past periods are not necessarily indicative of results that may be expected for any future period.
| As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||
| (Dollars in thousands, except per share data) | 2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Total assets | $ | 589,201 | $ | 546,942 | $ | 564,617 | $ | 527,537 | $ | 493,530 | $ | 440,629 | $ | 425,609 | ||||||||||||||
Loans, net of unearned income | 451,377 | 428,004 | 441,988 | 416,142 | 359,996 | 325,255 | 323,020 | |||||||||||||||||||||
Allowance for loan losses | 4,695 | 5,175 | 5,172 | 5,086 | 5,576 | 5,853 | 9,630 | |||||||||||||||||||||
Total securities | 65,011 | 58,889 | 63,172 | 58,870 | 64,291 | 42,182 | 39,920 | |||||||||||||||||||||
Goodwill, core deposit and other intangibles | — | — | — | — | — | — | — | |||||||||||||||||||||
Deposits and securities sold under agreements to repurchase | 451,792 | 398,494 | 434,247 | 388,617 | 359,753 | 329,759 | 320,650 | |||||||||||||||||||||
Advances from FHLB | 60,200 | 76,600 | 55,000 | 45,000 | 45,000 | 45,000 | 49,000 | |||||||||||||||||||||
Subordinated debt and other borrowings | — | — | — | — | — | — | — | |||||||||||||||||||||
Stockholders’ equity | 70,080 | 66,204 | 68,822 | 65,561 | 62,701 | 61,209 | 51,749 | |||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Interest income | $ | 5,371 | $ | 5,222 | $ | 21,288 | $ | 20,207 | $ | 19,127 | $ | 18,740 | $ | 21,018 | ||||||||||||||
Interest expense | 858 | 866 | 3,569 | 3,607 | 3,989 | 4,602 | 6,948 | |||||||||||||||||||||
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Net interest income | 4,513 | 4,356 | 17,719 | 16,600 | 15,138 | 14,138 | 14,070 | |||||||||||||||||||||
Provision for loan losses | (312 | ) | 147 | 237 | 500 | 160 | 386 | 5,482 | ||||||||||||||||||||
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Net interest income after provision for loan losses | 4,825 | 4,209 | 17,482 | 16,100 | 14,978 | 13,752 | 8,588 | |||||||||||||||||||||
Noninterest income | 3,191 | 2,590 | 13,562 | 15,570 | 18,143 | 12,745 | 13,033 | |||||||||||||||||||||
Noninterest expense | 5,756 | 5,095 | 23,002 | 24,134 | 28,213 | 22,478 | 24,237 | |||||||||||||||||||||
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Income (loss) before income taxes | 2,260 | 1,704 | 8,042 | 7,536 | 4,908 | 4,019 | (2,616 | ) | ||||||||||||||||||||
Income tax expense (benefit) | 847 | 642 | 2,935 | 2,790 | 1,838 | 1,540 | (975 | ) | ||||||||||||||||||||
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Net income (loss) | 1,413 | 1,062 | 5,107 | 4,746 | 3,070 | 2,479 | (1,641 | ) | ||||||||||||||||||||
Preferred dividends and accretion on preferred stock warrants | 46 | 46 | 184 | 308 | 267 | 815 | 675 | |||||||||||||||||||||
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Net income (loss) available to common stockholders | $ | 1,367 | $ | 1,016 | $ | 4,923 | $ | 4,438 | $ | 2,803 | $ | 1,664 | $ | (2,316 | ) | |||||||||||||
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Per Share Data: | ||||||||||||||||||||||||||||
Earnings (loss) per share available to common stockholders-basic | $ | 0.26 | $ | 0.19 | $ | 0.93 | $ | 0.83 | $ | 0.51 | $ | 0.30 | $ | (0.42 | ) | |||||||||||||
Weighted average common shares outstanding-basic | 5,244,154 | 5,339,154 | 5,311,716 | 5,372,825 | 5,503,026 | 5,503,026 | 5,488,040 | |||||||||||||||||||||
Earnings (loss) per share available to common stockholders-diluted | $ | 0.26 | $ | 0.19 | $ | 0.93 | $ | 0.83 | $ | 0.51 | $ | 0.30 | $ | (0.42 | ) | |||||||||||||
Weighted average common shares outstanding-diluted | 5,244,154 | 5,339,154 | 5,311,716 | 5,372,825 | 5,503,026 | 5,503,026 | 5,488,040 | |||||||||||||||||||||
Common equivalent dividends per share | $ | 0.07 | — | $ | 0.28 | — | $ | 0.43 | — | — | ||||||||||||||||||
Book value per common share | $ | 9.86 | $ | 8.96 | $ | 9.62 | $ | 8.84 | $ | 8.06 | $ | 7.79 | $ | 7.45 | ||||||||||||||
Tangible book value per common share | $ | 9.86 | $ | 8.96 | $ | 9.62 | $ | 8.84 | $ | 8.06 | $ | 7.79 | $ | 7.45 | ||||||||||||||
Common equivalent shares outstanding at end of period | 5,244,154 | 5,339,154 | 5,244,154 | 5,339,154 | 5,503,026 | 5,503,026 | 5,503,026 | |||||||||||||||||||||
(Dollars in Thousands, Except Per Share and Employee Data) | At or For the Year Ended December 31, | |||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
SELECTED INCOME STATEMENT DATA | ||||||||||||||||||||
Interest income | $ | 38,321 | 33,024 | 27,061 | 22,888 | 21,927 | ||||||||||||||
Interest expense | 5,642 | 4,067 | 3,865 | 5,196 | 5,788 | |||||||||||||||
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Net interest income | 32,679 | 28,957 | 23,196 | 17,692 | 16,139 | |||||||||||||||
Provision for loan losses | 2,029 | 1,643 | 1,593 | 1,623 | 1,102 | |||||||||||||||
Net interest income after provision for loan losses | 30,650 | 27,314 | 21,603 | 16,069 | 15,037 | |||||||||||||||
Non-interest income | 6,579 | 4,665 | 5,055 | 5,793 | 2,984 | |||||||||||||||
Non-interest expense | 27,143 | 23,862 | 20,309 | 18,199 | 15,701 | |||||||||||||||
Income tax expense (benefit) | 3,132 | 2,525 | 2,400 | 988 | (11,519 | ) | ||||||||||||||
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Net income | 6,954 | 5,592 | 3,949 | 2,675 | 13,839 | |||||||||||||||
Dividends on preferred shares | (32 | ) | (190 | ) | (190 | ) | (358 | ) | (396 | ) | ||||||||||
Accretion of net preferred stock discount | — | — | — | — | (234 | ) | ||||||||||||||
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Net income available to common stockholders | $ | 6,922 | 5,402 | 3,759 | 2,317 | 13,209 | ||||||||||||||
PER COMMON SHARE DATA | ||||||||||||||||||||
Basic earnings per share | $ | 0.70 | 0.64 | 0.45 | 0.27 | 1.56 | ||||||||||||||
Diluted earnings per share | 0.69 | 0.63 | 0.45 | 0.27 | 1.56 | |||||||||||||||
Book value per common share | 9.16 | 8.37 | 7.36 | 7.78 | 7.37 | |||||||||||||||
Tangible book value per common share (1) | 8.87 | 8.03 | 7.02 | 7.43 | 7.02 | |||||||||||||||
Basic weighted average common shares | 9,891,993 | 8,485,780 | 8,424,598 | 8,443,393 | 8,444,063 | |||||||||||||||
Diluted weighted average common shares | 10,026,947 | 8,539,121 | 8,424,598 | 8,443,393 | 8,444,063 | |||||||||||||||
SELECTED BALANCE SHEET DATA | ||||||||||||||||||||
Total assets | $ | 1,165,454 | 1,001,721 | 893,144 | 726,484 | 629,947 | ||||||||||||||
Total loans, net of deferred fees | 845,821 | 693,908 | 573,430 | 455,980 | 395,812 | |||||||||||||||
Allowance for loan losses | (10,061 | ) | (8,518 | ) | (7,204 | ) | (6,695 | ) | (6,550 | ) | ||||||||||
Securities available for sale | 209,574 | 220,462 | 257,797 | 194,090 | 166,961 | |||||||||||||||
Goodwill and other intangible assets | 2,966 | 2,966 | 2,966 | 2,966 | 2,966 | |||||||||||||||
Deposits | 969,603 | 803,172 | 705,794 | 590,840 | 482,402 | |||||||||||||||
Advances from FHLB/FRB | 68,000 | 70,300 | 79,250 | 39,000 | 44,000 | |||||||||||||||
Preferred stock | — | 18,950 | 18,950 | 18,950 | 18,950 | |||||||||||||||
Tangible common stockholders’ equity (1) | 91,448 | 69,312 | 60,135 | 62,846 | 59,254 | |||||||||||||||
Total stockholders’ equity | 94,414 | 91,228 | 82,051 | 84,762 | 81,170 | |||||||||||||||
Average total assets | 1,078,765 | 946,086 | 802,578 | 670,272 | 587,200 | |||||||||||||||
Average common stockholders’ equity | 89,146 | 68,751 | 65,189 | 64,431 | 49,084 | |||||||||||||||
Full time employees | 145 | 134 | 120 | 109 | 94 | |||||||||||||||
SELECTED PERFORMANCE RATIOS | ||||||||||||||||||||
Return on average assets (2) | 0.64 | % | 0.57 | % | 0.47 | % | 0.35 | % | 2.25 | % | ||||||||||
Return on average common stockholders’ equity (2) | 7.76 | % | 7.86 | % | 5.77 | % | 3.59 | % | 26.91 | % | ||||||||||
Net interest margin (fully taxable equivalent) | 3.26 | % | 3.30 | % | 3.17 | % | 2.97 | % | 3.02 | % | ||||||||||
Efficiency ratio (1) (3) | 69.60 | % | 71.00 | % | 73.24 | % | 81.22 | % | 83.12 | % | ||||||||||
| As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||
| (Dollars in thousands, except per share data) | 2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Performance Ratios: | ||||||||||||||||||||||||||||
Return on average assets | 0.95 | % | 0.77 | % | 0.89 | % | 0.88 | % | 0.60 | % | 0.39 | % | -0.51 | % | ||||||||||||||
Return on average stockholders’ equity | 8.07 | % | 6.42 | % | 7.42 | % | 7.24 | % | 4.90 | % | 4.05 | % | -3.17 | % | ||||||||||||||
Return on average common stockholders’ equity | 10.70 | % | 8.48 | % | 9.93 | % | 9.59 | % | 6.32 | % | 3.91 | % | -5.38 | % | ||||||||||||||
Net interest margin (1) | 3.31 | % | 3.48 | % | 3.41 | % | 3.49 | % | 3.47 | % | 3.56 | % | 3.31 | % | ||||||||||||||
Net interest spread (2) | 3.00 | % | 3.33 | % | 3.24 | % | 3.30 | % | 3.24 | % | 3.32 | % | 3.00 | % | ||||||||||||||
Noninterest income to average assets | 2.23 | % | 1.96 | % | 2.46 | % | 3.09 | % | 3.86 | % | 2.96 | % | 2.87 | % | ||||||||||||||
Noninterest expense to average assets | 4.01 | % | 3.85 | % | 4.18 | % | 4.79 | % | 6.01 | % | 5.23 | % | 5.34 | % | ||||||||||||||
Efficiency ratio (3) | 61.64 | % | 59.49 | % | 65.34 | % | 73.80 | % | 93.68 | % | 80.60 | % | 106.97 | % | ||||||||||||||
Average loan to average deposit ratio | 101.76 | % | 106.83 | % | 102.90 | % | 100.47 | % | 98.37 | % | 98.99 | % | 100.45 | % | ||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 125.04 | % | 122.58 | % | 124.90 | % | 124.15 | % | 123.44 | % | 119.84 | % | 117.23 | % | ||||||||||||||
Average equity to average total assets ratio | 12.11 | % | 12.51 | % | 12.33 | % | 12.82 | % | 13.35 | % | 12.89 | % | 11.82 | % | ||||||||||||||
Average common equity to average total assets ratio | 8.91 | % | 9.05 | % | 8.99 | % | 9.18 | % | 9.44 | % | 9.89 | % | 9.47 | % | ||||||||||||||
Dividend payout ratio | 27.03 | % | 0.00 | % | 30.44 | % | 0.00 | % | 83.53 | % | 0.00 | % | 0.00 | % | ||||||||||||||
Asset Quality Ratios: | ||||||||||||||||||||||||||||
Allowance for loan losses to nonaccrual loans | 266.46 | % | 177.47 | % | 186.58 | % | 138.58 | % | 49.67 | % | 240.96 | % | 41.58 | % | ||||||||||||||
Allowance for loan losses to total loans | 1.04 | % | 1.21 | % | 1.17 | % | 1.22 | % | 1.55 | % | 1.80 | % | 2.98 | % | ||||||||||||||
Nonperforming assets to total assets | 0.89 | % | 1.31 | % | 1.13 | % | 1.64 | % | 3.04 | % | 2.29 | % | 6.26 | % | ||||||||||||||
Nonperforming assets to total loans and other real estate | 1.15 | % | 1.66 | % | 1.43 | % | 2.06 | % | 4.13 | % | 3.05 | % | 8.15 | % | ||||||||||||||
Net loan charge-offs to average loans (4) | 0.15 | % | 0.02 | % | 0.04 | % | 0.26 | % | 0.13 | % | 1.31 | % | 0.31 | % | ||||||||||||||
Capital Ratios (Magna): | ||||||||||||||||||||||||||||
Leverage (5) | 12.25 | % | 12.19 | % | 12.16 | % | 12.51 | % | 12.64 | % | 13.98 | % | 12.20 | % | ||||||||||||||
Tier 1 common equity | 10.36 | % | 10.69 | % | 10.91 | % | 11.01 | % | 10.98 | % | 12.12 | % | 11.65 | % | ||||||||||||||
Tier 1 risk-based capital | 14.16 | % | 14.74 | % | 14.88 | % | 15.25 | % | 15.59 | % | 17.24 | % | 14.68 | % | ||||||||||||||
Total risk-based capital | 15.11 | % | 15.88 | % | 16.00 | % | 16.42 | % | 16.84 | % | 18.49 | % | 15.93 | % | ||||||||||||||
(Dollars in Thousands, Except Per Share and Employee Data) | At or For the Year Ended December 31, | |||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
SELECTED ASSET QUALITY INFORMATION | ||||||||||||||||||||
Nonaccruing loans | $ | 550 | $ | 695 | $ | 591 | $ | 1,880 | $ | 2,624 | ||||||||||
Past due loans over 90 days and still accruing interest | — | — | — | — | — | |||||||||||||||
Net loans charge-offs | $ | 486 | $ | 329 | $ | 1,084 | $ | 1,478 | $ | 203 | ||||||||||
Nonaccruing loans to total loans | 0.07 | % | 0.10 | % | 0.10 | % | 0.41 | % | 0.66 | % | ||||||||||
Nonaccruing loans and loans past due 90 days and still | 0.07 | % | 0.10 | % | 0.10 | % | 0.41 | % | 0.66 | % | ||||||||||
Non-performing assets to total assets (4) | 0.09 | % | 0.41 | % | 0.45 | % | 0.66 | % | 1.06 | % | ||||||||||
Non-performing assets to loans and OREO | 0.13 | % | 0.58 | % | 0.70 | % | 1.05 | % | 1.67 | % | ||||||||||
Allowance for loan losses to total loans | 1.19 | % | 1.23 | % | 1.26 | % | 1.47 | % | 1.65 | % | ||||||||||
Allowance for loan losses to nonaccruing loans | $ | 1,829.27 | $ | 1,224.87 | $ | 1,219.43 | $ | 356.12 | $ | 249.58 | ||||||||||
Net loan charge-offs to average loans | 0.06 | % | 0.05 | % | 0.22 | % | 0.36 | % | 0.05 | % | ||||||||||
CAPITAL RATIOS (Consolidated) | ||||||||||||||||||||
Tier 1 Leverage Ratio | 8.17 | % | 9.14 | % | 9.04 | % | 10.87 | % | 11.70 | % | ||||||||||
Tier 1 Common Capital Ratio | 9.28 | % | 10.44 | % | 8.57 | % | 10.08 | % | 10.87 | % | ||||||||||
Tier 1 Risk-Based Capital Ratio | 9.28 | % | 10.53 | % | 11.35 | % | 13.52 | % | 14.95 | % | ||||||||||
Total Risk-Based Capital Ratio | 12.25 | % | 13.91 | % | 12.40 | % | 14.73 | % | 16.20 | % | ||||||||||
Tangible common stockholders’ equity to tangible assets (1) | 7.87 | % | 6.94 | % | 6.76 | % | 8.69 | % | 9.45 | % | ||||||||||
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SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF CAPITALMARK BANK & TRUSTU.S. GAAP Reconciliation and Management Explanation of Non-U.S. GAAP Financial Measures
The selected historicalinformation set forth above contains certain financial information determined by methods other than in accordance with U.S. GAAP. These non-U.S. GAAP financial measures are “tangible book value per common share,” “tangible common stockholders’ equity,” “efficiency ratio,” and other data“tangible common stockholders’ equity to tangible assets.” Although Avenue believes these non-U.S. GAAP financial measures provide a greater understanding of CapitalMark presented below, as of and for the three months ended March 31, 2015 and 2014, is unaudited. The selected historical financial and other data of CapitalMark presented below, as of and for each of the years in the five-year period ended December 31, 2014, is derived from CapitalMark’s audited historical financial statements. Results for past periodsAvenue’s business, these measures are not necessarily indicative of resultscomparable to similar measures that may be expected for any future period.presented by other companies.
“Tangible book value per common share” is defined as tangible common stockholders’ equity divided by total common shares outstanding. Avenue believes that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing book value while not increasing Avenue’s tangible book value.
“Tangible common stockholders’ equity” is defined as common stockholders’ equity reduced by goodwill. Avenue believes that this measure is important to many investors in the marketplace who are interested in changes from period to period in common stockholders’ equity exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing both common stockholders’ equity and assets while not increasing Avenue’s tangible common stockholders’ equity or tangible assets.
“Efficiency ratio” is defined as non-interest expenses divided by Avenue’s operating revenue, which is equal to the sum of net interest income plus non-interest income excluding gains and losses on sales of loans and
(Dollars in thousands, except per share data) | As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | ||||||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||
Total assets | $ | 968,268 | $ | 883,151 | $ | 930,377 | $ | 828,163 | $ | 780,139 | $ | 661,427 | $ | 464,038 | ||||||||||||||
Cash and cash equivalents | 21,113 | 30,854 | 14,416 | 27,653 | 49,949 | 14,594 | 8,034 | |||||||||||||||||||||
Loans receivable | 765,481 | 620,080 | 715,575 | 582,555 | 459,083 | 362,567 | 328,446 | |||||||||||||||||||||
Investment securities | 156,005 | 208,650 | 170,928 | 192,175 | 263,031 | 274,766 | 118,909 | |||||||||||||||||||||
Goodwill and other intangibles | — | — | — | — | — | — | — | |||||||||||||||||||||
Deposit accounts | 840,426 | 751,000 | 780,500 | 684,751 | 672,541 | 572,967 | 405,961 | |||||||||||||||||||||
Borrowings | 26,631 | 42,127 | 46,128 | 53,366 | 15,000 | 15,000 | 8,000 | |||||||||||||||||||||
Shareholders’ equity | 98,526 | 88,076 | 95,247 | 85,182 | 85,314 | 70,267 | 46,192 | |||||||||||||||||||||
Common book value per share | 10.93 | 9.51 | 10.49 | 9.12 | 9.19 | 7.68 | 7.02 | |||||||||||||||||||||
Tangible common book value per share | 10.93 | 9.51 | 10.49 | 9.12 | 9.19 | 7.68 | 7.02 | |||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||||||||||
Interest income | $ | 9,461 | $ | 8,520 | $ | 35,610 | $ | 31,863 | $ | 29,152 | $ | 24,006 | $ | 21,020 | ||||||||||||||
Interest expense | 936 | 929 | 3,639 | 3,655 | 4,730 | 4,602 | 5,041 | |||||||||||||||||||||
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Net interest income | 8,525 | 7,591 | 31,971 | 28,208 | 24,422 | 19,404 | 15,979 | |||||||||||||||||||||
Provision for loan losses | 250 | 650 | 3,075 | 3,525 | 2,275 | 2,510 | 2,020 | |||||||||||||||||||||
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Net interest income after provision for loan losses | 8,275 | 6,941 | 28,896 | 24,683 | 22,147 | 16,894 | 13,959 | |||||||||||||||||||||
Non-interest income | 917 | 686 | 3,197 | 4,402 | 5,586 | 1,921 | 1,815 | |||||||||||||||||||||
Non-interest expense | 5,611 | 5,115 | 20,757 | 20,394 | 17,406 | 14,275 | 12,674 | |||||||||||||||||||||
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Income (loss) before taxes | 3,581 | 2,565 | 11,336 | 8,691 | 10,327 | 4,540 | 3,100 | |||||||||||||||||||||
Income tax expense (benefit) | 1,275 | 878 | 3,970 | 2,881 | 3,696 | 1,287 | (31,500 | ) | ||||||||||||||||||||
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Net income | $ | 2,306 | $ | 1,687 | $ | 7,367 | $ | 5,811 | $ | 6,630 | $ | 3,253 | $ | 3,132 | ||||||||||||||
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Earnings per common share—Basic | $ | 0.31 | $ | 0.22 | $ | 0.98 | $ | 0.77 | $ | 0.94 | $ | 0.46 | $ | 0.48 | ||||||||||||||
Earnings per common share—Diluted | 0.29 | 0.21 | 0.92 | 0.72 | 0.87 | 0.44 | 0.46 | |||||||||||||||||||||
Cash dividends per common share | — | — | — | — | 0.05 | — | — | |||||||||||||||||||||
Key Ratios | ||||||||||||||||||||||||||||
Return on average assets | 1.00 | % | 0.77 | % | 0.83 | % | 0.73 | % | 0.91 | % | 0.65 | % | 0.75 | % | ||||||||||||||
Return on average common equity | 9.52 | % | 7.79 | % | 8.15 | % | 6.88 | % | 8.66 | % | 5.99 | % | 7.00 | % | ||||||||||||||
Return on average tangible equity | 9.52 | % | 7.79 | % | 8.15 | % | 6.88 | % | 8.66 | % | 5.99 | % | 7.00 | % | ||||||||||||||
Equity to assets at end of period | 10.18 | % | 9.97 | % | 10.24 | % | 10.29 | % | 10.94 | % | 10.68 | % | 9.95 | % | ||||||||||||||
Earning assets to interest bearing liabilities | 131.74 | % | 126.32 | % | 130.40 | % | 126.21 | % | 125.51 | % | 120.95 | % | 119.37 | % | ||||||||||||||
Interest rate spread (1) | 3.71 | % | 3.50 | % | 3.64 | % | 3.57 | % | 3.28 | % | 3.75 | % | 3.90 | % | ||||||||||||||
Net interest margin (2) | 3.82 | % | 3.72 | % | 3.76 | % | 3.70 | % | 3.44 | % | 3.91 | % | 4.09 | % | ||||||||||||||
Non-interest expense to average assets | 2.40 | % | 2.38 | % | 2.34 | % | 2.55 | % | 2.30 | % | 2.64 | % | 2.86 | % | ||||||||||||||
Efficiency ratio (3) | 59.02 | % | 61.80 | % | 58.36 | % | 63.37 | % | 62.44 | % | 64.24 | % | 68.86 | % | ||||||||||||||
Common stock dividend payout ratio | — | — | — | — | 5.11 | % | — | — | ||||||||||||||||||||
Asset Quality Data | ||||||||||||||||||||||||||||
Non-performing assets to total assets at end of period | 1.02 | % | 1.67 | % | 1.05 | % | 1.70 | % | 1.44 | % | 1.91 | % | 3.74 | % | ||||||||||||||
Allowance for credit losses to non-performing loans | 114.41 | % | 54.79 | % | 114.52 | % | 51.61 | % | 58.87 | % | 45.74 | % | 44.23 | % | ||||||||||||||
Allowance for credit losses to total loans at end of period | 0.96 | % | 1.26 | % | 1.00 | % | 1.22 | % | 1.34 | % | 1.25 | % | 1.83 | % | ||||||||||||||
securities. In Avenue’s judgment, the adjustments made to operating revenue allow investors and analysts to better assess Avenue’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain non-recurring items and other discrete items that are unrelated to Avenue’s core business.
“Tangible common stockholders’ equity to tangible assets” is defined as the ratio of common stockholders’ equity reduced by goodwill divided by total assets reduced by goodwill. Avenue believe that this measure is important to many investors in the marketplace who are interested in relative changes from period to period in common stockholders’ equity and total assets, each exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing both common stockholders’ equity and assets while not increasing Avenue’s tangible common equity or tangible assets.
The information provided below reconciles each non-U.S. GAAP measure to its most comparable U.S. GAAP measure.
| At and For the Year Ended December 31, | ||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Data) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||||
Tangible Common Stockholders’ Equity and Tangible Common Stockholders’ Equity/Tangible Assets | ||||||||||||||||||||
Common equity | $ | 94,414 | $ | 72,278 | $ | 63,101 | $ | 65,812 | $ | 62,220 | ||||||||||
Less: intangible assets | (2,966 | ) | (2,966 | ) | (2,966 | ) | (2,966 | ) | (2,966 | ) | ||||||||||
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Tangible common stockholders’ equity | 91,448 | 69,312 | 60,135 | 62,846 | 59,254 | |||||||||||||||
Total assets | 1,165,454 | 1,001,721 | 893,144 | 726,484 | 629,947 | |||||||||||||||
Less: Intangible assets | (2,966 | ) | (2,966 | ) | (2,966 | ) | (2,966 | ) | (2,966 | ) | ||||||||||
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Tangible assets | 1,162,488 | 998,755 | 890,178 | 723,518 | 626,981 | |||||||||||||||
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Tangible Common Stockholders’ Equity/Tangible Assets | 7.87 | % | 6.94 | % | 6.76 | % | 8.69 | % | 9.45 | % | ||||||||||
Tangible Book Value per Common Share | ||||||||||||||||||||
Book Value Per Common Share | $ | 9.16 | $ | 8.37 | $ | 7.36 | $ | 7.78 | $ | 7.37 | ||||||||||
Less: Effects of intangible assets | (0.29 | ) | (0.34 | ) | (0.35 | ) | (0.35 | ) | (0.35 | ) | ||||||||||
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Tangible Book Value per Common Share | 8.87 | 8.03 | 7.02 | 7.43 | 7.02 | |||||||||||||||
Efficiency Ratio | ||||||||||||||||||||
Non-interest expense (numerator) | $ | 27,143 | $ | 23,862 | $ | 20,309 | $ | 18,199 | $ | 15,701 | ||||||||||
Net interest income | 32,679 | 28,957 | 23,196 | 17,692 | 16,139 | |||||||||||||||
Non-interest income | 6,579 | 4,665 | 5,055 | 5,793 | 2,984 | |||||||||||||||
Less: gains on sales of securities | (258 | ) | (12 | ) | (522 | ) | (1,079 | ) | (233 | ) | ||||||||||
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Adjusted operating revenue (denominator) | 39,000 | 33,610 | 27,729 | 22,406 | 18,890 | |||||||||||||||
Efficiency Ratio | 69.60 | % | 71.00 | % | 73.24 | % | 81.22 | % | 83.12 | % | ||||||||||
(Dollars in thousands, except per share data) | As of and for the Three Months Ended March 31, | As of and for the Year Ended December 31, | ||||||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Capital Ratios | ||||||||||||||||||||||||||||
Tier 1 common equity | 8.75 | % | 10.35 | % | 9.53 | % | 10.72 | % | 12.12 | % | 11.89 | % | 12.89 | % | ||||||||||||||
Tier 1 leverage capital ratio (4) | 10.48 | % | 10.44 | % | 10.25 | % | 10.87 | % | 10.65 | % | 11.30 | % | 10.53 | % | ||||||||||||||
Tier 1 risk-based ratio | 10.75 | % | 12.98 | % | 11.78 | % | 13.51 | % | 15.57 | % | 16.07 | % | 12.89 | % | ||||||||||||||
Tier 1 risk-based capital ratio | 11.55 | % | 14.10 | % | 12.66 | % | 14.59 | % | 16.74 | % | 17.12 | % | 14.15 | % | ||||||||||||||
COMPARATIVE PER SHARE DATA (UNAUDITED)
The below presentation summarizes the unaudited per share information for Pinnacle Magna and CapitalMarkAvenue on a historical, pro forma, pro forma combined and equivalent pro forma basis. You should read this information in conjunction with the historical financial statements (and related notes) of each of Pinnacle or Avenue contained in the annual and quarterly reports and other documents Pinnacle and Avenue each has filed with the SEC that are incorporated herein by reference and the selected historical consolidated financial data of Pinnacle and Magna and the selected historical financial data of CapitalMarkAvenue in this proxy statement/prospectus. See “SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF PINNACLE” beginning on page 15, “SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF MAGNA BANK” beginning on page 17,12, “SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF CAPITALMARK BANK & TRUST”AVENUE FINANCIAL HOLDINGS, INC.” beginning on page 19,14, and “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94.
The pro forma, pro forma combined and pro forma equivalent per share information gives effect to the Magna merger and CapitalMark merger and the planned redemption of the preferred shares issued by each of Magna (the Series C Preferred Stock) and CapitalMark pursuant to the U.S. Treasury’s Small Business Lending Fund program as if the transactionstransaction had been effective as of the dates presented, in the case of the book value data, and as if the transactions had become effective on January 1, 2014,2015, in the case of the net income per share and dividends declared per share data.
In addition to Magna common stock and the Series C Preferred Stock, Magna also has issued and outstanding the Magna Series D Preferred Stock. The Magna Series D Preferred Stock is entitled to receive a 10% preferred premium on dividends paid by Magna on shares of Magna common stock. Immediately prior to the effective time of the Magna merger, the Magna Series D Preferred Stock will, pursuant to its terms, automatically convert into shares of Magna common stock. The per share information presented below with respect to Magna is presented on a common share equivalent basis as if all of Magna’s outstanding shares of Series D Preferred Stock had converted to Magna common stock as of January 1, 2014.
You should not rely on the pro forma information as necessarily indicative of historical results we would have experienced had we been combined or of future results we will have after the consummation of the Magna merger and the CapitalMark merger. In addition, you should not rely on the information for the three months ended March 31, 2015 as indicative of results for 2015. The pro forma information, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring and merger-related costs or other factors that may result as a consequence of the Magna merger and the CapitalMark merger and, accordingly, does not attempt to predict or suggest future results.
The information presented in the table below is based on the historical financial statements of each of Pinnacle Magna and CapitalMarkAvenue and should be read in conjunction with the historical financial information that Pinnacle hasand Avenue have presented in prior filings with the SEC. With respect to Pinnacle, seeSee “WHERE YOU CAN FIND MORE INFORMATION” on page 101.94.
| As of and for the Three Months Ended March 31, 2015 (1) | As of and for the Year Ended December 31, 2014 (1) | |||||||
Earnings Per Common Share Equivalent | ||||||||
Basic | ||||||||
Pinnacle historical | $ | 0.62 | $ | 2.03 | ||||
CapitalMark historical | 0.31 | 0.98 | ||||||
Pinnacle—CapitalMark pro forma (2) | 0.64 | 2.08 | ||||||
Equivalent pro forma of one share of CapitalMark common stock (3) | 0.32 | 1.04 | ||||||
Magna historical | 0.26 | 0.93 | ||||||
Pinnacle—Magna pro forma (2) | 0.64 | 2.10 | ||||||
Equivalent pro forma for one share of Magna common stock (3) | 0.22 | 0.71 | ||||||
Pro forma combined (4) | 0.65 | 2.15 | ||||||
Magna shareholder (2) | 0.22 | 0.72 | ||||||
Diluted | ||||||||
Pinnacle historical | $ | 0.62 | $ | 2.01 | ||||
CapitalMark historical | 0.31 | 0.98 | ||||||
Pinnacle—CapitalMark pro forma (2) | 0.63 | 2.06 | ||||||
Equivalent pro forma for one share of CapitalMark common stock (3) | 0.32 | 1.03 | ||||||
Magna historical | 0.26 | 0.93 | ||||||
Pinnacle—Magna pro forma (2) | 0.63 | 2.08 | ||||||
Equivalent pro forma for one share of Magna common stock (3) | 0.21 | 0.70 | ||||||
Pro forma combined (4) | 0.65 | 2.13 | ||||||
Magna shareholder (2) | 0.22 | 0.72 | ||||||
Cash Dividends Declared Per Common Share Equivalent | ||||||||
Pinnacle historical | $ | 0.12 | $ | 0.32 | ||||
CapitalMark historical | — | — | ||||||
Pinnacle—CapitalMark pro forma (2) | 0.12 | 0.32 | ||||||
Equivalent pro forma for one share of CapitalMark common stock (3) | 0.06 | 0.16 | ||||||
Magna historical | 0.07 | 0.28 | ||||||
Pinnacle—Magna pro forma (2) | 0.12 | 0.32 | ||||||
Equivalent pro forma for one share of Magna common stock (3) | 0.04 | 0.11 | ||||||
Pro forma combined (4) | 0.12 | 0.32 | ||||||
Magna shareholder (2) | 0.04 | 0.11 | ||||||
Book Value Per Common Share Equivalent | ||||||||
Pinnacle historical | $ | 22.98 | $ | 22.47 | ||||
CapitalMark historical | 10.88 | 10.43 | ||||||
Pinnacle—CapitalMark pro forma (2) | 25.40 | 24.94 | ||||||
Equivalent pro forma for one share of CapitalMark common stock (3) | 12.70 | 12.47 | ||||||
Magna historical | 9.86 | 9.62 | ||||||
Pinnacle—Magna pro forma (2) | 23.85 | 23.36 | ||||||
Equivalent pro forma for one share of Magna common stock (3) | 8.03 | 7.87 | ||||||
Pro forma combined (4) | 26.12 | 25.67 | ||||||
Magna shareholder (2) | 8.80 | 8.65 | ||||||
| As of and for the Year Ended December 31, 2015 (1) | ||||
Earnings Per Common Share | ||||
Basic | ||||
Pinnacle historical | $ | 2.58 | ||
Avenue historical | 0.70 | |||
Pinnacle—Avenue pro forma (2) | 2.59 | |||
Equivalent pro forma for one share of Avenue common stock (3) | 0.93 | |||
Diluted | ||||
Pinnacle historical | $ | 2.52 | ||
Avenue historical | 0.69 | |||
Pinnacle—Avenue pro forma (2) | 2.53 | |||
Equivalent pro forma for one share of Avenue common stock (3) | 0.91 | |||
Cash Dividends Declared Per Common Share | ||||
Pinnacle historical | $ | 0.48 | ||
Avenue historical | — | |||
Pinnacle—Avenue pro forma (2) | 0.48 | |||
Equivalent pro forma for one share of Avenue common stock (3) | 0.17 | |||
Book Value Per Common Share | ||||
Pinnacle historical | $ | 28.25 | ||
Avenue historical | 9.16 | |||
Pinnacle—Avenue pro forma (2) | 29.80 | |||
Equivalent pro forma for one share of Avenue common stock (3) | 10.73 | |||
| (1) | Pro forma amounts reflect the estimated purchase accounting adjustments to be recorded in connection with the |
| (2) | Amounts are calculated using |
| (3) | The equivalent pro forma information shows the effect of the |
COMPARATIVE MARKET PRICES AND DIVIDENDS
Pinnacle’s common stock is traded on the Nasdaq Global Select Market under the symbol “PNFP”. ThereAvenue’s common stock is no established public trading market for Magna common stock. Magna’s management believes that shares of Magna stock are traded from time to time through use ofon the brokerage services provided by Wunderlich Securities in Memphis, Tennessee, which in turn notifies Magna ofNasdaq Global Select Market under the price, number of shares and date on which shares are purchased and sold with the use of its services. Magna pays Wunderlich Securities a fee of $750 per month to provide these brokerage services.symbol “AVNU”.
The following table shows, for the periods indicated, the reported closing sale prices per share for Pinnacle common stock and Avenue common stock on (i) AprilJanuary 27, 2015,2016, the last trading day before the public announcement of the execution of the merger agreement, and (ii) June 8, 2015May 4, 2016 the latest practicable date prior to the date of this proxy statement/prospectus. The following table also shows, for the periods indicated, the sales price per share in the most recent transaction in Magna common stock based on information provided to Magna by Wunderlich Securities. This table also shows in the column entitled “Equivalent Price Per MagnaAvenue Share” the closing price of a share of Pinnacle common stock on that date, multiplied by an exchange ratio of 0.3369, which is the exchange ratio for the stock consideration.0.36, plus $2.00.
We make no assurance as to what the market price of the Pinnacle common stock will be when the Magna merger is completed or anytime thereafter. Because the market value of Pinnacle common stock will fluctuate after the date of this proxy statement/prospectus, we cannot assure you what value a share of Pinnacle common stock will have when received by a Magnaan Avenue shareholder. MagnaAvenue shareholders are advised to obtain current market quotations for Pinnacle common stock. Such quotations in the case of Pinnacle may be obtained from a newspaper, the Internet or a broker.
Date | Pinnacle Common Stock | Magna Common Stock | Equivalent Price per Magna Share | |||||||||
April 27, 2015 | $ | 46.62 | $ | 7.00 | (1) | $ | 15.71 | |||||
June 8, 2015 | $ | 52.52 | $ | 7.00 | (2) | $ | 17.69 | |||||
If all Magna shareholders elect to receive the stock consideration, then, due to proration, all Magna shareholders will receive stock consideration for 75% of their Magna stock and cash consideration for 25% of their Magna stock. The following table illustrates at various price levels of Pinnacle common stock, the value per Magna share of the stock consideration, the cash consideration and a mix of 75% stock consideration and 25% cash consideration.
| Merger Consideration Per Share of Magna Common Stock | ||||||
Pinnacle | 100% Stock Election | 100% Cash Election | 75% Stock/ 25% Cash Election | |||
| $42.00 | $14.150 | $14.32 | $14.193 | |||
| $44.00 | $14.824 | $14.32 | $14.698 | |||
| $46.00 | $15.497 | $14.32 | $15.203 | |||
| $48.00 | $16.171 | $14.32 | $15.708 | |||
| $50.00 | $16.845 | $14.32 | $16.214 | |||
| $52.00 | $17.519 | $14.32 | $16.719 | |||
| $54.00 | $18.193 | $14.32 | $17.225 | |||
Date | Pinnacle Common Stock | Avenue Common Stock | Equivalent Price per Avenue Share | |||||||||
January 27, 2016 | $ | 50.09 | $ | 13.20 | $ | 20.03 | ||||||
May 4, 2016 | $ | 47.15 | $ | 18.76 | $ | 18.97 | ||||||
Pinnacle
The following table sets forth, for the periods indicated, the high and low sales prices of Pinnacle common stock and cash dividends paid per share of Pinnacle common stock for the periods indicated.
| High | Low | Cash Dividends Paid Per Share | High | Low | Cash Dividends Paid Per Share | |||||||||||||||||||
2016 | ||||||||||||||||||||||||
First Quarter | $ | 52.82 | $ | 43.32 | $ | 0.14 | ||||||||||||||||||
Second Quarter (through May 4, 2016) | 52.54 | 46.56 | $ | 0.14 | ||||||||||||||||||||
2015 | ||||||||||||||||||||||||
First Quarter | $ | 45.31 | $ | 35.01 | $ | 0.12 | $ | 45.31 | $ | 35.01 | $ | 0.12 | ||||||||||||
Second Quarter (through June 8, 2015) | 52.76 | 43.44 | 0.12 | |||||||||||||||||||||
Second Quarter | 55.43 | 43.44 | 0.12 | |||||||||||||||||||||
Third Quarter | 56.00 | 44.86 | 0.12 | |||||||||||||||||||||
Fourth Quarter | 57.99 | 46.25 | 0.12 | |||||||||||||||||||||
2014 | ||||||||||||||||||||||||
First Quarter | $ | 39.10 | $ | 30.68 | $ | 0.08 | $ | 39.10 | $ | 30.68 | $ | 0.08 | ||||||||||||
Second Quarter | 39.85 | 32.77 | 0.08 | 39.85 | 32.77 | 0.08 | ||||||||||||||||||
Third Quarter | 40.10 | 34.73 | 0.08 | 40.10 | 34.73 | 0.08 | ||||||||||||||||||
Fourth Quarter | 40.30 | 33.93 | 0.08 | 40.30 | 33.93 | 0.08 | ||||||||||||||||||
2013 | ||||||||||||||||||||||||
First Quarter | $ | 23.94 | $ | 18.97 | $ | — | ||||||||||||||||||
Second Quarter | 26.30 | 21.32 | — | |||||||||||||||||||||
Third Quarter | 30.18 | 25.79 | — | |||||||||||||||||||||
Fourth Quarter | 33.36 | 29.48 | 0.08 | |||||||||||||||||||||
As of [ ], 2015,[●], 2016, the last practicable date prior to the printing of this document, there were [ [●] shares of Pinnacle common stock issued and outstanding and approximately [ [●] shareholders of record.
The principal source of Pinnacle’s cash flow, including cash flow to pay interest to its holders of its subordinated debentures and interest on its $75.0 million line of credit ($20 million of which had been borrowed as of May 4, 2016), and any dividends payable to common stockholders,shareholders, are dividends that Pinnacle Bank pays to Pinnacle as its sole stockholder.shareholder. The ability of Pinnacle Bank to pay dividends to Pinnacle, as well as
Pinnacle’s ability to pay dividends to its common shareholders, will continue to be subject to and limited by the results of operations of Pinnacle Bank and by certain legal and regulatory restrictions. Pinnacle’s and Pinnacle Bank’s loan agreements with U.S. Bank National Association, as amended (which we refer to as the Pinnacle Loan Agreement or the Pinnacle Bank Loan Agreement, respectively), permit Pinnacle and Pinnacle Bank to pay dividends so long as there is no default or unmatured event of default under the Pinnacle Loan Agreement or Pinnacle Bank Loan Agreement, as applicable, and the payment of the dividend would not cause an event of default or unmatured event of default. Accordingly, there can be no assurance that Pinnacle will continue to pay dividends to its common shareholders in the future. See “SUPERVISION AND REGULATION—Payment of Dividends” in Pinnacle’s Annual Report on Form 10-K, and the Risk Factor entitled “Our ability to declare and pay dividends is limited” in Pinnacle’s QuarterlyAnnual Report on Form 10-Q for the period ended March 31, 2015,10-K which areis incorporated by reference into this proxy statement/prospectus, for additional information about limitations on Pinnacle’s and Pinnacle Bank’s ability to declare and pay dividends. See “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94.
MagnaAvenue
MagnaAvenue common stock is not listedhas traded on an exchange or quoted on any automated services, andthe Nasdaq Global Select Market since February 10, 2015. Prior to that time there iswas no established public trading market for shares of Magna commonits stock. As of March 31, 2015 there were 5,244,154 shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) issued and outstanding, which were held by 713 shareholders of record.
The following table presentssets forth, for the payment dateperiods indicated, the high and amountlow sales prices of all quarterlyAvenue common stock and cash dividends paid by Magna during the period from January 1, 2013 through April 1, 2015.
Cash Dividend Payment Date | Magna Common Stock | Magna Series D Preferred Stock | ||||||
April 1, 2014 | $ | 0.07 | $ | 0.077 | ||||
July 1, 2014 | 0.07 | 0.077 | ||||||
October 1, 2014 | 0.07 | 0.077 | ||||||
January 1, 2015 | 0.07 | 0.077 | ||||||
April 1, 2015 | 0.07 | 0.077 | ||||||
The merger agreement permits Magna to continue to declare and pay quarterly cash dividends prior to the effective time of the Magna merger at rates not to exceed $0.07 per share of MagnaAvenue common stock or $0.077 per share of Magna Series D Preferred Stock, paid in a manner consistent with past practice. However, Magna will be required to reduce the amount of any such dividends paid for the fiscal quarter in which the closing date of the Magna merger occurs if the anticipated closing date is prior to the record date for any Pinnacle common stock dividend declared by Pinnacle for the same fiscal quarter by an amount equal to the dividend payable on the shares of Pinnacle’s common stock to be issued to Magna’s shareholders in the Magna merger.periods indicated.
In accordance with the regulations of the TDFI, Magna may not make capital distributions, including dividends, without prior approval from the commissioner of the TDFI if such distributions were to exceed the earnings of Magna for the prior two years plus the most recently completed quarter of the current year less any capital distributions previously made. In addition, no capital distributions are allowed at any time when, following such distribution, Magna would be less than “well capitalized”.
| High | Low | Cash Dividends Paid Per Share | ||||||||||
2016 | ||||||||||||
First Quarter | $ | 21.52 | $ | 12.12 | $ | 0.00 | ||||||
Second Quarter (through May 4, 2016) | 20.54 | 18.53 | 0.00 | |||||||||
2015 | ||||||||||||
First Quarter | $ | 13.38 | $ | 11.50 | $ | 0.00 | ||||||
Second Quarter | 13.44 | 11.48 | 0.00 | |||||||||
Third Quarter | 13.47 | 12.05 | �� | 0.00 | ||||||||
Fourth Quarter | 15.00 | 12.73 | 0.00 | |||||||||
As of the record date of the Magna special meeting, there were [ ]10,366,000 shares of MagnaAvenue common stock and [ ] shares of Magna Series D Preferred Stock (for a total of [ ] shares of Magna stock) issued and outstanding, which were held by approximately [ ]153 shareholders of record.
Avenue has not paid any cash dividends on its common stock since inception. The ability of Avenue Bank to pay dividends to Avenue, as well as Avenue’s ability to pay dividends to its common shareholders, is also subject to and limited by certain legal and regulatory restrictions.
RISK FACTORS RELATING TO THE MAGNA MERGER
In addition to the other information contained or incorporated by reference into this proxy statement/prospectus, including without limitation, Pinnacle’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and Pinnacle’s Quarterly Report on Form 10-Q for the three months ended March 31, 2015, you should carefully consider the following risk factors in deciding whether to vote to approve the merger agreement.
Because the market price of Pinnacle common stock will fluctuate, MagnaAvenue common shareholders cannot be sure of the exact value of shares of Pinnacle common stock they will receive.
Upon completion of the Magna merger, each outstanding share of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) will be converted into the merger consideration consisting of shares of Pinnacle common stock or cash, or a mix of shares of Pinnacle common stock and cash as provided in the merger agreement. If a Magna shareholder receives only cashWhile the number of shares of Pinnacle common stock that holders of Avenue common stock will receive as merger consideration, the valuepart of the merger consideration, that such Magna shareholder will receive will be fixed at $14.32 per share of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock). If a Magna shareholder receives Pinnacle common stock as part or all of the merger consideration, the number of shares that such Magna shareholder will receive for each share of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) will beis fixed, but the value of these shares of Pinnacle common stock will fluctuate depending on the market price per share of Pinnacle common stock at the time the shares of Pinnacle common stock are actually received by the Magna shareholder.Avenue shareholders. The closing price of Pinnacle common stock on the date that the shareholderholder of MagnaAvenue common stock (including the Magna Series D Preferred Stock) actually receives the shares of such Pinnacle common stock after consummation of the Magna merger and the closing price preceding the closing of the Magna merger may vary from each other, as well as from the closing price of Pinnacle common stock on the date that MagnaAvenue and Pinnacle announced the Magna merger, oron the date that this proxy statement/prospectus is being mailed to MagnaAvenue common shareholders, orand on the date of the Magna special meeting.meeting of Avenue common shareholders. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Pinnacle’s business, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of Pinnacle. Accordingly, at the time of the Magna special meeting of Avenue common shareholders, because of the above timing differences, MagnaAvenue common shareholders will not be able to calculate the exact value of Pinnacle common stock they maywill receive upon consummation of the Magna merger if they elect to receive shares of Pinnacle common stock.merger.
The form or mix of merger consideration Magna shareholders ultimately receive could be different from the form or mix elected by a shareholder depending on the form or mix of merger consideration elected by other Magna shareholders.
If the merger agreement is approved by Magna shareholders, all Magna shareholders will be permitted to make an election as to the form of consideration, whether in cash, Pinnacle common stock or a mix of such cash and Pinnacle common stock, Magna shareholders wish to receive. Because 75% of the outstanding shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) must be converted into Pinnacle common stock, the exchange agent may be required, in accordance with the allocation provisions set forth in the merger agreement, to adjust the form of consideration that an individual Magna shareholder will receive in order to ensure that 25% of the outstanding shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) are converted into cash.
Consequently, if either the cash consideration or the stock consideration is over-subscribed, Magna shareholders could receive a different form of consideration from the form they elect, which could result in different tax consequences than they had anticipated (including the recognition of gain or loss for federal income
tax purposes with respect to the cash received). See “PROPOSAL #1: THE PROPOSED MAGNA MERGER—Material United States Federal Income Tax Consequences” beginning on page 44. If Magna shareholders do not make a timely election, upon the surrender of their shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock), 25% of their shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) outstanding as of the effective time of the Magna merger will be converted into cash and 75% of their shares of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) outstanding as of the effective time of the Magna merger will be converted into Pinnacle common stock.
If all Magna shareholders elect to receive the stock consideration, then, due to proration, all Magna shareholders will receive stock consideration for 75% of their Magna shares and cash consideration for 25% of their Magna shares. The following table illustrates at various price levels of Pinnacle common stock, the value per Magna share of the stock consideration, the cash consideration and a mix of 75% stock consideration and 25% cash consideration.
| Merger Consideration Per Share of Magna Common Stock | ||||||||||||
Pinnacle | 100% Stock Election | 100% Cash Election | 75% Stock/ 25% Cash Election | |||||||||
| $42.00 | $ | 14.150 | $ | 14.32 | $ | 14.193 | ||||||
| $44.00 | $ | 14.824 | $ | 14.32 | $ | 14.698 | ||||||
| $46.00 | $ | 15.497 | $ | 14.32 | $ | 15.203 | ||||||
| $48.00 | $ | 16.171 | $ | 14.32 | $ | 15.708 | ||||||
| $50.00 | $ | 16.845 | $ | 14.32 | $ | 16.214 | ||||||
| $52.00 | $ | 17.519 | $ | 14.32 | $ | 16.719 | ||||||
| $54.00 | $ | 18.193 | $ | 14.32 | $ | 17.225 | ||||||
Pinnacle may not be able to successfully integrate Magna or CapitalMarkAvenue or to realize the anticipated benefits of the mergers.merger.
Pinnacle can provide no assurance that the Magna merger and/or the CapitalMark merger will be consummated and the closing of the CapitalMark merger is not a condition to the closing of the Magna merger, nor is the consummation of the Magna merger a condition to the closing of the CapitalMark merger.consummated. In the event that the Magna merger and/or the CapitalMark merger is consummated, a successful integration of Magna’s or CapitalMark’sAvenue’s operations with Pinnacle’s operations will depend substantially on Pinnacle’s ability to consolidate operations, corporate cultures, systems and procedures and to eliminate redundancies and costs. Pinnacle may not be able to combine its operations with the operations of Magna or CapitalMarkAvenue without encountering difficulties, such as:
Additionally, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit Pinnacle’s successful integration of Magna or CapitalMark.Avenue.
Further, Pinnacle entered into the merger agreement and the CapitalMark merger agreement with the expectation that the mergersmerger will result in various benefits including, among other things, benefits relating to enhanced revenues, a strengthened market position for the combined company, cross selling opportunities, technology, cost savings and operating efficiencies.
Achieving the anticipated benefits of the mergersmerger is subject to a number of uncertainties, including whether Pinnacle integrates Magna and CapitalMarkAvenue in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in a reduction in the price of Pinnacle’s common stock as well as in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy that could materially and adversely affect Pinnacle’s business, financial condition and operating results. Finally, any cost savings that are realized may be offset by losses in revenues or other charges to earnings.
MagnaAvenue common shareholders will have a reduced ownership and voting interest after the Magna merger and, if consummated, the CapitalMark merger and will exercise less influence over management.
After consummation of the Magna merger, and, if completed, the CapitalMark merger, MagnaAvenue common shareholders will own a significantly smaller percentage of Pinnacle than they currently own of Magna.Avenue. Following the completion of the Magna merger, and giving effect to the CapitalMark merger, MagnaAvenue common shareholders will own approximately 3.3%8% of the combined companycompanies on a fully-diluted basis.basis, assuming none of Avenue’s stock options issued as of the date hereof that are unexercised are exercised prior to the effective time of the merger. Additionally, former MagnaAvenue directors, following the consummation of the Magna merger, initially will hold one seatfour seats on Pinnacle’s board of directors. Consequently, MagnaAvenue shareholders likely will be able to exercise less influence over the management policies of Pinnacle than they currently exercise over the management and policies of Magna.Avenue.
The combined company will incur significant transaction and merger-related costs in connection with the mergers.merger.
Pinnacle expects to incur significant costs associated with combining the operations of Magna and CapitalMarkAvenue with its operations. Pinnacle has just recently begun collecting information in order to formulate detailed integration plans to deliver anticipated cost savings. Additional unanticipated costs may be incurred in the integration of Pinnacle’s business with the businesses of Magna and CapitalMark.Avenue’s business. Although Pinnacle expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.
Whether or not either of the mergersmerger is consummated, Pinnacle will incur substantial expenses, such as legal, accounting and financial advisory fees, in pursuing the mergersmerger which will adversely impact its earnings until after the acquisitions haveacquisition has been completed. Completion of each of the mergersmerger is conditioned upon the receipt of all material governmental authorizations, consents, orders and approvals, including approval by federal banking regulators.regulators of the proposed merger of Avenue Bank and Pinnacle Bank. Pinnacle and Pinnacle Bank and each of Magna and CapitalMark, as the case may be,Avenue intend to pursue all required approvals in accordance with the merger agreement and the CapitalMark merger agreement, respectively.agreement.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.
Before the transactions contemplated in the merger agreement and the CapitalMark merger agreement may be completed, including the mergers, prior approval of our applications and notices filed with the FDIC and TDFI must be obtained. These governmental agencies may impose conditions on the completion of the mergersmerger or the proposed bank merger or require changes to the terms of the merger agreement and the CapitalMark merger agreement. Although Pinnacle and MagnaAvenue do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the transactions contemplated in the merger agreement and the CapitalMark merger agreement or imposing additional costs on or limiting Magna’sAvenue’s revenues, any of which might have a material adverse effect on Pinnacle following the Magna merger. There can be no assurance as to whether the regulatory approvals will be received,
the timing of those approvals, or whether any conditions will be imposed. See “THE MERGER AGREEMENT—Conditions to the Completion of the Magna Merger” beginning on page 6862 for a discussion of the conditions to the completion of the Magna merger and “PROPOSAL #1: THE PROPOSED MAGNA MERGER—Regulatory Approval” beginning on page 5258 for a description of the regulatory approvals that must be received in connection with the Magna merger.
The termination fee and the restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire Magna.Avenue.
Until the consummation of the Magna merger, with some exceptions, MagnaAvenue is prohibited from soliciting, initiating, encouraging, or participating in any discussion of, or otherwise considering, any inquiries or proposals that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person or entity other than Pinnacle. In addition, MagnaAvenue has agreed to pay a termination fee of $2.85$8.0 million to Pinnacle if:
Failure to complete the mergersmerger could cause Pinnacle’s stock price to decline.
If either of the mergersmerger is not completed for any reason, Pinnacle’s stock price may decline because costs related to the mergers,merger, such as legal, accounting and financial advisory fees, must be paid even if such merger is not completed. In addition, if either of the mergersmerger is not completed, Pinnacle’s stock price may decline to the extent that the current market price reflects a market assumption that both mergersthe merger will be completed.
Certain executive officers and directors of MagnaAvenue have interests in the Magna merger different from, or in addition to, the interests of Magna shareholdersAvenue shareholders.
Certain of Magna’sAvenue’s existing directors and executive officers have interests in the Magna merger that are different from, or in addition to, the interests of Magna’sAvenue’s common shareholders generally. For example, certain MagnaAvenue executive officers have agreements that provide for significant payments following the consummation of the Magna merger. The Magnamerger as the merger will be considered a change in control for purposes of these agreements. The MagnaAvenue board
of directors was aware of these conflicts of interests when it approved the merger agreement. See “PROPOSAL #1: THE PROPOSED MAGNA MERGER—Interests of MagnaAvenue Executive Officers and Directors in the Magna Merger”merger” beginning on page 48.54.
The fairness opinion obtaineddelivered to the Avenue board of directors by Magna from itsAvenue’s financial adviseradvisor prior to execution of the merger agreement will not reflect any changes in circumstances prior to the Magna merger.
On April 28, 2015, STRH delivered to the Magna board its oral and written opinion as to the fairness from a financial point of view to the holders, other than the Excluded Holders, of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock), as of that date, of the aggregate merger consideration to be received by such holders under the merger agreement. A copy of this opinion is attached hereto asAppendix C. STRH had and has no obligation to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring or information that has become or becomes available after the delivery of its opinion. Accordingly, the opinion does not reflect changes that may occur or may have occurred after the date of suchthe opinion.
The fairness opinion of KBW was delivered to Avenue’s board of directors on January 28, 2016. Changes in the operations and prospects of Pinnacle or Magna, financial, economic,Avenue, general market and othereconomic conditions and other factors. As a resultfactors which may be beyond the control of Pinnacle and Avenue may have altered the value of Pinnacle or Avenue or the sale prices of shares of Pinnacle common stock and Avenue common stock as of the foregoing, Magna shareholders should be aware thatdate of this proxy statement/prospectus, or may alter such values and sale prices by the time the merger is completed. KBW’s opinion, of STRH attached heretodated January 28, 2016, does not addressspeak as of any date other than the fairnessdate of the aggregate merger consideration at any other time than as of April 28, 2015.opinion.
The tax consequencesA portion of the Magna merger to a Magna shareholder will depend upon the merger consideration received.received by the Avenue shareholders will generally be taxable.
The tax consequences of the Magna merger to a Magna shareholder will depend upon the merger consideration that the shareholder receives. A MagnaAn Avenue common shareholder generally will not recognize any gain or loss on the conversion of shares of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) solely into shares of Pinnacle common stock. However, a holder of Magna stock or a holder of Magna optionsan Avenue common shareholder generally will be taxed if such holder receivesupon receipt of the cash (i)portion of the merger consideration in exchange for shares of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock), (ii)or for any cash received in lieu of any fractional share of Pinnacle common stock or (iii) as Stock Option Consideration.in connection with the cancellation of any outstanding options to purchase Avenue common stock. See “PROPOSAL #1: THE PROPOSED MAGNA MERGER—Material United States Federal Income Tax Consequences” beginning on page 44.51.
Magna, PinnacleAvenue and Pinnacle Bank are subject to business uncertainties and contractual restrictions while the Magna merger is pending, which could adversely affect each party’s business and operations.
In connection with the pendency of the Magna merger, it is possible that some customers and other persons with whom Magna, PinnacleAvenue Bank and/or Pinnacle Bank has a business relationship may delay or defer certain business decisions or might seek to terminate, change or renegotiate their relationships with Magna, PinnacleAvenue Bank and/or Pinnacle Bank, as the case may be, as a result of the Magna merger, which could negatively affect Magna’s, Pinnacle’sAvenue’s, and/or Pinnacle Bank’sPinnacle’s respective revenues, earnings and cash flows, as well as the market price of Pinnacle’s common stock, regardless of whether the Magna merger is completed.
Under the terms of the merger agreement, MagnaAvenue is subject to certain restrictions on its business prior to completing the Magna merger, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could negatively affect Magna’sAvenue’s businesses and operations prior to the completion of the Magna merger.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus including the Appendices hereto contains “forward-looking statements” about Pinnacle Pinnacle Bank and MagnaAvenue and the combined companiescompany following the Magna merger and/or the CapitalMark merger. “Forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (which we refer to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (which we refer to as the Exchange Act), are statements that represent our judgment concerning the future and are subject to risks and uncertainties that could cause our actual operating results and financial position to differ materially from the forward-looking statements. Such forward-looking statements can generally be identified by the use of forward-looking terminology such as “expect”, “anticipate”, “goal”, “intend”, “plan”, “believe”, “should”, “seek” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. You should note that the discussion of Pinnacle’s and Magna’sAvenue’s reasons for the Magna merger and the description of the opinion of Magna’s financial adviser contain many forward-looking statements that describe beliefs, assumptions and estimates of the management of each of MagnaAvenue and Pinnacle and public sources as of the indicated dates and those forward-looking expectations may have changed as of the date of this proxy statement/prospectus. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results could differ materially and adversely from these forward-looking statements.
The ability to predict results or the actual effects of the combined companies’ plans and strategies is inherently uncertain. Some of the factors that may cause actual results to differ materially from those contemplated by the forward-looking statements, include, but are not limited to, those identified in the section of this proxy statement/prospectus titled “RISK FACTORS RELATING TO THE MAGNA MERGER” beginning on page 27 of21of this proxy statement/prospectus and the following:
Additional factors are discussed in the reports filed with the SEC by Pinnacle.each of Pinnacle and Avenue. See “WHERE YOU CAN FIND MORE INFORMATION” on page 101.94.
The above list is not intended to be exhaustive and there may be other factors that would preclude us from realizing the predictions made in the forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Pinnacle shareholders and MagnaAvenue shareholders are cautioned not to place undue reliance on such statements, which speak only as of the date of this proxy statement/prospectus or the date of any document incorporated by reference.reference herein.
All subsequent written or oral forward-looking statements concerning the Magna merger or other matters addressed in this proxy statement/prospectus and attributable to Pinnacle or MagnaAvenue or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to is this section. Except to the extent required by applicable law or regulation, Pinnacle and MagnaAvenue undertake no obligation to update such forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events.
General
This proxy statementstatement/prospectus is being furnished to MagnaAvenue shareholders in connection with the solicitation of proxies by the board of directors of MagnaAvenue for use at the MagnaAvenue special meeting to be held on July [ ], 2015June 21, 2016 at 1010:30 a.m., local time, at 6525 Quail Hollow Road, 4th Floor, Memphis,the Frist Center Auditorium, 919 Broadway, Nashville, Tennessee 38120,37203, and at any postponement or adjournment of the MagnaAvenue special meeting. This document, andalong with an enclosed proxy card for use at the enclosed form of proxyAvenue special meeting, are being sent to Magna’sAvenue’s shareholders on or about June [ ], 2015.[●], 2016.
Purpose and Record Date and Voting
The special meeting is being held for the following purposes:
A copy of the merger agreement is attached asAppendix A to this proxy statement/prospectus.
TheAvenue shareholders who hold their shares as of the close of business on June [ ], 2015 has been selected as the record date for the determination of Magna’s shareholdersApril 22, 2016 are entitled to notice of and to vote at the MagnaAvenue special meeting. On thatthe record date, [ ]10,366,000 shares of MagnaAvenue common stock, and [ ]no shares of Magna Series D Preferred Stock,Avenue preferred stock, were outstanding. Shareholders will beoutstanding and entitled to one vote for each share of Magna common stock and one vote for each share of Magna Series D Preferred Stock held by them of record as of the close of business on the record date on any matter that may be presented for consideration and action by the shareholders. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Magna common stock and Magna Series D Preferred Stock will constitute a quorum for the transaction of business at the Magna special meeting.
You may vote your shares in person by attending the Magna special meeting, or by mailing us your completed proxy if you are unable or do not wish to attend.
We encourage you to vote by mailing the proxy card even if you plan to attend the Magna special meeting. If you are a shareholder of record as of June [ ], 2015, you may vote your shares in person at the Magna special meeting. If your shares are held by a broker or other nominee, you must obtain a proxy from the broker or nominee giving you the right to vote the shares at the Magna special meeting.
All proxies properly submitted in time to be counted at the Magna special meeting will be voted in accordance with the instructions contained in the proxy. If you submit a proxy without voting instructions, the proxies named in the proxy will vote on your behalf for each matter described above in accordance with the recommendations of the Magna board of directors on all the proposals as set forth in this proxy statement/prospectus and on any other matters in accordance with their judgment.
If you have shares held by a broker or other nominee, you may instruct the broker or other nominee to vote your shares by following the instructions the broker or other nominee provides to you. Proxies solicited by this proxy statement/prospectus may be exercised only at the Magna special meeting and any adjournment or postponement thereof and will not be used for any other meeting.
Vote Required
The following votes will be required to approve the proposals:
Voting
Each outstanding share of Avenue common stock held of record as of the close of business on the record date is entitled to cast one vote (voting togetheron each matter properly brought before the special meeting. A quorum of Avenue shareholders is necessary to convene the meeting. The presence in person or by proxy at the meeting of holders of a majority of the outstanding shares of Avenue common stock entitled to vote at the meeting will constitute a quorum.
You may vote your shares in person by attending the Avenue special meeting, or by mailing us your completed proxy if you are unable or do not wish to attend.
We encourage you to vote by mailing the proxy card even if you plan to attend the Avenue special meeting. If you are a shareholder of record as of April 22, 2016, you may vote your shares in person at the Avenue special
meeting. If your shares are held by a single group).broker or other nominee, you must obtain a proxy from the broker or nominee giving you the right to vote the shares at the Avenue special meeting.
AbstentionsAll proxies properly submitted in time to be counted at the Avenue special meeting will be voted in accordance with the instructions contained in the proxy. If you submit a proxy without voting instructions, the proxies named in the proxy will vote on your behalf for each matter described above in accordance with the recommendations of the Avenue board of directors on all the proposals as set forth in this proxy statement/prospectus and on any other matters in accordance with their judgment.
If you have shares held by a broker or other nominee, you may instruct the broker or other nominee to vote your shares by following the instructions the broker or other nominee provides to you. Proxies solicited by this proxy statement/prospectus may be exercised only at the Avenue special meeting and any adjournment or postponement thereof and will not be used for any other meeting.
Any common shareholder of record present in person or by proxy at the Avenue special meeting who abstains from voting will be counted for purposes of determining whether a quorum exists.Because approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Avenue capital stock entitled to vote at the Avenue special meeting, abstentions and “broker non-votes” (described below) are counted for purposes of determining the presence or absence of a quorum but are not considered votes cast.The required vote of Magna shareholders on the merger agreement is based on the number of outstanding shares of Magna common stock and Magna Series D Preferred Stock and not on the number of shares that are actually voted. Accordingly, the failure to submit a proxy card or to vote in person at the Magna special meeting, or the abstention from voting by a Magna shareholder, or the failure of any Magna shareholder who holds shares in “street name” through a bank or broker to give voting instructions to such bank or broker (thereby resulting in a “broker non-vote”), will have the same effect as a vote “AGAINST”votes AGAINST the merger agreement. Abstentions will haveagreement. Accordingly, Avenue’s board of directors urges Avenue’s shareholders to complete, date, and sign the same effect as a vote “AGAINST”accompanying proxy card and return it promptly in the proposal to postpone or adjourn the Magna special meeting, if necessary, while shares not in attendance at the Magna special meeting and broker non-votes will have no effect on the outcome of any vote to postpone or adjourn the Magna special meeting.enclosed, postage-paid envelope.
A “broker non-vote” occurs when a broker submits a proxy that does not indicate a vote on a proposal because the broker has not received instructions from the beneficial owners on how to vote on such proposal and the broker does not have discretionary authority to vote in the absence of instructions. Brokers generally have the authority to vote, even though they have not received instructions, on matters that are considered “routine”. However, under the rules of the New York Stock Exchange, the merger agreement proposal and the adjournment proposal to be considered at the Magna special meeting are not considered routine matters and brokers are not entitled to vote shares held for a beneficial owner on these matters without instructions from the beneficial owner of the shares. To avoid a broker non-vote of your shares on the merger agreement and adjournment, each of which is a non-routine matter, you must provide voting instructions to your broker or other nominee.
Voting by Avenue’s Executive Officers and Directors
As of the record date, the directors and executive officers of Avenue beneficially owned 2,211,050 shares of Avenue common stock, excluding shares subject to Avenue options currently exercisable but not exercised and shares owned by Patriot Financial Partners, a significant shareholder of Avenue that has a designee on Avenue’s board of directors, or approximately 21.2% of the outstanding shares of Avenue capital stock. In connection with the execution of the merger agreement, all of the directors and executive officers of Avenue executed a voting agreement pursuant to which they agreed, among other things, to vote their shares of Avenue common stock for the approval of the merger agreement.
Revocability of Proxies
Submitting a proxy on the enclosed form of proxy card does not preclude a Magnaan Avenue shareholder from voting in person at the MagnaAvenue special meeting. A MagnaAn Avenue shareholder may revoke a proxy at any time prior to the vote at the MagnaAvenue special meeting by:
Revoking a proxy will not affect a vote once it has been taken. Attendance at the MagnaAvenue special meeting will not, in itself, constitute a revocation of a proxy. You must vote in person at the MagnaAvenue special meeting if you wish to change a vote that you have previously made by submitting a signed proxy.
Solicitation of Proxies
The proxy solicitation of Magna’sAvenue’s shareholders is being made by MagnaAvenue on behalf of Magna’sAvenue’s board of directors and will be paid for by Magna.Avenue. In addition to solicitation by mail, directors, officers, and employees of MagnaAvenue may solicit proxies for the MagnaAvenue special meeting from Magna’sAvenue’s shareholders personally or by telephone, the Internet or other electronic means. However, Magna’sAvenue’s directors, officers and employees will not be paid any special or extra compensation for soliciting such proxies, although they mayproxies.
No person is authorized to give any information or to make any representation not contained in this proxy statement/prospectus and, if given or made, such information or representation should not be reimbursed for out-of-pocket expenses incurred in connection with the solicitation. Upon request, Magna will reimburse brokers, dealers, banks, trustees andrelied upon as having been authorized by Pinnacle, Pinnacle Bank, Avenue, Avenue Bank or any other fiduciaries for the reasonable expenses they incur in forwarding proxy materials to beneficial owners of Magna common stock and Magna Series D Preferred Stock.person.
Dissenters’ Rights
Holders of Magnaoutstanding shares of Avenue common stock and Magna Series D Preferred Stock who comply with the provisions of Chapter 23 of the TBCA are not entitled to dissent from the Magnavote on the merger agreement and receive payment of the fair value of their shares of Magna stock if the Magna merger is consummated. A copy of Chapter 23 ofare not entitled to exercise any appraisal rights under the TBCA is attached asAppendix B to this proxy statement/prospectus. Please seein connection with the section entitled “PROPOSAL #1: THE PROPOSED MAGNA MERGER—DISSENTERS’ RIGHTS” beginning on page 47 for a summary of the procedures to be followed in asserting dissenters’ rights. A dissenting shareholder will be entitled to payment only if written notice of intent to demand payment is delivered to Magna before the vote is taken and the shareholder does not vote in favor of the merger agreement.merger.
Recommendation by Magna’sAvenue’s Board of Directors
The board of directors of MagnaAvenue unanimously voted in favor of the merger agreement and the merger. Magna’sAvenue’s board of directors believes that the merger agreement, the MagnaAvenue merger and the transactions contemplated thereby are in the best interests of MagnaAvenue and its shareholders, and recommends that Magna’sAvenue’s shareholders vote:
“FOR” the approval and adoption of the merger agreement and the merger; and
“FOR” any proposal of the MagnaAvenue board of directors to postpone or adjourn the MagnaAvenue special meeting to a later date or dates, if necessary.
Avenue shareholders should note that some of Avenue’s directors have certain interests in, and may derive benefits as a result of, the Avenue merger that are in addition to their interests as shareholders of Avenue. See “PROPOSAL #1: THE PROPOSED AVENUE MERGER— Interests of Avenue Executive Officers and Directors in the Avenue Merger.”
PROPOSAL #1: THE PROPOSED MAGNA MERGER
General
Magna’sAvenue’s board of directors is using this document to solicit proxies from the holders of MagnaAvenue common stock and Magna Series D Preferred Stock for use at the Magna special meeting. At the Magna special meeting, holders of MagnaAvenue common stock and Magna Series D Preferred Stock will be asked to vote upon, among other things, the approval of the merger agreement.
The Magna merger will not be completed unless, among other things, holders of MagnaAvenue’s common stock and Magna Series D Preferred Stock (voting together as a single group) approve the merger agreement by the requisite vote.
This section of this proxy statement/prospectus describes certain aspects of the Magna merger, including the background of the merger and the parties’ reasons for the merger.
Transaction Structure
Pinnacle’s and Pinnacle Bank’s board of directors and Magna’sAvenue’s board of directors each has approved the merger agreement, which provides for the merger of MagnaAvenue with and into Pinnacle Bank, a wholly owned subsidiary of Pinnacle and the Pinnacle board of directors also has approved the issuance by Pinnacle of shares of Pinnacle common stock to holders of MagnaAvenue’s common stock (including the shares of Magna common stock issuable upon conversion of the outstanding shares of Magna Series D Preferred Stock) in connection with the Magna merger. Pinnacle Bank will be the surviving corporation subsequent to the Magna merger. TheSubject to satisfaction of the closing conditions set out in the merger agreement, the parties expect to complete the Magna merger late in the second quarter or early in the third or fourth quarter of 2015.2016. Each share of Pinnacle common stock issued and outstanding at the effective time of the Magna merger will remain issued and outstanding as one share of common stock of Pinnacle, and other than shares of Magna common stock owned by Pinnacle or Magna (other than those shares held in a fiduciary or representative capacity) and shares held by Magna shareholders that properly exercise their dissenters’ rights, each share of MagnaAvenue common stock (including the shares of Magna common stock issuable upon conversion of the outstanding shares of Magna Series D Preferred Stock) issued and outstanding at the effective time of the Magna merger will be converted into either 0.33690.36 shares of Pinnacle common stock $14.32 inand a cash or a mix of stock and cash,payment equal to $2.00, with fractional shares being paid in cash as described below. See “THE MERGER AGREEMENT—Merger Consideration”MERGER CONSIDERATION” on page 64.60.
Pinnacle Bank’sPinnacle’s charter and bylaws will be the charter and bylaws of the combined company after the completion of the Magna merger. At the effective time of the Magna merger, Pinnacle’s and Pinnacle Bank’s boards of directors will be expanded to accommodate the addition of one Magna director,four Avenue directors, who the parties currently anticipate will be Thomas C. Farnsworth, III.Ronald L. Samuels, Marty Dickens, David Ingram and Joe Galante.
Avenue Bank will simultaneously merge with and into Pinnacle Bank upon the consummation of the merger. The bank merger is subject to and contingent upon the effectiveness of the merger.
In addition, upon consummation of the merger, Pinnacle will assume Avenue’s obligations under its outstanding $20.0 million subordinated notes issued in December 2014 that mature in December 2024. These notes bear interest at a rate of 6.75% per annum until January 1, 2020 and may not be repaid prior to such date. Beginning on January 1, 2020, if not redeemed on such date, these notes will bear interest at a floating rate equal to the three-month LIBOR determined on the determination date of the applicable interest period plus 4.95%.
The merger agreement provides that the parties can amend the merger agreement, to the extent legally permissible. However, after any approval of the merger agreement by Magna’s shareholders,the holders of Avenue’s common stock, no amendment can alter the kind or amount of consideration to be provided to Magna’sAvenue’s common shareholders without subsequent approval by Magna’sAvenue’s common shareholders entitled to vote on the merger agreement.
Background of the Magna Merger
TheAs part of its ongoing consideration and evaluation of Avenue’s long-term strategic plan, Avenue’s board of directors of Magna hasand senior management regularly reviewed Magna���s prospectsreview and assess Avenue’s business strategies and has exploredobjectives, including strategic opportunities and challenges, and consider various strategic options potentially available to enhance both shareholderthe institution, all with the goal of enhancing value for Avenue’s shareholders. Previous strategic discussions have focused on, among other things, the business environment facing financial institutions in general and
Avenue in particular, as well as current conditions and the liquidity of the Magna stock. Given the competitive conditions, increasing regulatory burdens and changing capital requirementsongoing consolidation in the banking industry, Magna’s boardfinancial services industry. Other possible actions considered have included organic growth along with issuance of directors viewed scaleadditional capital to support such growth, business combinations involving Avenue with other financial institutions as important and periodically considered these strategic growth options: growth through acquiring another bank, merging intowell as a possible sale of Avenue to a larger financial institution, or raising additional capital and focusing on an aggressive internal growth strategy.institution.
For several years, Pinnacle has publicly disclosed that part of its long-range corporate strategy includes growth intoin the Nashville market. Since its acquisition of Mid-America Bancshares, Inc. in 2007, Pinnacle has focused on growing its Nashville and Knoxville operations through hiring experienced bankers from financial institutions and having those bankers move their client relationships to Pinnacle. With its 2015 acquisition of CapitalMark Bank & Trust in Chattanooga, Tennessee and Magna Bank in Memphis, Tennessee, markets, the remaining two large TennesseePinnacle began augmenting its organic growth with these whole bank acquisitions and established a presence in all four of Tennessee’s urban markets. Management has also expressed its intention of growing Pinnacle Bank to between $13 and $15 billion in total assets in these four urban markets not currently served by Pinnacle Bank, whether by de novo expansion or the acquisition of an existing bank or banks operating in those markets.Tennessee. The proposed Magna merger and the proposed CapitalMark mergerwith Avenue would permit(i) allow Pinnacle to enter the two principaladvance toward its target of increasing its assets in these markets in Tennessee which it does not serve. Pinnacle believes the Memphis and Chattanooga markets are important to the ongoing growth of Pinnacle’s Tennessee banking franchisedesired range, (ii) be accretive to earnings even after taking into account all foregone revenue and incremental expenses associated with crossing the resultant enhancement in Pinnacle’s share price that Pinnacle believes would result from such growth.$10 billion total assets threshold and (iii) further penetrate the very attractive Nashville market. Pinnacle also intends to continue to execute on other long-range strategies including its strategy to hire seasoned professionals in each of its markets to grow Pinnacle’s loan portfolio, to expand its commercial real estate lending capabilities and to further enhance its noninterest income fee businesses.
In early 2014, the MagnaFrom time to time, Pinnacle’s board members and members of directors decided to actively pursue a business combination strategy. Magna’s board of directors andits senior management had often consultedteam have met with many representatives of Sterne Ageevarious investment banking firms, including KBW and Leach, Inc.Sandler O’Neill & Partners, L.P. (who we refer to as Sterne Agee)Sandler O’Neill in this proxy statement/prospectus), regarding possible strategic acquisitions that might be attractive to Pinnacle. In September 2015, representatives of KBW attended a strategic planning session of Pinnacle’s board of directors at which the KBW representatives discussed with Pinnacle’s board of directors information concerning a potential merger of Avenue with and into Pinnacle along with similar information concerning potential mergers with other financial institutions.
On November 23, 2015, Pinnacle’s president and chief executive officer, M. Terry Turner, sent Marty Dickens, an Avenue board member and lead director, Ronald L. Samuels, Avenue’s chairman and chief executive officer, and Kent G. Cleaver, Avenue’s president, by email a copy of a sector update prepared by an investment banking firm other than KBW or Sandler O’Neill that was publicly distributed in which that firm highlighted, among other things, the pastpossible financial metrics of a merger between Avenue and formally entered into an engagement letter with Sterne Agee on February 27, 2014 forPinnacle. On December 3, 2015, Mr. Dickens informed Mr. Turner that he and Mr. Samuels had discussed the purposes of determining the interest of likely candidates in engaging in a business combination with Magna. Working with Sterne Agee, Magna identified eight financial institutions that would potentially make an attractive business combination partner for Magna, based on their size, location and business model resources, and prepared a marketing book that Sterne Agee used to confidentially contact them. Two institutions signed a confidentiality agreement. One of these institutions verbally expressed potential interest in moving forward but at a value below what Magna’s board of directors considered was in the best interest of Magna’s shareholders.
During the remainder of 2014, Magna focused on organic growth and improving earnings. Magna’s board of directors also continued to explore opportunities to improve shareholder return, value and liquidity.
In early December 2014, Kirk P. Bailey, Magna’s Chairman and CEO, received a call from a representative of STRH who had recently talked with Pinnacle’s CEO, M. Terry Turner, and CFO, Harold R. Carpenter, and had confirmed with them that Pinnacle remained interested in entering the Memphis market through an acquisitionsector update and that they believed an introductory meeting between Magna and Pinnacle may prove beneficial. On December 8, 2014,he had asked Mr. Bailey met in Nashville, Tennessee with Messrs. Turner and Carpenter,Samuels (who, along with a representative of STRHMr. Cleaver, had not received Mr. Turner’s November 23rd email) to discuss the possible combination of Pinnacle Bank and Magna. After a general discussion, both parties believed additional time was necessary to conduct preliminary due diligence and gather feedback from their respective boards of directors. On December 16, 2014, representatives of STRH met withcontact Mr. Bailey to discuss possible next steps with respect to Pinnacle.
At Pinnacle’s December 16, 2014, regularly scheduled board of directors meeting, Mr. Turner updated the Pinnacle board of directors on the recent discussions with Mr. Bailey and that Pinnacle management would like to continue to discuss the merits of a potential business combination with Magna. On January 6, 2015, Mr. Turner updated the executive committee of the Pinnacle board of directors as to management’s plan for future discussions with Magna.
In early January 2015, Mr. Turner called Mr. Bailey expressing a preliminary range of values at which Pinnacle would be willing to consider a business combination with Magna, and Mr. Bailey advised that this range of values was below the level Magna’s board of directors would support. Mr. Turner updated the Pinnacle board of directors on these matters at its January 20, 2015 regularly scheduled meeting. At that meeting, Mr. Turner noted that further discussions were possible, but that, in order for negotiations to move forward, both parties needed more information from the other party.
Both parties continued to discuss the possibility of a business combination and on January 29,transaction between the companies.
In early December 2015, representatives of KBW responded to a request from Pinnacle’s senior management to provide updated information concerning a potential transaction between Pinnacle and Magna signed a confidentiality agreement that they had been negotiating throughout January in order to facilitate information flow between the two companies. On January 30, 2015, a meeting was held in Memphis, Tennessee at which Mr. Turner, Mr. Carpenter, Hugh M. Queener (Pinnacle’s Chief Administrative
Officer) and Mike Hendren (Pinnacle Bank’s Senior Credit Officer) along with Mr. Bailey and David Wadlington (Magna’s CFO) were present. The two groups exchanged information about the strategic plansAvenue, including publicly available financial performance metrics for Avenue, illustrative financial terms of their respective companies, 2015 financial forecasts and other information relevant to a potential business combination includingof Pinnacle and Avenue, pro forma market demographics for the growth prospects ofcombined companies and comparative information concerning other transactions. KBW’s communications with Pinnacle concerning a combined company in Memphis.
At the time of the late January conversationspotential transaction between Mr. TurnerPinnacle and Mr. Bailey, Pinnacle was engaged in discussions with CapitalMark and was being advisedAvenue were disclosed by Sterne Agee, including the principal representative at Sterne Agee advising Magna.KBW to Avenue prior to KBW’s engagement as Avenue’s financial advisor.
On February 2,December 1, 2015, Mr. Turner updatedat a regularly scheduled meeting of the executive committee of Pinnacle’s board of directors onMr. Turner briefed the progressmembers of the Magna transaction with the executive committee providingon his attempts to contact Messrs. Dickens, Samuels and Cleaver regarding a possible transaction between Avenue and Pinnacle.
On December 8, 2015, Mr. Samuels met with Mr. Turner input as to potential next steps.
Shortly after theirinformally discuss the possible combination of the two companies. At this meeting, in Memphis, Mr. Turner telephonedpreliminarily indicated that he believed Pinnacle may be able to offer a purchase price near the top end of the $13.70 to $19.18 per share range of values expressed in the aforementioned sector update. On December 9, 2015, Mr. BaileyTurner resent Mr. Samuels a copy of the sector update.
On December 14, 2015, Mr. Turner met with Mr. Samuels to again discuss the possible combination of Avenue and presented an oral indicationPinnacle. At this meeting, Mr. Cleaver was in attendance with Mr. Samuels. At the meeting, Mr. Turner informed Messrs. Samuels and Cleaver that Pinnacle’s senior management team was preparing internal projections and financial models of the transaction utilizing a per share purchase price of $19.00.
Between December 14, 2015 and January 5, 2016 members of Pinnacle’s interestsenior management team internally discussed the possible acquisition of Avenue and continued to model various acquisition scenarios involving Avenue, including the impact of the potential synergies that might be able to be achieved in a merger with Magna inof the $11.50 to $12.50 per share price range, reflecting a rangetwo firms. During this period of 120% to 130% of Magna’s 2014 year-end tangible book value per share. Mr. Bailey advisedtime Pinnacle’s chief financial officer, Harold Carpenter, and Mr. Turner that a valuation in that range was below the expectationsheld preliminary discussions with representatives of Magna’s board of directors. Thereafter, the discussions slowed between the parties.
In mid-February 2015, Pinnacle attended a Sterne Agee investor conference in Florida. At the conference, Messrs. Turner and Carpenter met with the Sterne Agee representative advising Pinnacle on the CapitalMark transaction, who continued to consult with Magna, and they discussed how a properly structured transaction with Magna could be valuable to both shareholder groups. Not long after that conference, Mr. Turner called Mr. Bailey to renew discussions aboutSandler O’Neill regarding a possible business combination with both parties believing that the utilizationAvenue, and Sandler O’Neill provided preliminary financial analysis of such a transaction. Pinnacle subsequently retained Sandler O’Neill to act as Pinnacle’s financial advisor.
On December 15, 2015, Mr. Turner sent a draft of a fixed exchange ratio at leastnondisclosure agreement to Mr. Samuels, which agreement included an exclusivity provision that required Avenue to negotiate exclusively with Pinnacle for some portiona period of time.
Mr. Samuels and Mr Cleaver met with certain members of Avenue’s board of directors and outside counsel on December 16, 2015 to apprise them of the transaction proceeds would beverbal proposal from Pinnacle and to discuss how Avenue might respond. Following the discussion, the directors present determined to convene a better basis for pricing a potential transaction betweenspecial meeting of the two companies. A back and forth dialogue ensued between Magna andfull board of directors to discuss the Pinnacle regarding valuation proposals. These discussions included Magna’s adviser, Sterne Agee, as well as Pinnacle’s adviser, Sandler O’Neil + Partners, L.P (who we refer to as Sandler O’Neill) and resulted in Pinnacle’s representatives orally indicating a willingness to consider a transaction with Magna at a fixed exchange ratio of 0.325 shares of Pinnacle common stock per share of Magna stock and a 90%/10% stock and cash consideration mix. The average closing price for Pinnacle’s common stock for the 10 trading days ended on February 26, 2015 was approximately $40.74, which at the proposed 0.325 exchange ratio would have been the equivalent of $13.25 per share of Magna stock.proposal.
Mr. BaileySamuels called a special meeting of the executive committee of the MagnaAvenue board of directors on February 27,December 17, 2015, to inform the board of directors regarding hisof the discussions with Pinnacle. The Avenue board of directors considered thea range of exchange values, being discussed, the attractiveness of Pinnacle as a business combination partner and the discussions that had taken place.place between the parties. The executive committee instructed Mr. Bailey to continue negotiations with Pinnacle with the goal of increasing the exchange ratio.
Mr. Turner updated the executive committee of Pinnacle’sAvenue board of directors on March 2, 2015 as toalso discussed the general progressadvisability of the Magna transaction including pricing mechanics for the transaction.
Mr. Bailey continued discussions with senior management of Pinnacle, and updated the executivecreating a special committee of Magna’sthe board of directors on his progress atto consider the proposal and other strategic alternatives. As a meeting held on March 6, 2015. Sterne Agee participated in this meeting by telephone. The executive committee reviewedresult, the financial analysis that had been performed by Sterne Agee, discussed what would be a fair value for Magna stock and considered the exchange ratio proposed by Pinnacle. At the conclusion of the meeting, the executive committee again instructed Mr. Bailey to negotiate for an exchange ratio higher than .325, which was Pinnacle’s latest proposal at the time.
During the week of March 9, 2015, Magna and Pinnacle continued discussion and the exchange of information. Then, on March 16, 2015, Messrs. Bailey and Turner again discussed a potential transaction between the companies and recent initiatives of Magna to enhance its revenue opportunities in 2016 and beyond. At that time, Pinnacle agreed to increase the share exchange ratio from .325 to .3369 but, taking into account the nearly 15% increase in the trading price of Pinnacle’s common stock since the parties had negotiated the confidentiality agreement, Pinnacle requested a 75%/25% mix of stock/cash consideration, that is, with 75% of Magna’s outstanding shares receiving Pinnacle shares at a .3369 exchange ratio and cash being paid for the remaining 25% at the $14.32 per share value, rather than the 90%/10% mix previously discussed by the parties.
On March 17, 2015, the PinnacleAvenue board of directors received additional information from management regarding the Magna transaction including pro forma transaction information prepared by Sandler O’Neill, and authorized the members of managementdetermined to continue their negotiations with Magna.
The executiveform a special committee of Magna’sthe board of directors again met on March 18,with the authority to engage KBW as Avenue’s financial advisor. Avenue decided not to sign the nondisclosure agreement and informed Pinnacle that it was not prepared to sign that agreement at that time.
On December 30, 2015, the special committee of the board of directors of Avenue held a meeting which was also attended by outside legal counsel and representatives of KBW. KBW provided the special committee with Sterne Agee’s representatives joining the meeting by telephone. Sterne Agee revieweda review of the financial terms of Pinnacle’s verbal proposal, and the valuation analysis it had performed, including how this proposal compared with other recent merger transactions. Basedtransactions of similarly-sized financial institutions in the market. The special committee determined to consider the information regarding Pinnacle’s verbal proposal and to reconvene on January 4, 2016.
On December 30, 2015, Mr. Samuels sent Mr. Turner an email explaining that Avenue’s special committee was considering the possibility of a transaction with Pinnacle but that it needed additional time to consider the transaction. Mr. Samuels explained that he would be in touch with Mr. Turner with any new information at the appropriate time. Mr Turner replied to Mr. Samuels that he understood Mr. Samuel’s position but that it was Pinnacle’s preference that the discussions proceed promptly given the close proximity of the two institutions, and the likelihood that a long negotiation may jeopardize either party’s ability to maintain confidentiality.
The special committee of the board of directors of Avenue held a meeting on January 4, 2016. Outside legal counsel and representatives of KBW were also in attendance in person or telephonically. At the meeting, representatives of KBW and the special committee discussed Pinnacle’s verbal proposal. The special committee determined that the verbal indication of interest from Pinnacle was not considered a compelling offer and that Pinnacle would need to present a more compelling offer, in writing, with key terms discussed by the special committee. The special committee instructed KBW to relay that position to Pinnacle.
On January 4, 2016, in accordance with the Avenue special committee’s directives, KBW communicated to Mr. Turner that Avenue’s special committee had requested that Pinnacle submit a written initial indication of Pinnacle’s interest in acquiring Avenue for review by Avenue’s special committee. Avenue requested that the indication of interest include various other matters such as the number of board seats that Avenue’s directors would be offered on Pinnacle’s board of directors, the mix of consideration being offered, and other customary items that would be of interest to Avenue’s special committee. In Mr. Turner’s conversation with KBW, Mr. Turner informed representatives of KBW that Pinnacle had never submitted a bid to acquire a bank that was being auctioned and did not intend to do so in this case. Following that call, at Mr. Turner’s direction, representatives of Sandler O’Neill initiated discussions with representatives of KBW in order to ensure clarity in the negotiating process. Shortly thereafter, members of Pinnacle’s senior management and representatives of Sandler O’Neill began to prepare an initial draft of an indication of interest.
Early on the morning of January 5, 2016, Mr. Turner informed the members of the executive committee of Pinnacle’s board of directors at a regularly scheduled meeting of that committee that he was engaged in discussions with representatives of Avenue regarding a possible transaction between the companies. At that meeting Mr. Carpenter reviewed summary transaction information (including potential financial terms) regarding the possible merger with Avenue that had been made available to the committee members in advance of the meeting.
During the morning of January 5, 2016, representatives of KBW, on behalf of Avenue, had discussions with representatives of Sandler O’Neill related to the potential transaction between Avenue and Pinnacle and the initial indication of interest that had been requested of Pinnacle. Later that day, Pinnacle’s senior management and representatives of Sandler O’Neill worked to finalize a draft of an indication of interest to submit to Avenue.
On January 6, 2016, Mr. Turner sent a letter expressing that after a preliminary review and setting aside stock price volatility, Pinnacle could value Avenue within a range of 0.36722 and 0.38655 shares of Pinnacle common stock for each share of Avenue common stock, which corresponded to a non-binding offer of a $19.00 to $20.00 per share implied valuation based on the ten-day trading priceaverage for Pinnacle’s common stock as of that date of $51.74. Mr. Turner expressed in this letter that the exchange ratio would be fixed and that 90% of the merger consideration would be payable in shares of Pinnacle’s common stock with 10% of the merger consideration payable in a fixed amount of cash. This letter highlighted the significant premium this offer represented to Avenue’s public offering price from its initial public offering and Avenue’s then trading price.
On January 6, 2016, Avenue’s special committee met to consider Pinnacle’s letter of January 6, 2016 with Mr. Samuels, Mr. Cleaver and representatives of KBW also in attendance in person or telephonically. The special committee instructed KBW to inform Pinnacle that a higher valuation for Avenue’s common stock would be required before the special committee would consider an offer sufficiently compelling to enter into a nondisclosure agreement containing a period of time during which Avenue would negotiate exclusively with Pinnacle.
On January 7, 2016, Mr. Turner sent a letter in response to the Avenue special committee’s request supplementing his letter dated January 6, 2016. In this letter, Mr. Turner expressed that Pinnacle was prepared to improve its non-binding offer to acquire all of Avenue’s common stock at that time, the sharea fixed exchange ratio produced an imputedbased on the value of $14.35 per share0.40 shares of Magna’sPinnacle common stock, atwith the 75%/25%merger consideration to remain a mix of Pinnacle stock and cash mix.in the same percentages as expressed in his January 6, 2016 letter.
On January 8, 2016, the special committee of the board of directors of Avenue met with outside legal counsel and representatives of KBW also attending the meeting. Representatives of KBW discussed the financial terms of Pinnacle’s January 7, 2016 written proposal, including how this proposal compared with other recent merger transactions of similarly-sized financial institutions in the market. The directorscommittee members discussed the financial strength and performance of Pinnacle, its strong Tennessee banking presence, stock liquidity and the advantages a combination with Pinnacle would offer.offer and the
unlikely ability of other potential acquirors to pay a higher price. The executivespecial committee authorized Mr. BaileySamuels to proceed with discussions with Pinnacle on the terms outlined with the assistance of Sterne Agee.
A full report of the discussions with Pinnacle and the executive committee’s deliberations was made to the Magna board of directors at a meeting on March 30, 2015. The directors reviewed the financial analysis that had been prepared, the financial terms of the proposal and the benefits to Magna’s shareholders given the liquidity of Pinnacle’s common stock as well as the dividend rate offered by Pinnacle’s common stock and instructed Mr. BaileyKBW, to proceed with negotiations with Pinnacle. The Magna board of directors also discussed that the principal representative at Sterne Agee working with Magna was working with Pinnacle on another transaction (that turned out to be the CapitalMark merger), and the extent to which the possibility of a conflict of interest may impact Sterne Agee and its engagement. The Magna board of directors instructed Mr. Bailey to investigate the potential conflict of interest, interview other potential financial advisers and retain legal counsel. After the March 30, 2015 meeting of the Magna board of directors, Mr. Bailey consulted legal counsel about the engagement of an additional financial adviser given the work Sterne Agee was performing for Pinnacle. Mr. Bailey then contacted STRH regarding a possible engagement as co-adviser, and inquired into STRH providing an opinion as to whether or not the transaction under consideration was fair from a financial point of view to the holders, other than the Excluded Holders, of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock).
During the last week of March 2015 and the beginning of April 2015, the full due diligence review process between the companies started. On April 3, 2015, Magna received Pinnacle’s due diligence list and on April 10, 2015, an online data site with due diligence materials was opened. Mr. Turner and Mr. Bailey continued to communicate by telephone during the due diligence process. During the due diligence process, and to negotiate and execute a nondisclosure agreement.
On January 9, 2016, Mr. Cleaver sent Hugh Queener, Pinnacle’s chief administrative officer, a revised draft of the nondisclosure agreement that Pinnacle asked Magnahad sent to Avenue on December 15, 2015, reflecting the comments of Avenue and its legal counsel. On January 11, 2016, representatives of Pinnacle’s and Avenue’s legal counsel negotiated the final terms of the nondisclosure agreement.
On January 11, 2016, Avenue and Pinnacle entered into a mutual nondisclosure and confidentiality agreement. The nondisclosure agreement signed by the parties granted Pinnacle a 30-day period during which Avenue would negotiate exclusively with Pinnacle and included customary standstill provisions. Subsequent to the execution of the nondisclosure agreement, Avenue began to provide pro forma information. detailed financial information to Pinnacle to aid Pinnacle’s management team in its continued analysis of a potential merger of the two companies.
On January 12, 2016, Pinnacle’s legal counsel distributed an initial draft of the merger agreement to Avenue’s legal counsel.
Also on January 12, 2016, Avenue held a special meeting of its full board of directors to update the members on the status of the Pinnacle offer and the actions taken by the special committee.
During this period, Mr. BaileyJanuary 2016, the parties conducted due diligence and members of Avenue’s and Pinnacle’s senior management, along with their respective financial and legal advisors, engaged in discussions regarding the compatibility of the companies’ systems and other potential cost savings as well as employment-related matters. Among other things, these individuals discussed executive compensation matters, including the payments Avenue’s executive officers would be entitled to receive in the event Avenue was acquired and the potential tax consequences to those individuals, Pinnacle and Avenue of those payments.
On January 14, 2016, Messrs. Carpenter and Queener and Pinnacle’s corporate controller, Dan Stubblefield, met in person with Messrs. Samuels and Cleaver to discuss potential cost savings that may result from the merger and other integration and due diligence matters.
Between January 14, 2016 and January 26, 2016, Pinnacle’s and Avenue’s representatives engaged in numerous discussions regarding the terms of Avenue’s executive officers’ employment arrangements and benefits, including the potential payments that the executive officers would be entitled to receive as a result of the merger, including those provided for in Avenue’s supplemental executive retirement plan, or SERP.
On January 18, 2016, at Avenue’s direction, KBW requested that Pinnacle consider increasingand Sandler O’Neill submit Pinnacle’s final offer to Avenue regarding the purchase price in light of the revenue enhancement opportunities he had discussed with Mr. Turner.proposed transaction which represented Pinnacle’s management responded that Pinnacle had considered those opportunities in itsbest offer ofto Avenue for a 0.3369 exchange ratio and that in Pinnacle’s view the deal was fully priced and there would be no increase in the fixed exchange ratio.potential business combination.
At an April 7, 2015 special meeting of the regularly scheduled Pinnacle board of directors Pinnacle’s management updatedmeeting held on January 19, 2016, Mr. Turner briefed the Pinnacle board of directors on the status of itsthe negotiations with Magna.Avenue and the Pinnacle board of directors authorized Pinnacle’s management to continue those negotiations. At this meeting, representatives of Sandler O’Neill provided the Pinnacle board of directors with a detailed preliminary presentation summarizing the key financial terms of the purposed merger as of that date.
On April 7, 2015,January 19, 2016, KBW received an email and exhibit from Sandler O’Neill in which Pinnacle publicly announced that it had entered intoproposed an exchange ratio of 0.40x and cash consideration based on a fixed $20.00 per share, which represented an implied value of $19.81 per share for Avenue’s stock based on the merger agreement with CapitalMark.trailing 20-day average of Pinnacle’s stock price. Pinnacle’s proposal contemplated consideration split between a mix of 90% Pinnacle common stock and 10% cash.
On April 10, 2015, Pinnacle’sJanuary 19, 2016, Avenue’s legal counsel sentadvisor distributed a revised draft of the merger agreement to Magna’sPinnacle’s legal counsel that reflected the fully negotiated terms of the merger agreement Pinnacle had negotiated with CapitalMark and Pinnacle communicated to Magna its desire to adhere to those terms in the merger agreement with Magna. The parties’ respective legal counsel then proceeded to negotiatereflecting the terms received by KBW earlier on that day.
On January 20, 2016, Pinnacle provided drafts of change in control agreements for Messrs. Samuels, Cleaver and Andy Moats, Avenue’s executive vice president, chief credit officer & bank group director, which agreements would have provided for the definitive merger agreement.
The Magna boardpayment of directors met on April 17, 2015, with Magna’s legal counsel present,certain payments to discuss the statuseach of negotiations, to review in detail the draft of the merger agreement and to consider the engagement of co-financial advisers, including Stephens, Inc. (to whom the Sterne Agee engagement had been assigned as a result of the principal representative of Sterne Agee that had been advising Magna becoming an employee of Stephens, Inc.) and STRH. Mr. Bailey updated the directors on the status of the negotiationsthose individuals if their prospective employment with Pinnacle summarizedwas terminated without cause by Pinnacle or with cause by the financial termsindividual, in Pinnacle’s proposed merger agreement and discussed Pinnacle’s proposed timeframe for proceeding. He also advisedeach case, within twelve months of a change in control of Pinnacle.
On January 22, 2016, the special committee of the board of directors of an unsolicited expression of interest fromAvenue held a Memphis-based nonpublic bank holding company in a range below the current Pinnacle proposal. Mr. Bailey recommended that the Magna board of directors continue with the Pinnacle offermeeting which was also attended by outside legal counsel and table this indication of interest in light of the lower price offered and the absence of liquidity in the institution’s stock. After the board received legal advice from its attorneys, representatives of Stephens, Inc. (who we refer to as Stephens) and STRH joined the meeting by telephone to discuss the engagement of their firms as co-advisers and answer questions about the financial terms of the merger agreement. The Stephens representative detailed for directors his existing relationship with Pinnacle, and the STRH representative addressed STRH’s role as an independent adviser to the Magna board of directors and the process for rendering a fairness opinion. Following their remarks, the board of directors approved the proposed engagement of Stephens and STRH as co-financial advisers in connection with the transaction. The Magna board of directors agreed to pay Stephens and STRH an aggregate fee of 1% of the total value of the merger consideration, based on the 20 day average closing price of Pinnacle common stock as of April 27, 2015, plus the Stock Option Consideration (which we refer to as the Total Consideration), which, assuming that none of the outstanding Magna options are exercised prior to the effective time of the Magna merger, is currently expected to be approximately $814,000. Magna’s legal counsel led the directors through the terms of the merger agreement draft, a discussion of the representations, warranties, covenants and grounds (and consequences) of termination and responded to questions from directors. The board of directors also generally discussed the process for moving forward.KBW. At the conclusion of the meeting, the Magna boardspecial committee discussed potential cost savings that might be realized by a transaction with Pinnacle as well as a review of directors authorizedthe due diligence process, a proposed organizational chart for senior management, to proceedthe potential consolidation of offices and the treatment of SERP plans currently in place with certain Avenue executives. Avenue’s outside legal counsel also provided an update on the status of negotiations with Pinnacle.respect to the draft merger agreement. Representatives of KBW also discussed the January 19, 2016 email from Sandler O’Neill proposing Pinnacle’s final offer and provided a market update, noting the volatility of stock prices in the industry.
FollowingOn January 22, 2016, Messrs. Samuels and Cleaver met with Messrs. Turner, Carpenter, Queener and Stubblefield to again discuss certain integration and due diligence matters and to engage in further discussions regarding the April 17, 2015 Magna boardpotential cost savings that the merger may create. At this meeting, Messrs. Samuels and Cleaver expressed certain concerns with respect to the partiesdraft change in control agreements previously provided by Pinnacle for their consideration and recommended that these agreements be revised in the form of a three-year employment agreement for each of Messrs. Samuels, Cleaver and Moats. These agreements would include similar payments to these individuals if their employment was terminated following a change in control of Pinnacle under the same scenarios as contemplated in the change in control agreements, but would also include severance payments to the individual in the event his employment was terminated without cause by Pinnacle or for cause by the executive prior to change in control of Pinnacle. On January 24, 2016, Pinnacle’s legal counsel provided drafts of these employment agreements to Avenue’s legal counsel.
From January 24, 2016 to January 28, 2016, Pinnacle and Avenue and their respective financial and legal counsel continued to negotiateadvisors finalized the detailed terms of the merger agreement and the disclosure schedules theretorelated ancillary agreements, including the employment agreements. Negotiations continued thru January 28, 2016, at which time the legal advisors of Pinnacle and Avenue, working with particular emphasis ontheir clients, finalized the scenarios in which Magna could terminate the merger agreement and the amount of any termination fees that would be owed by Magna in those situations. Legal counsel to the parties then exchanged draftsterms of the merger agreement and related ancillary agreements (includingfor presentation to the agreement that Magna’s senior executive officers would be required to sign in connectionrespective boards of directors.
Also between January 24, 2016 and January 28, 2016, Pinnacle and each of Messrs. Samuels, Cleaver and Moats, together with their respective legal advisors, negotiated the terminationfinal terms of Magna’s SERP plans with the executives) which termination agreement requires those individuals to not compete in banking or other financial services with Pinnacle Bank or solicit Pinnacle Bank’s customers or employees for a one-year period following the termination of their employment with Pinnacle Bank.agreements.
On April 21, 2015,January 26, 2016, the Pinnacle board met for its regularly scheduled meeting. Mr. Turner informed the board concerning the status of the Magna transaction noting recent events regarding new business lines Magna was likely to be involved in and that several conversations had ensued between the two companies but that in light of the significant increase in the price of Pinnacle’s common stock since the parties commenced discussions regarding a possible combination, Pinnacle management had communicated to Magna that its current offer was Pinnacle’s last and best offer. Mr. Turner stated that there continued to be progress with respect to the drafting of the merger agreement. The PinnacleAvenue board of directors instructed Mr. Turner to continue the process in hopes of finalizing a transaction shortly.
On April 21, 2015, Pinnacle publicly announcedheld its financial results for the first quarter of 2015.
At the regular meeting of the Magna board of directors on April 27, 2015, the Magna board of directors met with itsmonthly meeting. Outside legal counsel to reviewAvenue and representatives of KBW also attended the meeting. Outside legal counsel reviewed the current status of the negotiation between Avenue and Pinnacle of the merger agreement, andthe proposed board resolutions concerning the merger, the manner in which outstanding issues were beingto be addressed, and generally discussed the voting agreement each director would be required to
sign andas well as the proposed change of control agreementemployment agreements that Pinnacle had offered to Mr. Bailey (a draftMessrs. Samuels, Cleaver and Moats, and KBW reviewed the financial aspects of which had been provided to Mr. Bailey on April 20, 2015) pursuant to which Mr. Bailey would be entitled to receive a payment equal to two times his base salary and then current bonus in the event that within 12 months following a change of control of Pinnacle or a successor to Pinnacle Mr. Bailey’s employment was terminated without cause by Pinnacle or its successor or by Mr. Bailey for cause.proposed merger. A special meeting of the MagnaAvenue board of directors was called for the following dayJanuary 28, 2016 to consider whether to approve the proposed transaction and recommend it to the MagnaAvenue shareholders. The latest draft
On January 28, 2016, the board of directors of Avenue met to consider the proposed transaction with Pinnacle, after receiving presentations from Avenue’s outside legal advisor and KBW, and discussions with senior management. At the meeting, Avenue’s legal advisor reviewed with the Avenue directors their fiduciary duty to shareholders under Tennessee law. Avenue’s legal advisor also reviewed with the Avenue directors the
terms and conditions of the merger agreement, the merger and voting agreement, STRH’sthe various agreements to be signed in connection with the merger agreement. KBW reviewed the financial analysis presentation and a draft of proposed authorizing resolutions approving the transaction were provided to directors in advanceaspects of the meeting.
On April 28, 2015,proposed merger and rendered to the MagnaAvenue board of directors met with its legal counsel and financial advisers to consider the definitive transaction agreements. The representatives of STRH reviewed with the Magna board of directors STRH’s financial analysis of the merger consideration and delivered to the Magna board of directors STRH’s oralan opinion, which was subsequently confirmed in writing,dated January 28, 2016, to the effect that, as of April 28, 2015 and based uponsuch date and subject to the conditions, limitations,procedures followed, assumptions made, matters considered, and qualifications and assumptionslimitations on the review undertaken by KBW as set forth in thesuch opinion, the aggregate merger consideration to be received in the Magnaproposed merger by the holders, other than the Excluded Holders, of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) was fair, from a financial point of view, to such holders. After receiving STRH’s opinion and carefulthe holders of Avenue common stock. Following a discussion among members of Avenue’s board of directors, including consideration of the revised draftfactors described below under “Avenue’s Reasons for the Merger; Recommendation of the merger agreementAvenue Board of Directors”, and upon recommendation of the other strategic options available to Magna at the time, Magna’sspecial committee Avenue’s board of directors (i)unanimously determined that the merger agreement and the transactions contemplated thereby weremerger are advisable and in the best interestinterests of MagnaAvenue and its shareholders (ii)and approved and adopted the merger agreement and approved the Magna merger, and the other transactions contemplated thereby, and (iii) directedrecommended that the merger agreement be submitted to Magna’s shareholders for approval and recommended the approval and adoption of the merger agreement and the transactions contemplated thereby bymerger be submitted to Avenue common shareholders for approval.
At a special called meeting of the Magna shareholders.
AlsoPinnacle board of directors on AprilJanuary 28, 2015,2016, the Pinnacle board of directors met with itsmembers of Pinnacle’s senior management, Sandler O’Neill and Pinnacle’s legal counseladvisors. Mr. Turner and other members of Pinnacle’s senior management reviewed with the Pinnacle board of directors information regarding Pinnacle, Avenue and the terms of the proposed Avenue merger. Representatives of Sandler O’Neill then reviewed with the Pinnacle board of directors a range of matters, including the structure of the merger, business and financial advisersinformation regarding the two companies, valuation methodologies and analyses and other matters. Members of Pinnacle’s senior management also apprised the Pinnacle board of directors of the results of its due diligence investigations of Avenue. Pinnacle’s legal advisor discussed with the Pinnacle board of directors the legal standards applicable to considerits decisions and actions with respect to the draftproposed merger agreement.and reviewed the terms of the proposed merger, the merger agreement and the ancillary transaction agreements, including the proposed employment agreements with Messrs. Samuels, Cleaver and Moats.
Following these presentations, the Pinnacle board meeting continued with discussions and questions among the members of the Pinnacle board of directors, senior management, Sandler O’Neill presented its reportand Pinnacle’s legal advisors. Following these discussions and after taking into consideration the factors described under “—Pinnacle’s Reasons for the Avenue Merger,” the Pinnacle board of directors unanimously voted to approve the merger with Avenue and the definitive merger agreement and related ancillary agreements.
On January 28, 2016, following the conclusion of the meetings of the boards of directors of Avenue and Pinnacle occurring on the same date, Pinnacle and Avenue executed the merger agreement, Pinnacle and the directors and executive officers of Avenue executed the voting agreements related to the Avenue merger and Messrs. Samuels and Cleaver and Pinnacle and Pinnacle Bank executed the employment agreements. Mr. Moats was out of the country on January 28, 2016 and did not execute his employment agreement until April 5, 2016.
On March 21, 2016, Pinnacle learned that a member of the executive committee of Pinnacle’s board of directors had purchased an aggregate of 10,179 shares of Avenue common stock in separate transactions on January 5, 2016 and January 11, 2016, in transactions that Pinnacle believes were in violation of certain of Pinnacle’s policies applicable to Pinnacle’s directors. This director resigned from the board of directors regardingof each of Pinnacle and Pinnacle Bank. Following the director’s resignation, Pinnacle’s board of directors met on April 5, 2016 and received an oral report of Pinnacle’s legal counsel and, after receiving a presentation from Sandler O’Neill related to the financial terms of the merger, approved, ratified and its potential impact to Pinnacle shareholders. Sandler O’Neill reviewed with the directors the financial terms of the transaction, discussed methodologies used in evaluating the transaction, and discussed the potential pricing metrics of the transaction relative to other similar transactions. Pinnacle’s legal counsel also discussedaffirmed the merger agreement, the merger and the various other agreements, including voting and changeissuance of control agreements. As a result,shares of Pinnacle’s common stock in connection with the merger.
Avenue’s Reasons for the Merger; Recommendation of the Avenue Board of Directors
After careful consideration, Avenue’s board of directors (i)has determined that the merger agreementis fair to and the transactions contemplated thereby were in the best interest of, Pinnacle and its shareholders, and (ii) approved and adopted the merger agreement and approved the Magna merger and the other transactions contemplated thereby.
Following the parties’ respective board meetings, the merger agreement between Magna and Pinnacle was executed by the parties on April 28, 2015.
The transaction was announced after the close of business on April 28, 2015 by a press release issued jointly by Magna and Pinnacle.
Magna’s Reasons for the Magna Merger; Recommendation of the Magna Board of Directors
Avenue shareholders. In reaching its decision to adopt and approve the merger agreement and recommend the Magna merger to its shareholders, Magna’sAvenue’s board of directors evaluated the Magna merger and the merger agreement, in consultation with Magna’sAvenue’s management, as well as its legal and financial advisers,advisors, and considered a number of positive factors, including the following material factors:following:
its knowledge of the current environment in the financial services industry, including national, regional and regionallocal economic conditions, increased regulatory burdens, evolving trends in technology, increasing
competition |
The foregoing discussion of the factors considered by Magna’sAvenue’s board of directors is not intended to be exhaustive, but is believed to include all material factors considered by Magna’sAvenue’s board of directors. In view of the wide variety of the factors considered in connection with its evaluation of the Magna merger and the complexity of these matters, Magna’sAvenue’s board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of Magna’sAvenue’s board of directors may have given different weight to different factors. Magna’sAvenue’s board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Magna management and Magna’s legal and financial advisors, and considered the factors overall to be favorable to, and to support, its determination.
It should be noted that this explanation of Magna’s board of directors’ reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS” beginning on page 32.
Pinnacle’s Reasons for the Magna Merger
Pinnacle’s board of directors concluded that the merger agreement is in the best interests of Pinnacle and its shareholders. In deciding to approve the merger agreement, Pinnacle’s board of directors considered a number of factors, including, without limitation, the following:
In addition, in connection with its ratification and affirmation of the merger agreement described elsewhere in this proxy statement/prospectus, Pinnacle’s board of directors considered the fact that a former director of Pinnacle owned 10,179 shares of Avenue common stock.
The foregoing discussion of the information and factors considered by the Pinnacle board of directors is not exhaustive, but includes the material factors considered by the Pinnacle board of directors. In view of the wide variety of factors considered by the Pinnacle board of directors in connection with its evaluation of the Magna merger and the complexity of such matters, the Pinnacle 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. The Pinnacle board of directors discussed the factors described above, asked questions of Pinnacle’s management and Pinnacle’s legal and financial advisors, and reached general consensus that the Magna merger was in the best interests of Pinnacle and Pinnacle shareholders.
In considering the factors described above, individual members of the Pinnacle board of directors may have given different weights to different factors. It should be noted that this explanation of the Pinnacle board’s reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS” beginning on page 32.above.
The Pinnacle board of directors determined that the Magna merger, the merger agreement and the issuance of Pinnacle common stock in connection with the Magna merger are in the best interests of Pinnacle and its shareholders.
Opinion of Avenue’s Financial Advisor
Avenue engaged Keefe, Bruyette & Woods, Inc., or KBW, to render financial advisory and investment banking services to Avenue, including an opinion to the Avenue board of directors as to the fairness, from a financial point of view, to the holders of Avenue common stock of the merger consideration to be received by such shareholders in the proposed merger of Avenue with and into Pinnacle. Avenue selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.
As part of its engagement, representatives of KBW participated in the telephonic meeting of the Avenue board of directors held on January 28, 2016, at which the Avenue board evaluated the proposed merger with Pinnacle. At this meeting, KBW reviewed the financial aspects of the proposed merger and rendered to the Avenue board of directors an opinion to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in its opinion, the merger consideration in the proposed merger was fair, from a financial point of view, to the holders of Avenue common stock. The Avenue board of directors approved the merger agreement at this meeting.
The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached asAppendix B to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.
KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Avenue board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, of the merger consideration in the merger to the holders of Avenue common stock. It did not address the underlying business decision of Avenue to engage in the merger or enter into the merger agreement or constitute a recommendation to the Avenue board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Avenue common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter, nor does it constitute a
recommendation regarding whether or not any such shareholder should enter into a voting, shareholders’ or affiliates’ agreement with respect to the merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.
KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.
In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the merger and bearing upon the financial and operating condition of Avenue and Pinnacle, including, among other things:
KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:
KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also held discussions with senior management of Avenue and Pinnacle regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as KBW deemed relevant to its inquiry. KBW was not requested to, and did not, assist Avenue with soliciting indications of interest from third parties other than Pinnacle regarding a potential transaction with Avenue.
In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information provided to it or that was publicly available and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon the management of Avenue as to the reasonableness and achievability of the financial and operating forecasts and projections of Avenue referred to above (and the assumptions and bases therefor) and KBW assumed that such forecasts and projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of such management and that such forecasts and projections would be realized in the amounts and in the time periods estimated by such management. KBW further relied, with the consent of Avenue, upon Pinnacle management as to the reasonableness and achievability of the publicly available consensus “street estimates” of Pinnacle (as adjusted as described above), as well as the estimates regarding certain pro forma financial effects of the merger on Pinnacle (and the assumptions and bases therefor, including, without limitation, the cost savings and related expenses expected to result or be derived from the merger) referred to above. KBW assumed that all such information was reasonably prepared on a basis reflecting, or in the case of the publicly available consensus “street estimates” of Pinnacle referred to above were consistent (as adjusted) with, the best currently available estimates and judgments of Pinnacle management and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.
It is understood that the portion of the foregoing financial information that was provided to KBW was not prepared with the expectation of public disclosure, that all of the foregoing financial information, including the publicly available consensus “street estimates” of Pinnacle referred to above that we were directed to use, was based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with the respective managements of Avenue and Pinnacle and with the consent of the Avenue board, that such information provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.
KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Avenue or Pinnacle since the date of the last financial statements of
each such entity that were made available to KBW. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with Avenue’s consent, that the aggregate allowances for loan and lease losses for Avenue and Pinnacle are adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Avenue or Pinnacle, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Avenue or Pinnacle under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.
KBW assumed, in all respects material to its analyses:
KBW assumed, in all respects material to its analyses, that the merger would be consummated in a manner that complied with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of Avenue that Avenue relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Avenue, Pinnacle, the merger, any related transaction (including the bank merger), and the merger agreement. KBW did not provide advice with respect to any such matters.
KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of the opinion, to the holders of Avenue common stock of the merger consideration to be received by such holders in the merger. KBW expressed no view or opinion as to any other terms or aspects of the merger or any term or aspect of any related transaction (including the bank merger), including without limitation, the form or structure of the merger (including the form of merger consideration or the allocation thereof between cash and stock) or any related transaction, any consequences of the merger or any related transaction to Avenue, its shareholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, consulting, voting, support, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could
be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:
In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, Avenue and Pinnacle. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Avenue board in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Avenue board of directors with respect to the fairness of the merger consideration. The type and amount of consideration payable in the merger were determined through negotiation between Avenue and Pinnacle and the decision to enter into the merger agreement was solely that of the Avenue board of directors.
The following is a summary of the material financial analyses presented by KBW to the Avenue board of directors in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the Avenue board of directors, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized
below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.
For purposes of the financial analyses described below, KBW utilized an implied value of the merger consideration of $20.03 per share of Avenue common stock, consisting of the sum of (i) the implied value of the stock consideration of 0.36 of a share of Pinnacle common stock based on the closing price of Pinnacle common stock on January 27, 2016 and (ii) the cash consideration of $2.00. In addition to the financial analyses described below, KBW reviewed with the Avenue board of directors for informational purposes, among other things, implied transaction multiples for the proposed merger of 23.9x Avenue’s estimated 2016 net income and 16.5x Avenue’s estimated 2017 net income based on the implied value of the merger consideration of $20.03 per share of Avenue common stock and financial forecasts and projections relating to Avenue provided by Avenue management.
Avenue Selected Companies Analyses.Using publicly available information, KBW compared the financial performance, financial condition and market performance of Avenue to 13 selected banks and thrifts which were traded on Nasdaq, the New York Stock Exchange or the New York Stock Exchange Market and headquartered in the Southeast region (defined as Alabama, Arkansas, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennnessee, Virginia and West Virginia) and which had total assets between $750 million and $2.5 billion, non-performing assets to loans plus other real estate owned (“OREO”) less than 2.0% and a 3-year loan growth greater than 50%.
The selected companies were as follows:
| Bear State Financial, Inc. | Park Sterling Corporation | |
| Commerce Union Bancshares, Inc. | Southern First Bancshares, Inc. | |
| Franklin Financial Network, Inc. | Stonegate Bank | |
| Home Bancorp, Inc. | Select Bancorp, Inc. | |
| Investar Holding Corporation | WashingtonFirst Bankshares, Inc. | |
| Live Oak Bancshares, Inc. | Xenith Bankshares, Inc. | |
| National Commerce Corporation | ||
To perform this analysis, KBW used profitability and other financial information for, as of, or, in the case of latest 12 months (“LTM”) information, through, the most recent completed quarter (“MRQ”) available (which in the case of Avenue was the fiscal quarter ended September 30, 2015, except as noted) and market price information as of January 27, 2016. KBW also used 2016 and 2017 earnings per share (“EPS”) estimates taken from consensus “street estimates” for Avenue and the selected companies. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Avenue’s historical financial statements as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBW’s analysis showed the following concerning the financial performance of Avenue and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Avenue (2) | 25th Percentile | Median | Average | 75th Percentile | ||||||||||||||||
MRQ Core Return on Average Assets (1) | 0.76 | % | 0.82 | % | 0.90 | % | 0.90 | % | 0.93 | % | ||||||||||
MRQ Core Return on Average Equity (1) | 9.11 | % | 6.87 | % | 7.92 | % | 8.14 | % | 9.70 | % | ||||||||||
MRQ Core Return on Average Tangible Common Equity (1) | 9.72 | % | 7.08 | % | 8.98 | % | 9.04 | % | 10.79 | % | ||||||||||
MRQ Net Interest Margin | 3.32 | % | 3.55 | % | 3.84 | % | 3.83 | % | 4.17 | % | ||||||||||
MRQ Efficiency Ratio | 67.8 | % | 69.6 | % | 64.7 | % | 64.7 | % | 60.6 | % | ||||||||||
| (1) | Core income excluded extraordinary items, non-recurring items and gains/losses on sale of securities |
| (2) | Based on Avenue’s fiscal quarter ended December 31, 2015 as provided by Avenue management |
KBW’s analysis also showed the following concerning the financial condition of Avenue and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Avenue | 25th Percentile | Median | Average | 75th Percentile | ||||||||||||||||
Tangible Common Equity / Tangible Assets (1) | 7.92 | % | 8.90 | % | 9.65 | % | 10.15 | % | 10.02 | % | ||||||||||
Leverage Ratio | 8.41 | % | 8.89 | % | 9.97 | % | 10.88 | % | 11.47 | % | ||||||||||
CET1 Ratio | 9.64 | % | 10.13 | % | 11.02 | % | 12.14 | % | 12.73 | % | ||||||||||
Total Capital Ratio | 12.75 | % | 11.74 | % | 11.98 | % | 13.78 | % | 13.83 | % | ||||||||||
Loans / Deposits (1) | 89.2 | % | 91.2 | % | 94.2 | % | 94.1 | % | 98.9 | % | ||||||||||
Loan Loss Reserve / Gross Loans | 1.16 | % | 0.78 | % | 0.90 | % | 0.93 | % | 0.99 | % | ||||||||||
Nonperforming Assets / Loans + OREO (2) | 0.21 | % | 1.57 | % | 0.97 | % | 1.12 | % | 0.79 | % | ||||||||||
LTM Net Charge-Offs / Average Loans | 0.11 | % | 0.10 | % | 0.05 | % | 0.05 | % | 0.01 | % | ||||||||||
| (1) | Based on Avenue’s fiscal quarter ended December 31, 2015 as provided by Avenue management |
| (2) | Asset quality ratios were adjusted to exclude loans and OREO covered by FDIC loss share agreements; nonperforming assets include nonaccrual loans, restructured loans and OREO |
In addition, KBW’s analysis showed the following concerning the market performance of Avenue and, to the extent publicly available, the selected companies:
| Selected Companies | ||||||||||||||||||||
| Avenue | 25th Percentile | Median | Average | 75th Percentile | ||||||||||||||||
One-Year Stock Price Change (1) | 20.0 | % | (3.0 | %) | 6.3 | % | 2.9 | % | 14.5 | % | ||||||||||
One-Year Total Return (1) | 20.0 | % | (1.8 | %) | 7.1 | % | 3.5 | % | 14.5 | % | ||||||||||
Stock Price / Book Value per Share | 143 | % | 109 | % | 125 | % | 136 | % | 146 | % | ||||||||||
Stock Price / Tangible Book Value per Share | 148 | % | 124 | % | 152 | % | 153 | % | 168 | % | ||||||||||
Stock Price / LTM EPS | 18.9x | 15.3x | 16.6x | 17.6x | 20.2x | |||||||||||||||
Stock Price / 2016 Estimated EPS | 15.5x | 12.2x | 13.1x | 14.0x | 16.5x | |||||||||||||||
Stock Price / 2017 Estimated EPS | 11.9x | 10.3x | 10.9x | 10.9x | 11.6x | |||||||||||||||
Dividend Yield (2) | — | 0.3 | % | 0.5 | % | 0.8 | % | 1.2 | % | |||||||||||
Dividend Payout (2) | — | 7.5 | % | 11.1 | % | 12.7 | % | 14.3 | % | |||||||||||
| (1) | One-year price change and one-year total return for Avenue, Franklin Financial Network, Inc., Live Oak Bancshares, Inc. and National Commerce Corporation were calculated since the date of their respective initial public offerings in 2015; one-year price change and one-year total return for Commerce Union Bancshares, Inc. were calculated since the date of its Nasdaq listing in 2015. |
| (2) | Dividend yield and dividend payout reflected most recent quarterly dividend annualized as a percentage of stock price and annualized MRQ EPS, respectively; Bear State Financial, Inc., Commerce Union Bancshares, Inc. and Franklin Financial Network, Inc. did not pay dividends in their respective most recent completed quarters. |
No company used as a comparison in the above selected companies analysis is identical to Avenue. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Pinnacle Selected Companies Analysis.Using publicly available information, KBW compared the financial performance, financial condition and market performance of Pinnacle to 11 selected banks and thrifts which were traded on Nasdaq, the New York Stock Exchange or the New York Stock Exchange Market and headquartered in the Southeast region and which had total assets between $6.0 billion and $10.0 billion.
The selected companies were as follows:
Capital Bank Financial Corp. | South State Corporation | |
FCB Financial Holdings, Inc. | TowneBank | |
Home BancShares, Inc. | Union Bankshares Corporation | |
Bank of the Ozarks, Inc. | United Community Banks, Inc. | |
Renasant Corporation | WesBanco, Inc. | |
Simmons First National Corporation | ||
To perform this analysis, KBW used profitability and other financial information for, as of, or, in the case of LTM information for the latest 12 month period, through, the most recent completed quarter available (which in the case of Pinnacle was the fiscal quarter ended December 31, 2015) and market price information as of January 27, 2016. KBW also used 2016 and 2017 EPS estimates taken from consensus “street estimates” for Pinnacle and the selected companies. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Pinnacle’s historical financial statements as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBW’s analysis showed the following concerning the financial performance of Pinnacle and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Pinnacle | 25th Percentile | Median | Average | 75th Percentile | ||||||||||||||||
MRQ Core Return on Average Assets (1) | 1.12 | % | 1.03 | % | 1.19 | % | 1.32 | % | 1.54 | % | ||||||||||
MRQ Core Return on Average Equity (1) | 8.31 | % | 8.54 | % | 9.35 | % | 10.20 | % | 11.97 | % | ||||||||||
MRQ Core Return on Average Tangible Common Equity (1) | 13.46 | % | 11.40 | % | 15.40 | % | 14.19 | % | 16.68 | % | ||||||||||
MRQ Net Interest Margin | 3.68 | % | 3.61 | % | 3.85 | % | 4.08 | % | 4.47 | % | ||||||||||
MRQ Efficiency Ratio | 53.9 | % | 61.3 | % | 60.6 | % | 54.8 | % | 50.8 | % | ||||||||||
| (1) | Core income excluded extraordinary items, non-recurring items, gains/losses on sale of securities. |
KBW’s analysis also showed the following concerning the financial condition of Pinnacle and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Pinnacle (1) | 25th Percentile | Median | Average | 75th Percentile | ||||||||||||||||
Tangible Common Equity / Tangible Assets | 8.73 | % | 8.62 | % | 9.12 | % | 9.75 | % | 10.71 | % | ||||||||||
Leverage Ratio | 9.79 | % | 9.29 | % | 10.68 | % | 10.72 | % | 11.07 | % | ||||||||||
CET1 Ratio | 8.99 | % | 10.75 | % | 11.70 | % | 11.96 | % | 13.06 | % | ||||||||||
Total Capital Ratio | 11.69 | % | 12.48 | % | 13.30 | % | 13.58 | % | 13.88 | % | ||||||||||
Loans / Deposits | 94.5 | % | 83.3 | % | 93.3 | % | 90.7 | % | 96.4 | % | ||||||||||
Loan Loss Reserve / Gross Loans | 0.99 | % | 0.65 | % | 0.78 | % | 0.80 | % | 0.85 | % | ||||||||||
Nonperforming Assets / Loans + OREO (2) | 0.67 | % | 1.64 | % | 1.28 | % | 1.27 | % | 1.08 | % | ||||||||||
LTM Net Charge-Offs / Average Loans | 0.21 | % | 0.16 | % | 0.13 | % | 0.13 | % | 0.11 | % | ||||||||||
| (1) | Pinnacle’s tangible common equity / tangible assets, leverage ratio, CET1 ratio and total capital ratio were as of December 31, 2015 and adjusted to give pro forma effect to Pinnacle’s pending acquisition of Bankers Healthcare Group, as provided by Pinnacle management. |
| (2) | Asset quality ratios were adjusted to exclude loans and OREO covered by FDIC loss share agreements; nonperforming assets include nonaccrual loans, restructured loans and OREO. |
In addition, KBW’s analysis showed the following concerning the market performance of Pinnacle and the selected companies:
| Selected Companies | ||||||||||||||||||||
Pinnacle (1) | 25th Percentile | Median | Average | 75th Percentile | ||||||||||||||||
One-Year Stock Price Change | 34.0 | % | 1.5 | % | 13.9 | % | 12.1 | % | 19.6 | % | ||||||||||
One-Year Total Return | 35.4 | % | 2.8 | % | 16.3 | % | 13.9 | % | 22.1 | % | ||||||||||
Stock Price / Book Value per Share | 174 | % | 119 | % | 122 | % | 143 | % | 149 | % | ||||||||||
Stock Price / Tangible Book Value per Share | 290 | % | 148 | % | 171 | % | 198 | % | 225 | % | ||||||||||
Stock Price / LTM EPS | 19.9x | 15.5x | 16.7x | 18.3x | 20.6x | |||||||||||||||
Stock Price / 2016 Estimated EPS | 16.4x | 12.7x | 13.7x | 14.1x | 14.9x | |||||||||||||||
Stock Price / 2017 Estimated EPS | 14.6x | 11.2x | 12.6x | 12.5x | 13.3x | |||||||||||||||
Dividend Yield (2) | 1.1 | % | 1.6 | % | 2.2 | % | 2.2 | % | 2.6 | % | ||||||||||
Dividend Payout (2) | 21.5 | % | 25.4 | % | 29.5 | % | 31.7 | % | 35.3 | % | ||||||||||
| (1) | Based on estimated book value per share and tangible book value per share of Pinnacle as of December 31, 2015 pro forma for Pinnacle’s then pending acquisition of BHG, provided to KBW by Pinnacle management. |
| (2) | Dividend yield and dividend payout reflected most recent quarterly dividend annualized as a percentage of stock price and annualized MRQ EPS, respectively; Capital Bank Financial Corp. and FCB Financial Holdings, Inc. did not pay dividends in their respective most recent completed quarters. |
No company used as a comparison in the above selected companies analysis is identical to Pinnacle. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Select Transactions Analysis.KBW reviewed publicly available information related to 16 selected bank and thrift transactions announced since January 1, 2014, with transaction values between $150 million and $350 million, acquired companies headquartered in the Southeast region and acquirors traded on Nasdaq, the New York Stock Exchange or the New York Stock Exchange Market. The selected transactions were as follows:
Acquiror | Acquired Company | |
| TowneBank | Monarch Financial Holdings, Inc. | |
| United Bankshares, Inc. | Bank of Georgetown | |
| Valley National Bancorp | CNLBancshares, Inc. | |
| United Community Banks, Inc. | Palmetto Bancshares, Inc. | |
| Pinnacle Financial Partners, Inc. | CapitalMark Bank & Trust | |
| Renasant Corporation | Heritage Financial Group, Inc. | |
| IBERIABANK Corporation | Georgia Commerce Bancshares, Inc. | |
| IBERIABANK Corporation | Old Florida Bancshares, Inc. | |
| TowneBank | Franklin Financial Corporation | |
| Eagle Bancorp, Inc. | Virginia Heritage Bank | |
| Valley National Bancorp | 1st United Bancorp, Inc. | |
| Simmons First National Corporation | Community First Bancshares, Inc. | |
| Bank of the Ozarks, Inc. | Summit Bancorp, Inc. | |
| CenterState Banks, Inc. | First Southern Bancorp, Inc. | |
| Yadkin Financial Corporation | VantageSouth Bancshares, Inc. | |
| IBERIABANK Corporation | Teche Holding Company | |
For each selected transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration value paid for the acquired company and using financial data based on the acquired company’s then latest publicly available financial statements and, to the extent publicly available, next twelve months (“NTM”) EPS consensus “street estimates” prior to the announcement of the acquisition:
KBW also reviewed the price per common share paid for the acquired company for the seven selected transactions involving publicly traded acquired companies as a premium to the closing price of the acquired company one day prior to the announcement of the acquisition (expressed as a percentage and referred to as the one day market premium). The resulting transaction multiples and premiums for the selected transactions were compared with the corresponding transaction multiples and premiums for the proposed merger based on the implied value of the merger consideration of $20.03 per share of Avenue common stock and using historical financial information for Avenue as of or through December 31, 2015, 2016 EPS consensus “street estimates” for Avenue and the closing price of Avenue common stock on January 27, 2016.
The results of the analysis are set forth in the following table (excluding the impact of LTM estimated net income multiples for four selected transactions, which multiples were considered not to be meaningful because they were negative or greater than 35.0x):
Price / Tangible Book Value (%) Price / LTM Net Income (x) Price / NTM Net Income (x) Core Deposit Premium (%) 1-Day Market Premium (%) Selected Transactions Pinnacle 25th Percentile Median Average 75th Percentile 228 % 174 % 188 % 183 % 199 % 30.0x 18.1x 25.2x 22.6x 26.2x 24.1x 17.4x 19.9x 19.4x 21.5x 12.2 % 9.8 % 11.4 % 12.0 % 13.7 % 51.8 % 5.2 % 19.7 % 20.2 % 28.6 %
No company or transaction used as a comparison in the above selected transaction analysis is identical to Avenue or the proposed merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Relative Contribution Analysis. KBW analyzed the relative standalone contribution of Pinnacle and Avenue to various pro forma balance sheet and income statement items and the pro forma market value of the combined entity. This analysis did not include purchase accounting adjustments or cost savings. To perform this analysis, KBW used (i) balance sheet data for Pinnacle and Avenue as of December 31, 2015, (ii) 2016 and 2017 EPS consensus “street estimates” for Pinnacle, as adjusted by Pinnacle management to give pro forma effect to Pinnacle’s minority investment in BHG and the expected impact of the Durbin Amendment on Pinnacle, (iii) financial forecasts and projections relating to the 2016 and 2017 net income of Avenue provided by Avenue management, and (iv) market price data as of January 27, 2016. The results of KBW’s analysis are set forth in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of Pinnacle and Avenue shareholders in the combined company based on the stock consideration of 0.36 of a share of Pinnacle common stock based on the 90% stock / 10% cash implied merger consideration mix provided for in the merger agreement and also based on a hypothetical exchange ratio assuming 100% stock consideration in the proposed merger for illustrative purposes:
| Pinnacle as a % of Total | Avenue as a % of Total | |||||||
Ownership | ||||||||
90% stock / 10% cash | 91.9 | % | 8.1 | % | ||||
100% stock | 91.0 | % | 9.0 | % | ||||
Balance Sheet | ||||||||
Assets | 88.3 | % | 11.7 | % | ||||
Gross Loans Held for Investment | 88.4 | % | 11.6 | % | ||||
Deposits | 87.8 | % | 12.2 | % | ||||
Equity | 92.7 | % | 7.3 | % | ||||
Tangible Equity | 88.7 | % | 11.3 | % | ||||
Tangible Common Equity | 88.7 | % | 11.3 | % | ||||
Income Statement | ||||||||
LTM Net Income | 93.2 | % | 6.8 | % | ||||
2016 Estimated Net Income | 93.7 | % | 6.3 | % | ||||
2017 Estimated Net Income | 91.7 | % | 8.3 | % | ||||
Market Value | 93.9 | % | 6.1 | % | ||||
Forecasted Pro Forma Financial Impact Analysis. KBW performed a pro forma financial impact analysis that combined projected income statement and balance sheet information of Pinnacle and Avenue. Using closing balance sheet estimates as of September 30, 2016 for Pinnacle and Avenue, extrapolated from historical data using growth rates taken from consensus “street estimates” in the case of Pinnacle and provided by Avenue management in the case of Avenue, 2016 and 2017 EPS consensus “street estimates” for Pinnacle (as adjusted by Pinnacle management to give pro forma effect to Pinnacle’s minority investment in BHG and the expected impact of the Durbin Amendment on Pinnacle), 2016 and 2017 net income estimates provided by Avenue
management, and pro forma assumptions (including certain purchase accounting adjustments, cost savings and related expenses) provided by Pinnacle management, KBW analyzed the potential financial impact of the merger on certain projected financial results of Pinnacle. This analysis indicated the merger could be accretive to Pinnacle’s estimated 2016 EPS and estimated 2017 EPS and dilutive to Pinnacle’s estimated tangible book value per share as of September 30, 2016. Furthermore, the analysis indicated that each of Pinnacle’s tangible common equity to tangible assets ratio, leverage ratio, common equity tier 1 ratio, tier 1 risk-based capital ratio and total risk based capital ratio as of September 30, 2016 could be lower. For all of the above analysis, the actual results achieved by Pinnacle following the merger may vary from the projected results, and the variations may be material.
Discounted Cash Flow Analysis. KBW performed a discounted cash flow analysis of Avenue to estimate a range for the implied equity value of Avenue. In this analysis, KBW used financial forecasts and projections relating to the net income and assets of Avenue prepared by and provided to KBW by Avenue management, and assumed discount rates ranging from 11.0% to 15.0%. The ranges of values were derived by adding (i) the present value of the estimated free cash flows that Avenue could generate over the five-year period from 2016 to 2021 as a stand alone company, and (ii) the present value of Avenue’s implied terminal value at the end of such period. KBW assumed that Avenue would maintain a tangible common equity to tangible asset ratio of 8.00% and would retain sufficient earnings to maintain that level. In calculating the terminal value of Avenue, KBW applied a range of 12.0x to 14.0x estimated 2021 net income. This discounted cash flow analysis resulted in a range of implied values per share of Avenue common stock of $14.58 per share to $20.57 per share.
The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The foregoing discounted cash flow analyses did not purport to be indicative of the actual values or expected values of Avenue or the pro forma combined company.
Miscellaneous. KBW acted as financial advisor to Avenue in connection with the proposed merger and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of their broker-dealer business and further to certain existing sales and trading relationships, KBW and its affiliates may from time to time purchase securities from, and sell securities to, Avenue and Pinnacle and, as a market maker in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of Avenue or Pinnacle for their own accounts and for the accounts of their customers and clients. KBW employees may also maintain individual positions in Avenue common stock and Pinnacle common stock, which positions currently include an individual position in shares of Avenue common stock held by a senior member of the KBW advisory team providing services to Avenue in connection with the proposed merger.
Pursuant to the KBW engagement agreement, Avenue agreed to pay KBW a total cash fee equal to 1.10% of the aggregate merger consideration, $350,000 of which became payable to KBW with the rendering of its opinion and the balance of which is contingent upon the closing of the merger. Avenue also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. In addition to this present engagement, in the past two years, KBW has provided investment banking and financial advisory services to Avenue and received compensation for such services. KBW served as sole bookrunner and an underwriter in connection with the initial public offering of Avenue in February 2015. In addition, KBW served as sole placement agent in connection with Avenue’s private placement of subordinated notes in December 2014. In connection with the foregoing initial public offering and private placement, KBW and one of its affiliates received fees (including underwriting discounts) of approximately
$865,000 in the aggregate from Avenue. During the past two years, KBW has from time to time provided investment banking advice to Pinnacle in the ordinary course of business, for which KBW did not enter into an engagement agreement or receive compensation. KBW may in the future provide investment banking and financial advisory services to Avenue or Pinnacle and receive compensation for such services.
Material United States Federal Income Tax Consequences
The following is a summary of the anticipated material United States federal income tax consequences generally applicable to a U.S. Holder (as defined below) of MagnaAvenue common stock including, with respect to the
exchange of MagnaAvenue common stock for Pinnacle common stock and cash pursuant to the Magna merger. References in this summary to Magna common stock shall include the Magna Series D Preferred Stock, which pursuant to its terms, automatically converts to Magna common stock immediately prior to the effective time of the Magna merger. This discussion assumes that U.S. Holders hold their MagnaAvenue common stock as capital assets within the meaning of section 1221 of the Code. This summary is based on the Code, Treasury Regulations, judicial decisions and administrative pronouncements, each as in effect as of the date of this proxy statement/prospectus. All of the foregoing are subject to change at any time, possibly with retroactive effect, and all are subject to differing interpretation. Any such change could affect the continuing validity of this discussion. No advance ruling has been sought or obtained from the IRS regarding the United States federal income tax consequences of the Magna merger. As a result, no assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.
This summary does not address any tax consequences arising under United States federal tax laws other than United States federal income tax laws, nor does it address the laws of any state, local, foreign or other taxing jurisdiction, nor does it address any aspect of income tax that may be applicable to non-U.S. Holders of MagnaAvenue common stock. In addition, this summary does not address all aspects of United States federal income taxation that may apply to U.S. Holders of MagnaAvenue common stock in light of their particular circumstances or U.S. Holders that are subject to special rules under the Code, such as holders of MagnaAvenue common stock that are partnerships or other pass-through entities (and persons holding their MagnaAvenue common stock through a partnership or other pass-through entity), persons who acquired shares of MagnaAvenue common stock (or their shares of Magna Series D Preferred Stock) as a result of the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan, persons subject to the alternative minimum tax, tax-exempt organizations, financial institutions, broker-dealers, traders in securities that have elected to apply a mark to market method of accounting, insurance companies, persons having a “functional currency” other than the U.S. dollar and persons holding their MagnaAvenue common stock as part of a straddle, hedging, constructive sale or conversion transaction.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of MagnaAvenue common stock that is for United States federal income tax purposes:
If a partnership (including an entity treated as a partnership for United States federal income tax purposes) holds MagnaAvenue common stock, the tax treatment of a partner in the partnership will generally depend on the status of such partner and the activities of the partnership. Partnerships and partners in such a partnership are strongly urged to consult their tax advisors as to the specific tax consequences to them of the Magna merger.
General. Pinnacle and MagnaAvenue have structured the Magna merger to qualify as a reorganization for United States federal income tax purposes. The obligations of Pinnacle and MagnaAvenue to consummate the Magna merger are conditioned upon the receipt of an opinion from Bass, Berry & Sims, PLC for its clients,client, Pinnacle, and Pinnacle Bank, and an opinion from Wyatt Tarrant & Combs,Bradley Arant Boult Cummings LLP for its client, Magna,Avenue, to the effect that for United States federal income tax purposes, the Magna merger will constitute a reorganization within the meaning of Section 368(a) of the Code. Neither Pinnacle or Pinnacle Bank nor MagnaAvenue intends to waive this condition. If
the effect on MagnaAvenue’s common shareholders of the tax opinion to be delivered to MagnaAvenue as of the closing is materially different from the opinions respecting the United States federal income tax considerations expressed herein under the heading “—Exchange of MagnaAvenue Common Stock for Cash and Pinnacle Common Stock”, MagnaAvenue would not effect the Magna merger without recirculating this document after revising this discussion appropriately and resoliciting the approval of its shareholders. The tax opinions will rely on assumptions, including assumptions regarding the absence of changes in existing facts and law and the completion of the Magna merger in the manner contemplated by the merger agreement, and representations and covenants made by Pinnacle Pinnacle Bank and Magna,Avenue, including those contained in certificates of officers of Pinnacle Pinnacle Bank and Magna.Avenue. The accuracy of those representations, covenants or assumptions may affect the conclusions set forth in this opinion, in which case the tax consequences of the Magna merger could differ from those discussed here. Opinions of counsel neither bind the IRS nor preclude the IRS from adopting a contrary position.
Exchange of MagnaAvenue Common Stock for Pinnacle Common Stock and Cash. Subject to the qualifications and limitations set forth above, the material United States federal income tax consequences of the Magna merger to MagnaAvenue shareholders upon their exchange of MagnaAvenue common stock for Pinnacle common stock and cash will be as follows:
In the case of a holder of MagnaAvenue common stock who holds shares of MagnaAvenue common stock with differing tax bases and/or holding periods, the preceding rules must be applied to each identifiable block of MagnaAvenue common stock.
Tax on Net Investment Income. Certain U.S. Holders whose income exceeds certain threshold amounts will be subject to a 3.8% Medicare contribution tax on “net investment income”. Net investment income is generally the excess of dividends and capital gains with respect to the sale, exchange, or other disposition of stock over allowable deductions. Each MagnaAvenue common shareholder is urged to consult his, her or its tax adviseradvisor to determine their own particular tax consequences with respect to the merger consideration to be received in the Magna merger and the net investment income tax.
Backup Withholding. Unless you comply with certain reporting or certification procedures or are an “exempt recipient” (in general, corporations and certain other entities), you may be subject to a backup withholding tax of 28% with respect to any cash payments received in the Magna merger. Any amounts withheld from payments to a holder under the backup withholding rules are not additional tax and will be allowed as a refund or credit against the holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.
Reporting Requirements. IfBecause you will receive Pinnacle common stock as a result of the Magna merger, you will be required to retain records pertaining to the Magna merger and will be required to file with your United States federal income tax return for the year in which the Magna merger takes place a statement setting forth certain facts relating to the Magna merger.
Tax Treatment of Receipt of Stock Option Consideration. A holder of a Magna option who receives Stock Option Consideration in cancellation of such Magna option will be treated as having received ordinary compensation income in an amount equal to such Stock Option Consideration.
Tax matters are very complicated, and the tax consequences of the Magna merger to you will depend on the facts of your particular situation. You are encouraged to consult your own tax adviseradvisor regarding the specific tax consequences of the Magna merger, including the applicability and effect of any federal, state, local and foreign income and other tax laws.
Dissenters’ Rights
Under Tennessee law, because Avenue common stock is listed on the Nasdaq Global Select Market, holders of shares of MagnaAvenue common stock and Magna Series D Preferred Stock who deliver written notice of their intent to dissent and do not vote in favor of the Magna merger have the right to dissent and receive the fair value of their Magna stock in cash. Magna shareholders electing to exercise dissenters’ rights must comply with the provisions of Chapter 23 of the Tennessee Business Corporation Act, or TBCA, in order to perfect their rights. A copy of Chapter 23 of the TBCA is attached to asAppendix B to this proxy statement/prospectus.
The following is intended as a brief summary of the material provisions of the Tennessee statutory procedures required to be followed by a holder of Magna stock in order to properly dissent from the Magna merger and perfect the shareholder’s dissenters’ rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Chapter 23 of the TBCA, the full text of which appears asAppendix B of this proxy statement/prospectus.
Holders of Magna common stock and Magna Series D Preferred Stock who do not want to accept the merger consideration, who do not vote in favor of (or who abstain from voting on) the merger agreement and who perfect their dissenters’ rights by complyingseek an appraisal in connection with the provisions of Chapter 23 of the TBCA, will have the right to receive cash payment for the “fair value” of their Magna stock as determined in accordance with Chapter 23 of the TBCA.
In order to perfect dissenters’ rights with respect to the Magna merger, a holder of Magna stock must (1) deliver to Magna, before the vote to approve the merger agreement is taken, written notice of his or her intent to demand payment for his or her shares of Magna stock if the Magna merger is consummated; and (2) not vote, or cause or permit to be voted, any of his shares of Magna stock in favor of the merger agreement. Within
10 days after consummation of the Magna merger, Magna must send to each of the Magna shareholders who has perfected dissenters’ rights in accordance with the steps disclosed above, a written dissenters’ notice and form setting forth instructions for receipt and payment of their shares of Magna stock. Upon receipt of such notice and form, dissenting Magna shareholders will become entitled to receive payment of their shares of Magna stock when they: (1) demand payment; (2) certify that they received their shares prior to the date of the first public announcement of Pinnacle Bank’s and Magna’s intention to merge; and (3) deposit with Pinnacle certificates representing their shares of Magna stock in accordance with the instructions set forth in the notice.
Any holder of Magna common stock and Magna Series D Preferred Stock contemplating the exercise of his or her dissenters’ rights should carefully review Chapter 23 of the TBCA, a copy of which is attached to this proxy statement/prospectus asAppendix B. A holder of Magna stock who fails to comply with all requirements of such Chapter 23 will forfeit his or her dissenters’ rights and, upon consummation of the Magna merger, that holder’s shares of Magna stock will be converted into the right to receive the merger consideration to which the shareholder is entitled under the merger agreement.
In general, any dissenting shareholder who perfects his or her right to be paid the “fair value” of the holder’s Magna stock in cash will recognize taxable gain or loss for federal income tax purposes upon receipt of any cash.merger.
Voting Agreement
As of the record date, Patriot Financial Partners and the directors and executive officers of MagnaAvenue beneficially owned collectively 2,211,050 shares of MagnaAvenue common stock, or approximately 21.2% of the outstanding shares of Avenue common stock, including 90,000 shares subject to Magna options currently exercisable but not exercised, and shares of Magna Series D Preferred Stock, or approximately % of the outstanding shares of Magna common stock and % of the outstanding shares of Magna Series D Preferred Stock.exercised. In connection with the execution of the merger agreement, Patriot Financial Partners and all of the directors and executive officers of MagnaAvenue executed a voting agreement pursuant to which they agreed, among other things, to vote their shares of MagnaAvenue common stock and Magna Series D Preferred Stock for the approval of the merger agreement. The voting agreement with Patriot Financial Partners automatically terminates upon the earlier to occur of (a) the effective time of the merger or (b) the termination of the merger agreement; provided, however, that Patriot Financial Partners may sell its shares of Avenue common stock on the earlier of (x) May 31, 2016 or (y) the day after the record date of the special meeting.
Accounting Treatment
The Magna merger will be accounted for as a “purchase,” as that term is used under U.S. generally accepted accounting principles for accounting and financial reporting purposes. MagnaAvenue will be treated as the acquired corporation for accounting and financial reporting purposes. Magna’sAvenue’s assets and liabilities will be adjusted to their estimated fair value on the closing date of the Magna merger and combined with the historical book values of the
assets and liabilities of Pinnacle Bank.Pinnacle. Applicable income tax effects of these adjustments will be included as a component of the combined company’s deferred tax assets or liabilities. The difference between the estimated fair value of the assets (including separately identifiable intangible assets, such as core deposit intangibles) and liabilities and the purchase price will be recorded as goodwill.
Interests of MagnaAvenue’s Executive Officers and Directors in the Magna Merger
Some of the Avenue executive officers and directors have financial and other interests in the Avenue merger that are in addition to, or different from, their interests as Avenue shareholders generally. Avenue’s board of directors was aware of these interests and considered them, among other matters, in approving and adopting the merger agreement. When Magna’sAvenue’s shareholders are considering the recommendation of the MagnaAvenue board of directors in connection with the merger agreement proposal, you should be aware that some of the executive officers and directors of Magna havethese interests that are in addition to, or different from, the interests of Magna’s shareholders generally which are described below. Pinnacle’s and Magna’s boards of directors were aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated by the merger agreement. Except as described below, to the knowledge of Magna, the executive officers and directors of Magna do not have any material interest in the Magna merger apart from their interests as shareholders of Magna.
Payments Under Supplemental Executive Retirement Plans. MagnaAvenue maintains a supplemental executive retirement plansplan, or SERP, which provideprovides for monthly benefit payments to certain executivesRonald L. Samuels, G. Kent Cleaver and Barbara J. Zipperian following their retirement. PriorThe plan provides that if a change of control of Avenue occurs and the executive’s employment is terminated in certain circumstances within 24 months following the change in control, then the executive is entitled to receive a change of control benefit payable in installments. Mr. Samuels is already fully vested in his normal retirement benefit under his SERP agreement. As of the closing date of the merger, these installments are expected to have a present value of approximately (i) $2.2 million for Mr. Samuels, (ii) $1.2 million for Mr. Cleaver and (iii) $1.0 million for Ms. Zipperian. The merger will constitute a change of control for purposes of the plan, and Pinnacle has agreed to assume the plan in connection with the merger.
The plan provides that if, within twenty four (24) months following a change of control, the executive ceases to be employed with Avenue (or a successor to Avenue) for any reason other than death, then the executive will receive the annual change in control benefit in 12 equal monthly installments beginning the first month after the date of the executive’s separation from service. The annual benefit shall be equal to sixty percent (60%) of the average base salary for the executive for the sixty (60) full months prior to the closing, Magna intendsseparation of service. The annual benefit shall be distributed to terminate its obligationsthe executive for the greater of fifteen (15) years or the executive’s lifetime. The plan provides that if any payments or benefit under thesethe plan would be subject to the excise tax imposed by Code Section 280G, then the payment or benefit plans. The lump-sum amounts
payable upon terminationPayments Under Avenue’s Equity Incentive Plan. Certain of these benefit plans are as follows: (i) Kirk Bailey—$720,223; (ii) Lisa Foley—$410,934; (iii) Lisa Reid—$530,448; (iv) Edward Simpson—$551,992; (v) Catherine Stallings—$225,975; (vi) Frank Stallworth—$514,645; and (vii) David Wadlington—$453,025. The terminationAvenue’s executive officers hold options to purchase shares of such benefit plans areAvenue common stock. Under the terms of the Avenue stock option plan, any unvested options will become fully vested immediately prior to (but conditioned upon eachthe occurrence of) the closing of these individuals enteringthe merger. Avenue executive officers, as a group, will receive accelerated vesting of options to purchase approximately 90,000 shares of Avenue common stock in connection with the merger.
Employment Agreement Between Certain Executives and Pinnacle and Pinnacle Bank. Ronald L. Samuels has entered into an employment agreement to terminate his or her respective planwith Pinnacle Bank and agreeing to be bound by a non-competePinnacle that will become effective at the consummation of the merger, whereby Mr. Samuels will serve as the Vice Chairman of Pinnacle and non-solicitation agreement in favor of Pinnacle Bank for a periodterm of 12 months following a separation of service from Pinnacle or any successor to Pinnacle.
Payments Under Magna’s Equity Incentive Plan. Upon the closing of the Magna merger, all outstanding unvested Magna options will immediately vest pursuant to the terms of the plan and all unexercised Magna options will be cashed out and terminated in exchange for the Stock Option Consideration. The aggregate amounts payable under the plan to Magna’s executive officers, assuming no vested Magna options are exercised prior to the closing of the Magna merger, are as follows: (i) Kirk Bailey—$193,570; (ii) Lisa Foley—$134,210; (iii) Lisa Reid—$77,860; (iv) Edward Simpson—$165,295; (v) Catherine Stallings—$46,950; (vi) Frank Stallworth—$134,260; and (vii) David Wadlington—$94,535.
Payments Under Deferred Compensation Plan. Magna sponsors a deferred compensation plan under which directors and executive officers may elect to defer payment of director fees, salary or bonus. Upon the closing of the Magna merger, the deferred compensation plan will be terminated and all income deferred by executive officers and directors, together with the earnings thereon, will be distributed to participants in the plan. The distributions are currently estimated to be as follow: (i) Kirk Bailey—$67,715; (ii) Lisa Foley—$30,563; (iii) Lisa Reid—$2,357; (iv) Edward Simpson—$20,596; (v) Catherine Stallings—$34,969; (vi) Frank Stallworth—$88,342; (vii) David Wadlington—$20,692; (viii) Rudi Scheidt—$49,540; (ix) Ed Barnett—$44,164; and (x) Ron Stimpson—$24,478.
Change of Control Agreement Between Kirk Bailey and Pinnacle and Pinnacle Bank. As a condition to Pinnacle’s obligation to close the Magna merger, on or before the effective time of the Magna merger Kirk P. Bailey, Chairman and CEO of Magna, will have entered into a change of control agreement with Pinnacle and Pinnacle Bank, to be effective as of the closing of the Magna merger.three years. Under the agreement, Mr. BaileySamuels will receive an initial base salary of $390,988. Additionally, Mr. Samuels will receive a severance payment equal to two times his then current base salary and target bonus amount for the year in which his employment terminates if, within 12 months following a change of control of Pinnacle, (as defined below), Pinnacle terminates his employment without cause (as defined below) or Mr. BaileySamuels terminates his employment with cause. If Mr. Samuels is terminated without cause (as defined below). Theor he terminates his employment for cause prior to a change in control, Pinnacle and/or Pinnacle Bank must pay Mr. Samuels’ then current base salary for the remainder of the term of the employment agreement.
G. Kent Cleaver has entered into an employment agreement with Pinnacle Bank and Pinnacle that will automatically renew each yearbecome effective at the consummation of the merger, whereby Mr. Cleaver will serve as the Executive Vice President of Pinnacle and Pinnacle Bank for a term of three years. Under the agreement, Mr. Cleaver will receive an initial base salary of $318,270. Additionally, Mr. Cleaver will receive a severance payment equal to two times his then current base salary and target bonus amount for the year in which his employment terminates if, within 12 month period on January 1 unless, prior to November 30 preceding such renewal, Pinnacle gives notice of its intent not to renew. Additionally, notwithstanding the foregoing, if prior to the earlier ofmonths following a change of control of Pinnacle, Pinnacle terminates his employment without cause or Mr. Cleaver terminates his employment with cause. If Mr. Cleaver is terminated without cause or he terminates his employment for cause prior to a change in control, Pinnacle and/or Pinnacle enteringBank must pay Mr. Cleaver’s then current base salary for the remainder of the term of the employment agreement.
Andy Moats has entered into an employment agreement providingwith Pinnacle Bank and Pinnacle that will become effective at the consummation of the merger, whereby Mr. Moats will serve as an Executive Vice President of Pinnacle and Pinnacle Bank for a term of three years. Under the agreement, Mr. Moats will receive an initial base salary of $250,000. Additionally, Mr. Moats will receive a severance payment equal to two times his then current base salary and target bonus amount for the year in which his employment terminates if, within 12 months following a change of control Pinnacle’s Chief Executive Officerof Pinnacle, Pinnacle terminates his employment without cause or Pinnacle’s Human Resources and Compensation Committee, determine, inMr. Moats terminates his heremployment with cause. If Mr. Moats is terminated without cause or its sole discretion, that it is no longer appropriate to provide Mr. Bailey with the post change of control benefits described above, Mr. Bailey’s change of control agreement may be terminated by 10 days written notice from Pinnacle’s Chief Executive Officer or Pinnacle’s Human Resources and Compensation Committee.
Generally, the change of control provision found in Mr. Bailey’s change of control agreement is referred to as a “double trigger” such that (a) a change of control has to occur as defined in the change of control agreement and (b) the executive has to terminatehe terminates his employment for “cause,” or his employment hascause prior to be terminated bya change in control, Pinnacle and/or Pinnacle Bank without “cause”, in each case as defined inmust pay Mr. Moat’s then current base salary for the changeremainder of control agreement, as follows:the term of the employment agreement.
(a) APursuant to the terms of these executive employment agreements, a “change of control” generally means the acquisition by a person or persons, acting in concert, of 40% or more of the outstanding voting securities of Pinnacle or Pinnacle Bank; a change in the majority of the board of directors of Pinnacle or Pinnacle Bank over a 12-month period (unless the new directors were approved by a two-thirds majority of prior directors); a merger, consolidation or reorganization in which Pinnacle shareholders before the merger, consolidation or reorganization own 50% or less of the voting power after the merger, consolidation or reorganization; or the sale, transfer or assignment of all or substantially all of the assets of Pinnacle its subsidiaries to any third party.
(b) TerminationUnder these executive employment agreements, termination by Mr. Baileyan executive for “cause” generally means that Mr. Bailey,the executive, without his consent, experiences an adverse change in supervision so that he no longer reports to the same person(s) or entity to whom he reported immediately after the effective date of the employment agreement; an adverse change in Mr. Bailey’sthe executive’s supervisory authority occurs without Mr. Bailey’sthe executive’s consent; a material modification in Mr. Bailey’sthe executive’s job title or scope of responsibility has occurred without Mr. Bailey’sthe executive’s consent; a change in Mr. Bailey’sthe executive’s office location of more than 25 miles from Mr. Bailey’sthe executive’s current office location occurs without Mr. Bailey’sthe executive’s consent; a material change in salary, bonus opportunity or other benefit has occurred; or Mr. Baileythe executive receives a notice of nonrenewal of the employment agreement.
(c) TerminationUnder these executive employment agreements, termination of Mr. Baileythe executive by Pinnacle or Pinnacle Bank without “cause” means that Mr. Baileythe executive was not terminated as a result of a material breach by Mr. Baileythe executive of the terms of the employment agreement that remains uncured after the expiration of 30 days following delivery of written notice to Mr. Bailey;the executive; conduct by Mr. Baileythe executive that amounts to fraud, dishonesty or willful misconduct in the performance of his duties and responsibilities; Mr. Bailey’sthe executive’s arrest for, charge in relation to, or conviction of a crime involving breach of trust or moral turpitude; conduct by Mr. Baileythe executive that amounts to gross and willful insubordination or inattention to his duties and responsibilities; or conduct by Mr. Baileythe executive that results in removal from his position as an officer or employee pursuant to a written order by any regulatory agency with authority or jurisdiction over Pinnacle or Pinnacle Bank.
If Mr. Bailey is to receiveEach of these executive employment agreements include non-competition and non-solicitation provisions which prohibit the employee from engaging in any payment underbusiness in the change of control agreementNashville MSA that is competitive with Pinnacle’s or may become,Pinnacle Bank’s business or, subject to any additional tax under Section 409A(a)(1)(B) or any other taxes or penalties imposed under Section 409Acertain exceptions, soliciting customers and employees of the Code, then such payments will be delayed until the date that is six months after the date of Mr. Bailey’s separation from service with Pinnacle or Pinnacle Bank, in each case, during the three-year employment term, or such shorterin the case of Messrs. Samuels and Cleaver, for the three-year period that,following the termination of the employee’s employment with Pinnacle and Pinnacle Bank.
A copy of the employment agreement for each of Messrs. Samuels, Cleaver and Moats is filed as determined by Pinnacle or Pinnacle Bank, is sufficientan exhibit to avoid the impositionRegistration Statement of any such taxes or penalties.which this proxy statement/prospectus forms a part.
Thomas C. Farnsworth, IIIPayments Pursuant to Existing Avenue Employment Agreements. Upon consummation of the merger, certain Avenue executives will receive cash payments and certain other benefits. Promptly following consummation of the merger, Mr. Samuels, Mr. Cleaver and Mr. Moats along with Ms. Zipperian, will receive lump sum cash payments estimated to be approximately $1.1 million, $901,250, $600,833, and $600,833, respectively, plus in the case of Ms. Zipperian, continuation of health insurance benefits for a period of 35 months. Payment to Messrs. Samuels, Cleaver and Moats will be paid to the executive in exchange for the termination of their existing employment agreements with Avenue. Ms. Zipperian’s payments will be made pursuant to the terms of her employment agreement with Avenue.
Restricted Stock Awards. In connection with the merger Messrs. Samuels, Cleaver and Moats are expected to receive a restricted stock award from Pinnacle following the closing of the merger if the executive remains an employee of Avenue in good standing at the time the merger is consummated. Under the terms of this arrangement, Pinnacle anticipates issuing the following dollar amounts of shares of its restricted stock (with the number of shares based on the closing price of Pinnacle’s common stock as of the date of grant) the vesting of which will be tied to certain performance measures for Pinnacle that are expected to be based on earnings per share and certain asset quality metrics for each of the first three fiscal years beginning after the closing date of the merger: $250,000 to Mr. Samuels, $250,000 to Mr. Cleaver, and $250,000 to Mr. Moats.
Avenue Directors Becoming DirectorDirectors of Pinnacle. Thomas C. Farnsworth, III, a member of Magna’sFollowing the merger, the Pinnacle board of directors is expected to be appointedwill appoint Ronald L. Samuels, Marty Dickens, David Ingram and Joseph Galante to the board of directors of Pinnacle and Pinnacle Bank effective as of the closing of the Magna merger.
Mr. Farnsworth, age 48, is the President of Farnsworth Investment Company, a privately held real estate development and real estate investment company located in Memphis, Tennessee, with which he has been associated since 1989. He has been heavily involved in commercial real estate development and leasing and has an in-depth knowledge of matters pertaining to financing such projects. Mr. Farnsworth has served as a member of the Magna board of directors since 2004 and currently serves as the Chairman of the Loan Committee of Magna’s board of directors.
Mr. Farnsworth’s qualifications to serve on the board of directors of Pinnacle include his extensive experience in real estate development, as well as his knowledge of the Memphis market.
Pinnacle. Outside directors of Pinnacle currently receive an annual retainer in the amount of $20,000$25,000 in cash and restricted shares of Pinnacle common stock with a fair market value on the date of grant of $40,000.$55,000. Pinnacle’s outside directors also receive fees of $1,500$1,750 for attendance at each board meeting and $1,500 for attendance at each committee meeting, with committee chairs also being paid a cash retainer ranging in value from $6,250 to $15,000.
Ronald L. SamuelsContinued Employment,age 69, was one of Certain Officers. Pinnacle will continue the employmentAvenue’s co-founders in 2006. He formerly served as Group President of manymiddle Tennessee at Regions Bank. Mr. Samuels is well known as a community leader, with a long history of board service and leadership roles, including The Tennessee Bankers Association, Country Music Association Foundation, Leadership Nashville, Partnership 2010, Music City Center Coalition, Nashville Sports Council, Music City Bowl, and Nashville Predators Foundation. He also served as Chairman of the officersNashville Area Chamber of Magna effective asCommerce from 2008 to 2010.
Marty Dickens, age 68, was President of BellSouth/AT&T TN until his retirement in October 2007, having served at the company since June 1969. Mr. Dickens is Chairman of the closingBoard of Trustees of Belmont University, serves on the corporate board of Genesco and Blue Cross/Blue Shield of Tennessee, and serves as Chairman of the Magna merger, includingBoard of Harpeth Capital, an investment banking firm. He currently serves as chairman of the Music City Center Authority, which was responsible for the financing, construction and now the operation of the new Nashville convention center.
David Ingram, age 53, has served as Chairman of Ingram Entertainment Inc., the nation’s largest distributor of DVDs and video games, since April 1996. From April 1996 through August 2012, Mr. Bailey, who,Ingram served as described above, willChairman and President of Ingram Entertainment Inc. Mr. Ingram also enter intohas served as Chairman of DBI Beverage Inc., an operator of beverage distributorships in eight major markets in California, since he founded that company in February 2002. Prior to these roles, he served as Assistant to the Treasurer of Ingram Industries Inc. and as a changeDevelopment Officer at Duke University. Mr. Ingram is currently President of control agreement with PinnacleThe Golf Club of Tennessee, Chairman of the Montgomery Bell Academy Board of Trustees, Chairman of the Vanderbilt Owen Graduate School of Management Board of Visitors, and Pinnacle Bank.head of the Investment Committee for the Tennessee Golf Foundation.
Joseph C. Galante, age 66, was Chairman of Sony Music from January 1995, until his retirement in July 2010. He helped launch the careers of Alabama, Clint Black, Kenny Chesney, Sara Evans, Dave Matthews, Wu Tang Clan, SWV, The Judds, Lonestar, Martina McBride, K.T. Oslin, Kellie Pickler, Carrie Underwood, Keith Whitley, Chris Young and many more. His leadership bolstered the careers of such superstars as Brooks & Dunn, Alan Jackson, Miranda Lambert and Brad Paisley. He serves on the boards of the Country Music Association, Iroquois Capital, Artist Growth and Fishbowl Spirits. He is currently a mentor in residence at the Entrepreneur Center in Nashville.
Indemnification and Insurance of Directors and Officers. Pinnacle has agreed that all rights to indemnificationindemnify present or former officers and exculpationdirectors of Avenue from liabilities arising out of or pertaining to matters existing or occurring on or prior to the effective time of the Magna merger in favor of present or former officers and directors of Magna as provided under the articles of incorporation or bylaws of Magna, or permitted under Tennessee law, shall survive the MagnaAvenue merger.
In addition, Pinnacle has agreed to maintain a directors’ and officers’ liability insurance policy for six years after the effective time of the MagnaAvenue merger to cover the present officers and directors of MagnaAvenue with respect to claims against such directors and officers arising from facts or events that occurred before the effective time of the MagnaAvenue merger; provided that Pinnacle is not obligated to pay each year more than 250% of Magna’sAvenue’s annual premiums for such coverage. In lieu of the foregoing, Avenue may obtain prior to the effective time of the merger, at Pinnacle’s expense, a six-year “tail” policy under Avenue’s existing directors’ and officers’ liability insurance policy providing equivalent coverage.
Share Ownership of Management and Directors of Magna.Avenue. The following table sets forth information with respect to the beneficial ownership, as of June 8, 2015,May 4, 2016, of shares of MagnaAvenue common stock and Magna Series D Preferred Stock by (i) each of Magna’sAvenue’s directors and executive officers and (ii) all directors and executive officers as a group. To the knowledge of Magna,Avenue, except as set forth on page 91 in the table appearing under the heading “Certain Beneficial Owners of Avenue Financial Holdings, Inc. Common Stock,” no other person beneficially owns more than 5% of the issued and outstanding Magnashares of Avenue common stock.
Name | Shares of Magna Common Stock Owned (1) | Magna Options Exercisable within 60 days of June 8, 2015 (1) | Total Shares of Magna Common Stock Owned | Percent Owned of All Shares of Magna Common Stock (2) | Shares of Magna Series D Preferred Stock Owned (3) | Percent Owned of All Shares of Magna Series D Preferred Stock (4) | ||||||||||||||||||
Jon Kevin Adams | 90,366 | (5) | — | 90,366 | 1.85 | % | — | * | ||||||||||||||||
Kirk P. Bailey | 344,049 | (6) | 19,667 | 363,716 | 7.41 | % | 668 | (7) | * | |||||||||||||||
Edwin W. Barnett | 126,602 | (8) | — | 126,602 | 2.59 | % | — | * | ||||||||||||||||
Dr. James H. Beaty | 36,200 | — | 36,200 | * | — | * | ||||||||||||||||||
Harold E. Crye | 646,298 | — | 646,298 | 13.21 | % | 500 | (9) | * | ||||||||||||||||
Thomas C. Farnsworth, III | 58,541 | — | 58,541 | 1.20 | % | — | * | |||||||||||||||||
Lisa G. Foley | — | 19,500 | 19,500 | * | — | * | ||||||||||||||||||
Richard H. Leike | 656,574 | (10) | — | 656,574 | 13.42 | % | 500 | (9) | * | |||||||||||||||
Lisa W. Reid | 82,400 | (11) | 9,000 | 91,400 | 1.87 | % | 200 | (12) | * | |||||||||||||||
Rudi E. Scheidt | 39,914 | (13) | — | 39,914 | * | — | * | |||||||||||||||||
Arthur N. Seessel | 40,188 | — | 40,188 | * | — | * | ||||||||||||||||||
Edward L. Simpson | 18,400 | 17,833 | 36,233 | * | — | * | ||||||||||||||||||
Harry L. Smith | 29,725 | — | 29,725 | * | — | * | ||||||||||||||||||
Catherine Stallings | 17,200 | 2,334 | 19,534 | * | — | * | ||||||||||||||||||
B. Frank Stallworth | 5,000 | 23,000 | 28,000 | * | — | * | ||||||||||||||||||
Ronald W. Stimpson | 352,430 | (14) | — | 352,430 | 7.21 | % | 4,500 | (15) | 1.28 | % | ||||||||||||||
David C. Wadlington | 30,096 | 9,667 | 39,763 | * | — | * | ||||||||||||||||||
Current directors and executive officers as a group (17 persons) | 2,573,983 | 101,001 | 2,674,984 | 53.58 | % | 5,868 | 1.66 | % | ||||||||||||||||
| Shares Beneficially Owned | ||||||||||||
Name: | Number of Shares | Percentage of Shares | ||||||||||
Directors | ||||||||||||
David G. Anderson | 25,501 | 0.24 | ||||||||||
Patrick G. Emery | 22,815 | 0.22 | ||||||||||
Agenia Clark | 18,789 | 0.18 | ||||||||||
G. Kent Cleaver | 209,107 | 2.01 | ||||||||||
James F. Deutsch | (2 | ) | 848,500 | 8.14 | ||||||||
Marty Dickens | 49,414 | 0.47 | ||||||||||
Nancy Falls | 6,213 | 0.06 | ||||||||||
Joseph C. Galante | 41,515 | 0.40 | ||||||||||
David Ingram | (3 | ) | 531,200 | 5.10 | ||||||||
Steve Moore | 29,614 | 0.28 | ||||||||||
Ken Robold | 17,359 | 0.17 | ||||||||||
Ronald L. Samuels | 204,443 | 1.96 | ||||||||||
Karen Saul | 62,863 | 0.60 | ||||||||||
Executive Officers Who Are Not Directors | ||||||||||||
Barbara J. Zipperian | (1 | ) | 106,242 | 1.02 | ||||||||
E. Andrew Moats | (1 | ) | 37,475 | 0.36 | ||||||||
Directors and Executive Officers as a Group (15 persons) | (1 | ) | 2,211,050 | 21.15 | % | |||||||
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Pinnacle’s Dividend Policy
No assurances can be given that any dividends will be paid by Pinnacle or that dividends, if paid, will not be reduced in future periods. The principal source of Pinnacle’s cash flow, including cash flow to pay interest owing under the Pinnacle Loan Agreementits $75.0 million line of credit and to holders of its subordinated debentures, including the Avenue subordinated debentures being assumed by Pinnacle in the merger, and any dividends payable to common shareholders, are dividends that Pinnacle Bank pays to Pinnacle as its sole stockholder. The ability of Pinnacle Bank to pay dividends, as well as Pinnacle’s ability to pay dividends to its common shareholders, will continue to be subject to and limited by the results of operations of Pinnacle Bank and by certain legal and regulatory restrictions. Further, any lenders making loans tounder the loan agreement entered into on March 29, 2016 by Pinnacle or Pinnacle Bank may impose financial covenants that may be more restrictive than regulatory requirements with respect to Pinnacle’sits $75.0 million line of credit, Pinnacle is prohibited from paying dividends on its capital stock so long as an event of default is then existing or would be caused by the payment of dividends to common shareholders.such dividends.
Pinnacle’s board of directors may change its dividend policy at any time. For further information on Pinnacle’s dividend history and restrictions on Pinnacle’s and Pinnacle Bank’s ability to pay dividends, see “COMPARATIVE MARKET PRICES AND DIVIDENDS” beginning on page 24,19, “SUPERVISION AND REGULATION—Payment of Dividends” appearing in Pinnacle’s Annual Report on Form 10-K for the year ended December 31, 20142015 and the Risk Factor entitled “Our ability to declare and pay dividends is limited” in Pinnacle’s QuarterlyAnnual Report on Form 10-Q10-K for the periodyear ended MarchDecember 31, 2015, which areis incorporated by reference into this proxy statement/prospectus. See “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94.
Regulatory Approval
Pinnacle is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended, and supervised and regulated by the FRB. Avenue is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and supervised and regulated by the Federal Reserve Board (which we refer to as the FRB). Magna is a member of the FRB and is primarily supervised and regulated by the FRB and TDFI.FRB. Pinnacle Bank isand Avenue Bank each are primarily supervised and regulated by the FDIC and TDFI. Set forth below is a brief summary of certain regulatory approvals needed for the Magnamerger and the bank merger. Additional information relating to the supervision and regulation of Pinnacle and Avenue (and each of Pinnacle Bank and Avenue Bank) is included in Pinnacle’s Annual Report on Form 10-K for the year ended December 31, 2014,2015 and Avenue’s Annual Report on Form 10-K for the year ended December 31, 2015, which isare incorporated by reference into this proxy statement/prospectus. See “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94.
FRB Approval. Because the parties to the merger agreement intend to consummate the merger and the bank merger simultaneously, and each of the FDIC and TDFI must approve the bank merger, there is an exemption available under applicable federal banking regulations that eliminates, with the consent of the FRB, the need for the FRB to approve the merger. Pinnacle requested that the FRB consent to this exemption and on March 22, 2016 Pinnacle was notified by the FRB that the merger qualified for the exemption from its approval requirements.
FDIC Approval. The Bank Merger Act requires the prior written approval of the FDIC before any insured depository institution may merge or consolidate with another insured depository institution if the resulting
institution is to be a state non-member bank. As a state non-member bank, Pinnacle Bank filed its application for approval of the Magnabank merger with the FDIC on May 14, 2015.March 9, 2016.
The Bank Merger Act prohibits the FDIC from approving any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States. Similarly, the Bank Merger Act prohibits the FDIC from approving a proposed merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade.
In every proposed merger transaction, the FDIC must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, and the effectiveness of each insured depository institution involved in the proposed merger transaction in combatting money-laundering activities, including in overseas branches. Any transaction approved by the FDIC may not be completed until thirty (30) days after such approval unless such period is shortened to fifteen (15) days.
State Regulatory Approval. To complete the Magnamerger and the bank merger, Pinnacle and Pinnacle Bank isare required to submit an application to, and receive approval from, the TDFI. Pinnacle and Pinnacle Bank filed their applications with the TDFI on March 9, 2016. The TDFI will review the applicationapplications to determine whether each of the Magnamerger and the bank merger complies with Tennessee law, including deposit concentration limitations. In addition, Pinnacle and Pinnacle Bank isare required to provide the TDFI satisfactory evidence that the bank merger of Magna with and into Pinnacle Bank complies with applicable requirements under Tennessee law.
We cannot guarantee you that the regulatory approvals described above will be given without undue delay or the imposition by a regulatory authority of a condition that would materially and adversely impact the financial or economic benefits of the Magnamerger or the bank merger on Pinnacle or Pinnacle Bank or any of their banking and non-banking subsidiaries, including, but not limited to, Pinnacle Bank, or Magna.
OPINIONAVENUE’S BOARD OF MAGNA’S FINANCIAL ADVISER
On April 28, 2015, STRH delivered to the Magna board of directors an oral opinion, which was confirmed by delivery of a written opinion, dated April 28, 2015, to the effect that, as of the date of the opinion and based upon and subject to the conditions, limitations, qualifications and assumptions set forth in the opinion, the aggregate merger consideration to be received in the Magna merger by the holders, other than the Excluded Holders, of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) was fair, from a financial point of view, to such holders. STRH has consented to the use of its opinion and related disclosure in this proxy statement/prospectus.
The full text of the written opinion of STRH, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion of STRH, is attached asAppendix C to this proxy statement/prospectus and is incorporated herein by reference. You are urged to read STRH’s written opinion carefully and in its entirety. STRH’s opinion was furnished solely for the use of the Magna board of directors (solely in its capacity as such) in connection with its evaluation of the Magna merger. STRH’s opinion is limited solely to the fairness, from a financial point of view, of the aggregate merger consideration to be received in the Magna merger by the holders, other than the Excluded Holders, of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) and does not address Magna’s underlying business decision to effect the Magna merger or the relative merits of the Magna merger as compared to any alternative business strategies or transactions that might be available with respect to Magna. The STRH opinion was not intended to be, and does not constitute, a recommendation to the Magna board of directors, Magna, any security holder of Magna or any other person or entity as to how to act or vote with respect to any matter relating to the Magna merger or otherwise, including, without limitation, whether a holder of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) should elect to receive the cash consideration or the stock consideration. STRH’s opinion was approved by an internal opinion committee of STRH authorized to approve opinions of this nature.
In connection with the delivery of its opinion, STRH conducted such reviews, analyses and inquiries as STRH deemed necessary and appropriate under the circumstances. Among other things, STRH reviewed the following:
STRH also had discussions with certain members of the management of Magna, Pinnacle and Pinnacle Bank regarding the Magna merger and the business, financial condition, assets, results of operations, and
prospects of Magna, Pinnacle and Pinnacle Bank and undertook such other studies, analyses and investigations as STRH deemed appropriate.
STRH relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished or otherwise made available to, discussed with or reviewed by STRH, and did not assume any responsibility with respect to such data, material and other information. STRH’s role in reviewing such data, material and other information was limited solely to performing such review as STRH deemed necessary and appropriate to support its opinion. In addition, STRH assumed, at the direction of Magna and without independent verification or investigation, that the Projections were reasonably prepared in good faith on bases reflecting the best currently available information, estimates and judgments of management of Magna as to the future financial results and condition of Magna. STRH expressed no opinion with respect to the Projections or the assumptions on which they were based, or any other assumptions discussed in its opinion. STRH relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Magna, Pinnacle or Pinnacle Bank since the respective dates of their most recent financial statements and other information, financial or otherwise, provided to STRH and that there was no information, facts or circumstances that would make any of the data, material or other information discussed with or reviewed by STRH inaccurate, incomplete or misleading.
STRH also relied upon and assumed without independent verification that (i) the representations and warranties of all parties to the merger agreement are true and correct; (ii) each party to the merger agreement will fully and timely perform all of the covenants and agreements required to be performed by such party under the merger agreement; (iii) all conditions to the consummation of the Magna merger will be satisfied without waiver thereof; (iv) the Magna merger will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any term, condition or agreement therein; and (v) in the course of obtaining any regulatory or third-party consents, approvals or agreements in connection with the Magna merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on Magna, Pinnacle, or Pinnacle Bank or the expected benefits of the Magna merger. STRH also assumed that the Magna merger will be treated as a “tax-free reorganization” for federal income tax purposes.
Furthermore, in connection with its opinion, STRH was not requested to review, and STRH did not review, individual credit files, nor was STRH requested to make, and STRH did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties, facilities or liabilities (including any fixed, contingent, derivative or off-balance-sheet assets or liabilities or any portfolio securities or any collateral securing assets or securities) of Magna, Pinnacle or Pinnacle Bank or any other person or entity, nor was STRH provided with any such appraisal or evaluation. In addition, STRH is not an expert in the evaluation of loan or lease portfolios for purposes of assessing the adequacy of the allowances for losses with respect to such portfolios or for any other purpose and, accordingly, STRH has assumed, without independent investigation or verification, that Magna’s, Pinnacle’s and Pinnacle Bank’s allowances for such losses are in the aggregate adequate to cover any such losses. STRH did not undertake any independent analysis of any potential or actual litigation, regulatory action, governmental investigation, possible unasserted claims or other contingent liabilities to which Magna, Pinnacle or Pinnacle Bank or any other person or entity is or may be a party or is or may be subject. STRH was not requested to, and did not, undertake any independent financial analysis of Pinnacle or Pinnacle Bank, and assumed that the value per share of Pinnacle common stock comprising the stock consideration was equal to the market price of Pinnacle common stock on April 27, 2015. STRH was not requested to, and did not, participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the Magna merger or the securities, assets, businesses or operations of Magna or any other party, or any alternatives to the Magna merger, or advise the Magna board of directors or any other party with respect to any alternatives to the Magna merger.
The opinion of STRH was necessarily based on financial, economic, monetary, market and other conditions as in effect on, and the data, material and other information made available to STRH as of, the date of the
delivery of its opinion, April 28, 2015. STRH had and has no obligation to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring or information that has become or becomes available after the delivery of its opinion.
The opinion of STRH only addresses the fairness, from a financial point of view, of the aggregate merger consideration to be received in the Magna merger pursuant to the merger agreement by the holders, other than the Excluded Holders, of Magna common stock (including the shares of Magna common stock resulting from the conversion of the Magna Series D Preferred Stock) and does not address any other term, aspect or implication of the Magna merger or any agreement, arrangement or understanding entered into in connection therewith or otherwise. STRH was not requested to opine as to, and its opinion does not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of Magna, its security holders or any other person or entity to proceed with or effect the Magna merger; (ii) the form, structure or any other portion or aspect of the Magna merger; (iii) the fairness of any portion, term, aspect or implication of the Magna merger to the holders of debt of Magna, or any particular holder of securities, creditors or other constituencies of Magna, or to any other person or entity, except as expressly set forth in the last paragraph of STRH’s opinion; (iv) the relative merits of the Magna merger as compared to any alternative business strategies that might exist for Magna or any other person or entity or the effect of any other transaction in which Magna or any other person or entity might engage; (v) whether or not Pinnacle, Magna, their respective security holders or any other person or entity is receiving or paying reasonably equivalent value in the Magna merger; (vi) the solvency, creditworthiness, viability, ability to pay debts when due or fair value of Magna, Pinnacle or Pinnacle Bank or any other participant in the Magna merger, or any of their respective assets, including under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or the impact of the Magna merger on such matters; (vii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Magna merger or any class of such persons; (viii) the fairness of any term or aspect of the Magna merger to any one class of Magna’s security holders relative to any other class of Magna’s security holders, including the allocation of any consideration among or within such classes; (ix) the fairness of the merger consideration to be received in the Magna merger to the holders of the Magna Series D Preferred Stock, or the fairness of the conversion of the Magna Series D Preferred Stock into Magna common stock; or (x) the fairness of the cash consideration and stock consideration relative to one another.
As specified in the engagement letter between STRH and Magna relating to the delivery of STRH’s opinion, (i) STRH was engaged by Magna and its opinion was to be delivered to the Magna board of directors, (ii) nothing in the engagement letter shall be deemed to create a fiduciary or agency relationship between STRH and Magna or its security holders, and (iii) Magna’s engagement of STRH was not intended to confer on any person or entity (including security holders, affiliates, employees and creditors of Magna other than Magna and certain indemnified parties identified in the engagement letter) any relationship, rights or remedies under or by reason of the engagement letter or as a result of the services rendered by STRH under the engagement letter. Under such circumstances, no privity is created between STRH and Magna’s shareholders regarding STRH’s delivery of its opinion to the Magna board of directors and, consequently, you may not rely on STRH’s opinion to support any claims against STRH arising under applicable state law. The availability of “no privity” defenses to STRH and the question of whether such defenses are available under these circumstances would be resolved by a court of competent jurisdiction. In any event, the resolution of whether such defenses are available to STRH would have no effect on (i) the rights and responsibilities of the Magna board of directors under applicable state law or (ii) the rights and responsibilities of either STRH or the Magna board of directors under federal securities laws.
Furthermore, no opinion, counsel or interpretation is intended in STRH’s opinion in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. STRH assumed that such opinions, counsel or interpretations have been or will be obtained from appropriate professional sources. STRH relied, with the consent of the Magna board of directors, on the assessments by Magna and its board of directors and their respective advisors as to all legal, regulatory, accounting, insurance and tax matters with respect to Magna, Pinnacle, Pinnacle Bank and the Magna merger. STRH was not asked to, and STRH did not, offer any
opinion as to any terms or conditions of the merger agreement or the form of the Magna merger, other than as expressly set forth in the last paragraph of its opinion with respect to the merger consideration. STRH did not express any opinion as to what the value of the Pinnacle common stock actually will be when issued pursuant to the merger agreement or the price or range of prices or volume at which shares of Pinnacle common stock may trade at any time, including following public announcement or consummation of the Magna merger.
The following is a summary of the material financial analyses presented by STRH to the Magna board of directors at its meeting held on April 28, 2015 in connection with STRH’s opinion.
Some of the summaries of financial analyses below include information presented in tabular format. In order to fully understand STRH’s analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of STRH’s analyses.
Summary of Financial Terms
STRH reviewed the financial terms of the proposed Magna merger. Under the terms of the merger agreement, each holder of Magna common stock (including the shares of Magna common stock issuable upon conversion of the Magna Series D Preferred Stock) may elect to receive, subject to certain limitations and proration procedures contained in the merger agreement, (i) $14.32 in cash, or (ii) 0.3369 shares of Pinnacle common stock. STRH calculated an approximate aggregate transaction value of $82.5 million, or $15.36 per share, as of April 27, 2015 based on the closing price of Pinnacle common stock on April 27, 2015 and including consideration for the outstanding Magna options. The merger consideration will consist of 75.0% stock consideration and 25.0% cash consideration. Based upon financial information as of or for the twelve month period ended March 31, 2015, STRH calculated the following transaction ratios:
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Net Present Value Analysis
STRH performed an analysis that estimated the present value of the estimated future unlevered free cash flows projected to be generated by Magna through December 31, 2019. The analysis assumed that Magna performed in accordance with management’s financial projections for years ended December 31, 2015 through 2019. STRH assumed these projections were reasonably prepared in good faith by Magna’s management on bases reflecting the best currently available information, estimates and judgments of Magna’s management.
STRH calculated the implied Magna valuation using a range of median earnings and tangible book value multiples based on Magna’s public comparable group, as well as a range of discount rates with the assumptions below:
For purposes of calculating the P/E and P/TBV multiples described above, STRH used a peer group consisting of all nationwide exchange-traded banks with the following characteristics (excluding targets of announced mergers):
Terminal Price / Earnings in 2019 | ||||||||||||
Discount Rate | 11.7x | 12.9x | 16.1x | |||||||||
13.0% | $ | 9.43 | $ | 10.36 | $ | 12.64 | ||||||
13.5% | $ | 9.25 | $ | 10.15 | $ | 12.39 | ||||||
14.0% | $ | 9.06 | $ | 9.95 | $ | 12.15 | ||||||
This analysis indicated an implied per share reference range for Magna of $9.06 to $12.64, as compared to the implied valuation per share in the Magna merger of $15.36.
Terminal Price / Tangible Book Value in 2019 | ||||||||||||
Discount Rate | 0.95x | 1.04x | 1.16x | |||||||||
13.0% | $ | 8.33 | $ | 8.99 | $ | 9.95 | ||||||
13.5% | $ | 8.17 | $ | 8.81 | $ | 9.76 | ||||||
14.0% | $ | 8.01 | $ | 8.64 | $ | 9.57 | ||||||
This analysis indicated an implied per share reference range for Magna of $8.01 to $9.95, as compared to the implied valuation per share in the Magna merger of $15.36.
Selected Peer Group Analysis
STRH reviewed and compared financial data and trading multiples for Magna with a peer group of selected exchange-traded companies that STRH deemed relevant and comparable to Magna. This peer group consisted of all nationwide exchange-traded banks with the following characteristics (excluding targets of announced mergers):
For the selected exchange-traded companies, STRH analyzed, among other things, financial performance, capital ratios and asset quality, for the most recent quarter reported or the twelve months ended as of the most recent quarter end, in addition to current market pricing analysis. The tables below set forth the 25th percentile, median and 75th percentile operating metrics, capital ratios, asset quality and market pricing of the selected companies.
Financial Performance | Magna | 25th Percentile | Median | 75th Percentile | ||||||||||||
Return on Average Assets (Last Twelve Months) | 0.96 | % | 0.64 | % | 0.76 | % | 0.97 | % | ||||||||
Return on Average Equity (Last Twelve Months) | 7.93 | % | 6.48 | % | 8.20 | % | 9.44 | % | ||||||||
Capital Ratio (Most Recent Quarter) | Magna | 25th Percentile | Median | 75th Percentile | ||||||||||||
Tangible Common Equity / Tangible Assets | 8.73% | 8.78% | 9.14% | 9.93% | ||||||||||||
Current Market Pricing | 25th | Median | 75th Percentile | |||||||||||||
Transaction Value Per Share / Tangible Book Value Per Share | 0.95x | 1.04x | 1.16x | |||||||||||||
Transaction Value Per Share / Last Twelve Months Earnings Per Share | 11.7x | 12.9x | 16.1x | |||||||||||||
STRH applied each of the multiple ranges set forth in the tables above entitled “Current Market Pricing” to Magna’s financial data as of March 31, 2015 to calculate an implied per share valuation for Magna. STRH then calculated the average of the two implied per share valuations to generate a reference range for Magna of $10.76 to $14.12, as compared to the implied valuation per share in the Magna merger of $15.36.
No companies used in the analyses described above are identical to Magna, Pinnacle, Pinnacle Bank or the pro forma combined company. Accordingly, an analysis of these results involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies.
Selected Precedent Transactions Analysis – Nationwide
STRH reviewed and analyzed certain financial data related to 22 completed nationwide depository transactions announced in the past 3 years. These transactions involved target banks based in the United States with the following characteristics:
STRH excluded from the list one acquisition due to the target’s tax reversal during 2013 which overstated the target’s earnings as of the announcement date. These transactions (listed by announcement date in order from most recent to the oldest) were as follows:
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STRH calculated the transaction multiples implied by the selected transactions listed above. The results of the calculations are set forth in the table below.
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Transaction Multiples | Magna | 25th Percentile | Median | 75th Percentile | ||||||||||||
Transaction Value / Last Twelve Months Earnings | 15.1x | 16.3x | 20.0x | 23.1x | ||||||||||||
Transaction Value / Last Twelve Months Core Earnings (1) | 17.4x | 13.6x | 17.5x | 20.3x | ||||||||||||
Transaction Value / Stated Tangible Book Value | 159.5 | % | 129.0 | % | 148.1 | % | 165.0 | % | ||||||||
STRH applied each of these multiple ranges to Magna’s financial data as of March 31, 2015 to calculate an implied per share valuation for Magna. STRH then calculated the average of the two implied per share valuations to generate a reference range for Magna of $13.63 to $18.66, as compared to the implied valuation per share in the Magna merger of $15.36.
No companies used in the analysis described above are identical to Magna, Pinnacle, Pinnacle Bank or the pro forma combined company. Accordingly, an analysis of these results involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies.
Selected Precedent Transactions Analysis – Southeast
STRH reviewed and analyzed certain financial data related to 15 completed southeast depository transactions announced in the past 3 years. These transactions involved target banks based in the United States with the following characteristics:
These transactions (listed by announcement date in order from most recent to the oldest) were as follows:
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STRH calculated the transaction multiples implied by the selected transactions listed above. The results of the calculations are set forth in the table below.
| Selected Transactions | ||||||||||||||||
Transaction Multiples | Magna | 25th Percentile | Median | 75th Percentile | ||||||||||||
Transaction Value / Last Twelve Months Earnings | 15.1x | 14.6x | 18.1x | 22.3x | ||||||||||||
Transaction Value / Last Twelve Months Core Earnings (1) | 17.4x | 13.5x | 19.1x | 21.7x | ||||||||||||
Transaction Value / Stated Tangible Book Value | 159.5 | % | 135.5 | % | 146.3 | % | 175.4 | % | ||||||||
STRH applied each of these multiple ranges to Magna’s financial data as of March 31, 2015 to calculate an implied per share valuation for Magna. STRH then calculated the average of the two implied per share valuations to generate a reference range for Magna of $13.48 to $19.40, as compared to the implied valuation per share in the Magna merger of $15.36.
No companies used in the analysis described above are identical to Magna, Pinnacle, Pinnacle Bank or the pro forma combined company. Accordingly, an analysis of these results involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies.
Miscellaneous
This summary of the analyses is not a complete description of STRH’s opinion or the analyses underlying, and factors considered in connection with, STRH’s opinion and reviewed with the Magna board of directors. The preparation of a fairness opinion is a complex analytical process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying STRH’s opinion. In arriving at its fairness opinion, STRH considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Rather, STRH reached its fairness opinion on the basis of its experience and professional judgment after considering the results of all of its analyses.
No company or transaction used in the analyses described above is directly comparable to Magna, Pinnacle, Pinnacle Bank or the Magna merger. In addition, such analyses do not purport to be appraisals, nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts or projections of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because the analyses described above are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, neither Magna nor STRH or any other person assumes responsibility if future results are materially different from those forecast.
The merger consideration was determined through arms’ length negotiations between Magna and Pinnacle and was approved by Magna’s Board of Directors. STRH did not recommend any specific consideration to Magna, or that any specific amount or type of consideration constituted the only appropriate consideration for the Magna merger.
Information about SunTrust Robinson Humphrey, Inc.
STRH acted as financial advisor to the Magna board of directors in connection with the Transaction and will receive a fee for its services equal to 0.40% of the Total Consideration, which is currently estimated to be approximately $325,000 in the aggregate, $250,000 of which became payable upon STRH’s delivery of its opinion (which we refer to as the Opinion Fee), regardless of the conclusion reached therein, and the remainder
of which is contingent upon completion of the Magna merger. Magna’s payment of the Opinion Fee to STRH was not contingent on the consummation of the Magna merger. In addition, Magna agreed to reimburse certain of STRH’s expenses and to indemnify STRH and certain related parties for certain liabilities arising out of STRH’s engagement.
STRH and its affiliates (including SunTrust Bank) may have in the past provided and may in the future provide investment banking and other financial services to Magna and its affiliates (and Pinnacle and its affiliates) for which STRH and its affiliates have received and would expect to receive compensation.
STRH is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, STRH and its affiliates (including SunTrust Bank) may acquire, hold or sell, for its and its affiliates’ accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Magna, Pinnacle, their respective affiliates and any other party that may be involved in the Magna merger, as well as provide investment banking and other financial services to such persons or entities, including for which STRH and its affiliates would expect to receive compensation. In addition, STRH and its affiliates (including SunTrust Bank) may have other financing and business relationships with Magna, Pinnacle, their respective affiliates and any other person or entity that may be involved with the Magna merger.DIRECTORS RECOMMENDS THAT AVENUE COMMON SHAREHOLDERS VOTE “FOR” THE PROPOSAL TO APPROVE THE MERGER AND THE MERGER AGREEMENT.
The following is a summary of the material terms of the merger agreement. This summary does not purport to describe all the terms of the merger agreement and is qualified by reference to the complete merger agreement which is attached asAppendix A to this proxy statement/prospectus and incorporated herein by reference. All shareholders of MagnaAvenue are urged to read the merger agreement carefully and in its entirety as it is the legal document that governs the Magna merger.
General
Under the merger agreement, MagnaAvenue will merge with and into Pinnacle Bank with Pinnacle Bank continuing as the surviving company.
Merger Consideration
The merger agreement provides that, at the effective time of the Magna merger, each holder of MagnaAvenue common stock (including holders of Magna common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger) issued and outstanding immediately prior to the effective time of the Magna merger, but excluding shares of MagnaAvenue common stock owned by Pinnacle or MagnaAvenue (other than those shares held in a fiduciary or representative capacity) and shares held by Magna shareholders that properly exercise their dissenters’ rights, will have the right to elect, subject to proration, to receive either 0.33690.36 shares of Pinnacle’s common stock and an amount in cash equal to $14.32 or a combination$2.00 for each share of cash and stock;provided, however, that elections will be prorated such that 75%Avenue common stock owned by them at the effective time of Magna’sthe merger. Based upon the 10,419,888 shares of Avenue common stock outstanding as of the effective time of the Magna merger (including shares of Magna’s common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger) will be converted into shares of Pinnacle’s common stock and 25% of those outstanding shares will be converted into cash. Based upon the[ ] shares of Magna common stock outstanding as of[ ], 2015 (including shares of Magna’s common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger),May 4, 2016, Pinnacle will issue approximately[ ] 3.8 million shares of Pinnacle common stock and pay approximately $[ ]$20.8 million in cash at the closing, in each case assuming that none of Avenue’s outstanding stock options are exercised prior to the closing. Fractional shares will not be issued by Pinnacle, but instead will be paid in cash based on the average closing price for Pinnacle’s common stock for the 10 trading days immediately preceding the closing date.
Treatment of Options
EachAll outstanding unvested optionoptions to acquire Magnapurchase shares of Avenue common stock granted under Magna’s equity incentive planthat are not vested will accelerate and be exercisable immediatelyaccelerated prior to, consummationbut conditioned on the occurrence of, the Magna merger. At the effective timeclosing of the Magna merger any outstandingand all options that are not exercised prior to the closing will, at the closing, be cancelled and the holders of any such options will receive an amount in cash equal to the product of (x) the excess, if any, of $14.32$20.00 over the exercise price of each such option and (y) the number of shares of MagnaAvenue common stock subject to each such option.
Series D Preferred Stock
Pursuant to the rights and preferences of Magna Series D Preferred Stock, as set forth in Magna’s Charter, all outstanding shares of Magna Series D Preferred Stock will automatically convert into shares of Magna common stock immediately prior to the effective time of the Magna merger. Accordingly, holders of these shares, like Magna’s common shareholders, will be able to elect, subject to the proration described above, to receive either shares of Pinnacle common stock, cash or a combination of shares of Pinnacle common stock and cash in exchange for their shares of Magna Series D Preferred Stock.
SBLF Redemption
In connection with the Magna merger, Magna and Pinnacle will each use their reasonable best efforts to cause or facilitate the redemption of the approximately $18.35 million of preferred stock Magna has issued to the U.S. Treasury pursuant to the Small Business Lending Fund program. Pinnacle or Pinnacle Bank will make all payments necessary to fund such redemption.
Election of Form of Merger Consideration
No later than 30 business days prior to the effective time of the Magna merger (unless Pinnacle and Magna agree upon another date), Pinnacle or Pinnacle Bank will mail a form of election to each shareholder of Magna who holds one or more stock certificates. The form of election will include a place where each such shareholder may designate its desired form of merger consideration and will include a letter of transmittal, which is to be used to surrender certificates for Magna common stock or Magna Series D Preferred Stock in exchange for the merger consideration. The letter of transmittal will contain instructions explaining the procedure for surrendering Magna stock certificates.You should not return certificates with the enclosed proxy card.Pinnacle and Pinnacle Bank will use their reasonable efforts to make the form of election available to all persons who become holders of Magna common stock or Series D Preferred Stock following the initial mailing and no later than the close of business on the fifth business day prior to the effective time of the Magna merger.
In order to be effective, a form of election must be received by the exchange agent (see “—Exchange of Certificates in the Magna Merger” immediately below) no later than by 5:00 p.m., New York City time, on the 30th day following the initial mailing date of the form of election (or such other time and date as Pinnacle and Magna agree upon). All elections will be irrevocable. A shareholder of Magna who does not submit a form of election which is received by the exchange agent prior to such deadline will be deemed to have made an election to receive a combination of cash and stock, on a 25% cash and 75% stock basis. If Pinnacle or the exchange agent determines that any purported cash election or stock election was not properly made, such purported election will be deemed to be of no force and effect and the shareholder making such purported election will be deemed to have made an election to receive a combination of cash and stock, on a 25% cash and a 75% stock basis. Following the submission deadline, Pinnacle or the exchange agent will calculate the results of the forms of election and determine if any pro-ration of the submitted elections is necessary. As discussed above, elections will be prorated such that 75% of Magna’s shares of common stock outstanding as of the effective time of the Magna merger (including shares of Magna common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger) will be converted into shares of Pinnacle’s common stock and 25% of those shares will be converted into cash.
If Pinnacle’s common stock is trading above $42.50 per share, the stock consideration will be more valuable than the cash consideration. Because the closing price of Pinnacle’s common stock on June 8, 2015 was $52.52, the stock consideration is significantly more valuable as of the date of this proxy statement/prospectus. Accordingly, we expect that most of the Magna shareholders will elect to receive the stock consideration for all of their shares.
If all Magna shareholders elect to receive the stock consideration, then, due to proration, all Magna shareholders will receive stock consideration for 75% of their Magna shares and cash consideration for 25% of their Magna shares. The following table illustrates at various price levels of Pinnacle common stock, the value per Magna share of the stock consideration, the cash consideration and a mix of 75% stock consideration and 25% cash consideration.
Pinnacle Merger Consideration Per Share of Magna Common Stock
Common
Stock Price 100% Stock
Election 100% Cash
�� Election 75% Stock/
25% Cash
Election $42.00 $14.150 $14.32 $14.193 $44.00 $14.824 $14.32 $14.698 $46.00 $15.497 $14.32 $15.203 $48.00 $16.171 $14.32 $15.708 $50.00 $16.845 $14.32 $16.214 $52.00 $17.519 $14.32 $16.719 $54.00 $ 18.193 $ 14.32 $ 17.225
Moreover, because the trading price for Pinnacle’s common stock (adjusted for the exchange ratio) is significantly higher than the price Pinnacle has agreed to pay to cash out the Magna options, we expect that many of the individuals that hold the Magna options which are vested will exercise those options and elect to receive the stock consideration.
Exchange of Certificates in the Magna Merger
Before the effective time of the Magna merger, Pinnacle will appoint an exchange agent to handle the exchange of Magnashares of Avenue common stock certificates for cash and shares of Pinnacle common stock (which shares will be in uncertificated book-entry form unless a physical certificate is requested by a holder) and the payment of cash for fractional shares. Promptly after the effective time of the Magna merger, the exchange agent will send a letter of transmittal to thosethe shareholders of Magna that previously did not submit a letter of transmittal (or an incorrect or invalid letter of transmittal).Avenue. The letter of transmittal will contain instructions explaining the procedure for surrendering MagnaAvenue stock certificates.certificates or book entry shares.You should not return certificates with the enclosed proxy card.
A Magna shareholder who submits a valid formUpon surrender of election byAvenue stock certificates or book-entry shares for cancellation along with the submission deadline under which it elects to receive all cash consideration and who surrenders its stock certificate(s), together with a properly completedexecuted letter of transmittal and other documents described in the letter of transmittal, you will onlybe entitled to receive subjectyour pro-rata portion of the merger consideration, as described above. No interest will be paid on any merger consideration that any such holder shall be entitled to the pro-ration of elections described above, a cash payment into which the shares of Magna common stock (including shares of Magna common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately prior toreceive.
At and after the effective time of the Magna merger) heldmerger, each certificate or book-entry representing shares of Avenue common stock, until so surrendered and exchanged, will evidence only the right to receive, without interest, the merger consideration, including any dividend or other distribution with respect to Pinnacle common stock with a record date after the effective time of the merger. The stock transfer books of Avenue will be closed immediately
at the effective time of the merger and after the effective time there will be no transfers on the stock transfer records of Avenue of any shares of Avenue common stock. Pinnacle will be entitled to rely on Avenue’s stock transfer books to establish the identity of those persons entitled to receive the merger consideration. If a certificate for Avenue common stock has been lost, stolen, or destroyed, Pinnacle or the exchange agent may require an affidavit of that fact by the claimant, an indemnity agreement and the posting by such shareholder were convertedperson of a bond in such amount as Pinnacle or the Magna merger. A Magna shareholder who submits a valid form of election byexchange agent determines is reasonably required as indemnity before the submission deadline under which it elects to receive all stock consideration and who surrenders its stock certificate(s), together with a properly completed letter of transmittal,exchange agent will receive, subject to the pro-ration of elections described above,issue shares of Pinnacle common stock (whichunder the merger agreement. If a transfer of ownership of a certificate or book-entry shares for Avenue common stock that is not registered in the stock transfer records has occurred, the merger consideration will be paid upon surrender by the person in uncertificatedwhose name the certificate or book-entry share is registered if such certificate or book-entry share is formally endorsed or otherwise in proper form unless a physical certificate is requested by such holder) into whichfor transfer and the shares of Magna common stock (including shares of Magna common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately priorperson requesting the merger consideration pays any transfer or other similar taxes required or establishes to the effective timereasonable satisfaction of Pinnacle that the tax has been paid or is not applicable, and the person requesting payment has complied with the provisions of the Magna merger) held by such shareholder were converted in the Magna merger.
A Magna shareholder who fails to submit a valid form of election by the submission deadline, submits a valid form of election by the submission deadline under which it elects to receive a combination of cash and stock, or has submitted an election under which it elected to receive all cash or stock and the elections have been pro-rated, and who surrenders its stock certificate(s), together with a properly completed letter of transmittal, will receive a combination of a cash payment and shares of Pinnacle common stock (which shares will be in uncertificated book-entry form unless a physical certificate is requested by such holder) into which the shares of Magna common stock (including shares of Magna common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger) held by such shareholder were converted in the Magna merger.transmittal.
Fractional Shares
No fractional shares of Pinnacle common stock will be issued in the Magna merger. Instead, the exchange agent will pay each of those shareholders who would have otherwise been entitled to a fractional share of
Pinnacle common stock an amount in cash determined by multiplying the fractional share interest by the average closing price of Pinnacle’s common stock for the 10 trading days preceding the closing date of the Magna merger.
Dividends and Distributions
Until MagnaAvenue common stock certificates or book entry shares are surrendered for exchange, any dividends or other distributions declared after the effective time with respect to Pinnacle common stock into which shares of MagnaAvenue common stock (including shares of Magna common stock issuable automatically upon conversion of Magna Series D Preferred Stock immediately prior to the effective time of the Magna merger) may have been converted will accrue but will not be paid. Pinnacle will pay to former MagnaAvenue shareholders any unpaid dividends or other distributions without interest only after they have duly surrendered their MagnaAvenue stock certificates. After the effective time of the Magna merger, there will be no transfers on the stock transfer books of Magna of any shares of Magna common stockcertificates or Magna Series D Preferred Stock. If certificates representing shares of Magna common stock or Magna Series D Preferred Stock are presented for transfer after the completion of the Magna merger, they will be cancelled and exchanged for the merger consideration into which the shares of Magna common stock or Magna Series D Preferred Stock represented by the certificates have been converted. Holders of shares of Magna Series D Preferred Stock who have not, prior to the effective time of the Magna merger, received the certificates for such shares and therefore have yet to receive all dividends and distributions declared and paid by Magna on such shares shall retain the right to receive all such dividends and distributions.book entry shares.
During the fourth quarter of 2013, Pinnacle initiated a quarterly common stock dividend in the amount of $0.08 per share. This amount was increased to $0.12 per share in the first quarter of 2015. During the year ended December 31, 2014,2015, Pinnacle paid $14.2$18.3 million in dividends to common shareholders. On January 20, 2015,19, 2016, Pinnacle declared a $0.12$0.14 per share dividend that was payable on February 27, 201526, 2016 to shareholders of record as of the close of business on February 6, 2015, an increase of $0.04 or 50% over the amount of the quarterly dividends paid in the fourth quarter of 2014. On April 7, 2015, Pinnacle declared a $0.12 per share dividend to be paid on May 29, 2015 to common shareholders of record as of the close of business on May 1, 2015.5, 2016. The amount and timing of any future dividend payments to common shareholders will be subject to the discretion of Pinnacle’s board of directors.
Withholding
The exchange agent will be entitled to deduct and withhold from the merger consideration payable to any MagnaAvenue shareholder the amounts it is required to deduct and withhold under any federal, state, local or foreign tax law. If the exchange agent withholds any amounts, these amounts will be treated for all purposes of the Magna merger as having been paid to the shareholders from whom they were withheld.
Effective Time
The Magna merger will be completed when we file articles of merger with the Tennessee Department of Financial InstitutionsTDFI for filing with the Secretary of State of the State of Tennessee. However, we may agree to a later time for completion of the Magna merger and specify that time in the articles of merger. While we anticipate that the Magna merger will be completed during late in the second quarter or early in the third or fourth quarter of 2015,2016, completion of the Magna merger could be delayed if there is a delay in obtaining the required regulatory approvals or in satisfying any other conditions to the Magna merger. There can be no assurances as to whether, or when, Pinnacle Pinnacle Bank and MagnaAvenue will obtain the required approvals or complete the Magna
merger. If the Magna merger is not completed on or before December 31, 2015,September 30, 2016, either Pinnacle or MagnaAvenue may terminate the merger agreement, unless the failure to complete the Magna merger by that date is due to the failure of the party seeking to terminate the merger agreement to comply with any provisions of the merger agreement. See “—Conditions to the Completion of the Magna Merger” immediately below.
Voting Agreements
EachPatriot Financial Partners and each of Magna’sAvenue’s executive officers and directors have executed agreements in which they agreed, among other things, to vote their shares of MagnaAvenue common stock and Magna Series D Preferred Stock, in favor of the Magna merger.
Conditions to the Completion of the Magna Merger
Completion of the Magna merger is subject to various conditions. While it is anticipated that all of these conditions will be satisfied, there can be no assurance as to whether or when all of the conditions will be satisfied or, where permissible, waived.
The respective obligations of Pinnacle and Pinnacle Bank on the one hand and Magna on the other handAvenue to complete the Magna merger are subject to the following conditions:
Moreover, Pinnacle’s and Pinnacle Bank’s obligationsobligation to complete the Magna merger areis also subject to the following conditions:
Representations and Warranties
MagnaAvenue has made representations and warranties to Pinnacle and Pinnacle Bank in the merger agreement as to:
Pinnacle and Pinnacle Bank havehas made representations and warranties to MagnaAvenue in the merger agreement as to:
The respective representations and warranties of each of Pinnacle and Pinnacle Bank on the one hand and Magna on the other handAvenue have been made solely for the benefit of the other party, and these representations and warranties shouldparty. Shareholders are not be relied on by any other person.third-party beneficiaries under the merger agreement. In addition, these representations and warranties:
Many of the representations and warranties of the parties in the merger agreement will be deemed to be true and correct unless the totality of facts, circumstances or events inconsistent with the representations or warranties has had or would be reasonably likely to have a material adverse effect on (1) the business, operations, results of operations or financial condition of the party making the representations and warranties and together with theirits subsidiaries taken as a whole, or (2) on the ability of the party making the representations and warranties to timely complete the transactions contemplated by the merger agreement. In determining whether a material adverse effect has occurred or is reasonably likely, the parties will disregard any effects resulting from (A) changes after the date of the merger agreement in prevailing interest rates, currency exchange rates or other economic or monetary conditions in the United States or elsewhere, (B) changes after the date of the merger agreement in United States or foreign securities markets, including changes in price levels or trading volumes, (C) changes or events, after the date of the merger agreement, affecting the financial services industry generally and not specifically relating to Pinnacle or Pinnacle Bank,Avenue or Pinnacle’sits respective subsidiaries, on the one hand or Magna and its subsidiaries on the other hand, as the case may be, (D) changes, after the date of the merger agreement, in generally accepted accounting principles or regulatory accounting requirements applicable to banks or savings associations and their holding companies generally, (E) changes, after the date of the merger agreement, in laws, rules or regulations of general applicability or interpretations thereof by any governmental entity, (F) actions or omissions of Pinnacle Pinnacle Bank or Magna, as applicable,Avenue taken with the prior written consent of the other or required under the merger agreement, (G) the execution and delivery of the merger agreement or the consummation of the transactions contemplated thereby or the announcement thereof, or (H) any outbreak of major hostilities in which the United States is involved or any act of terrorism within the United States or directed against its facilities or citizens wherever located.located, or (I) the failure of Avenue or Pinnacle to meet any internal or published industry analyst projections, forecasts or estimates of revenues or earnings or other financial or operating metrics for any period (however, the facts giving rise or contributing to such failure that are not otherwise excluded may be considered). In no event shallwill a change in the trading prices or trading volumes of a party’s capital stock, by itself, be considered material or to constitute a material adverse effect.
Conduct of Business Pending the Magna Merger
MagnaAvenue has agreed, during the period from the date of the merger agreement to the completion of the Magna merger, to, and to cause each of its subsidiaries to use its commercially reasonable efforts to preserve its business organization, employees and business relationships, and retain the services of its key officers and key employees. In addition, each of Pinnacle and Pinnacle Bank and MagnaAvenue has agreed that it will not, and will not permit any of its subsidiaries to, subject to limited exceptions set out in the merger agreement, without the prior written consent of the other party,party:
MagnaAvenue has also agreed that, among other things, it will not, and will not permit any of its subsidiaries to, without the prior written consent of Pinnacle or as otherwise permitted by the merger agreement or required by law or at the written direction of a governmental or regulatory authority:
except for certain loans or extensions of credit approved and/or committed as of the date of the merger agreement, make, renegotiate, increase, or modify any (i) unsecured new loan over $500,000 or aggregate issuances of new unsecured loans of greater than $7,500,000 (ii) loan in excess of Federal Financial Institutions Examination Council regulatory guidelines relating to loan to value ratios, (iii) secured loan over $9,000,000 (iv) loan with a duration of more than 120 months, except for (A) any variable rate single family residential loan or (B) fixed rate single family residential loan which may have a duration of up to 180 months or (C) any fixed rate single family residential loan which may
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Legal Conditions to Magna Merger
Each of Pinnacle Pinnacle Bank and MagnaAvenue have agreed to, and Pinnacle hashave agreed to cause itstheir subsidiaries to, use their respective reasonable best efforts to (a) to take, or cause to be taken, all actions reasonably necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such party or its subsidiaries with respect to the Magna merger and, subject to the conditions set forth in merger agreement, to consummate the transactions contemplated by the merger agreement, and (b) to obtain (and to cooperate with the other parties to obtain) any material consent, authorization, order or approval of, or any exemption by, any governmental entity or regulatory agency and any other third party that is required to be obtained by Pinnacle Pinnacle Bank or MagnaAvenue in connection with the Magna merger and the other transactions contemplated by the merger agreement.agreement, including the bank merger.
Reasonable Best Effort to Obtain Required Shareholder Vote
MagnaAvenue will take all steps necessary to convene a meeting of its common shareholders to be held as soon as is reasonably practicable after the date on which the registration statement of which this proxy statement/prospectus is part becomes effective for the purpose of its common shareholders voting upon the approval of the merger agreement. MagnaAvenue will, through its board of directors, use its reasonable best efforts to obtain the approval of its common shareholders in respect of the foregoing. Absent termination of the merger agreement, nothing in the merger agreement is intended to relieve MagnaAvenue of its obligation to hold a meeting of its common shareholders to obtain the approval required to complete the Magna merger.
No Solicitation of Alternative Transactions
The merger agreement provides, subject to limited exceptions described below, that MagnaAvenue and its subsidiariesAvenue bank will not authorize its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by itAvenue or any of its subsidiariesAvenue Bank to (1) solicit, initiate, facilitate or encourage (including by way of furnishing information or assistance), or take any other action designed to solicit, initiate, facilitate or encourage any inquiries or the making of any proposal that constitutes, or is reasonably likely to lead to, any acquisition proposal, (2) participate in any discussions, negotiations or other communications regarding any acquisition proposal, (3) make or authorize any statement, recommendation or solicitation in support of any acquisition proposal or (4) provide any confidential or nonpublic information to any person relating to any acquisition proposal. Furthermore, Magnaeach of Avenue and Avenue Bank was required under the merger agreement to immediately cease any discussions or negotiations with any other party regarding an acquisition proposal.
For purposes of the merger agreement, the term “acquisition proposal” means any inquiry, proposal or offer, filing of any regulatory application or notice or disclosure of an intention to do any of the foregoing from any person relating to any (1) direct or indirect acquisition or purchase of a business that constitutes a substantial portion of the net consolidated net revenues, net income or assets of Magna,Avenue, (2) direct or indirect acquisition or purchase of any class of equity securities representing 20% or more of the voting power of MagnaAvenue or Avenue Bank or 20% or more of the consolidated assets of Magna,Avenue, (3) tender offer or exchange offer that if completed would result in any person beneficially owning 20% or more of the voting power of Magna,Avenue or Avenue Bank, or (4) merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Magna,Avenue or Avenue Bank, other than transactions contemplated by the merger agreement.
The merger agreement permits MagnaAvenue and Avenue Bank to comply with Rule 14d-9 and Rule 14e-2 under the Exchange Act with regard to an acquisition proposal that MagnaAvenue or Avenue Bank may receive. In addition, if MagnaAvenue receives an unsolicited bona fide written acquisition proposal, MagnaAvenue may, prior to the meeting of its shareholders to approve the merger agreement, engage in discussions and negotiations with or provide nonpublic information to the person making that acquisition proposal only if:
The merger agreement further permits MagnaAvenue’s board of directors if presented with a superior proposal pursuant to the procedures described above, if required by fiduciary duty, to change its recommendation that Magna’sAvenue’s shareholders vote for the transactionmerger or approve or recommend that Magna’sAvenue’s shareholders approve such superior
proposal, but only after Pinnacle has first been given an unlimited number of opportunities to present new proposed terms of the Magna merger such that a superior proposal (as it may be subsequently modified) no longer constitutes a superior proposal. If Pinnacle does match the terms of the superior proposal, MagnaAvenue is not permitted to change its recommendation on the Magna merger agreement or approve or recommend the superior proposal.
For purposes of the merger agreement, the term “superior proposal” refers to a bona fide written acquisition proposal which the board of directors of MagnaAvenue concludes in good faith, after consultation with its financial advisors and legal advisors, taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal (including any break-up fees, expense reimbursement provisions and conditions to consummation), (1) is more favorable to the shareholders of MagnaAvenue from a financial point of view than the transactions contemplated by the merger agreement with Pinnacle and Pinnacle Bank and (2) is fully financed or reasonably capable of being fully financed, reasonably likely to receive all required governmental approvals on a timely basis and otherwise reasonably capable of being completed on the terms proposed. For purposes of the definition of “superior proposal,” all references to “20% or more” in the definition of “acquisition proposal” will be deemed to be a reference to “50% or more.”
Termination of the Merger Agreement
General. The merger agreement may be terminated at any time prior to completion of the Magna merger, whether before or after the approval of the merger agreement by MagnaAvenue shareholders, in any of the following ways:
by Pinnacle, if (1) the board of directors of MagnaAvenue does not publicly recommend that its common shareholders approve the merger agreement, (2) after recommending that its common shareholders approve the merger agreement, the board of directors of MagnaAvenue has withdrawn, modified or amended its recommendation in any manner adverse to Pinnacle or Pinnacle Bank or has approved or recommended that its
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Effect of Termination. If the merger agreement is terminated, it will become void and there will be no liability on the part of Pinnacle Pinnacle Bank or MagnaAvenue or their respective officers or directors, except that:
Termination Fee. The merger agreement provides that MagnaAvenue may be required to pay a termination fee to Pinnacle of $2.85$8.0 million in the following circumstances:
If (1) the merger agreement is terminated by either party because the required shareholder vote of MagnaAvenue’s shareholders was not obtained at Magna’s shareholders’ meeting and (2) a public proposal was made and not withdrawn before the merger agreement was terminated, and within nine months after termination of the merger agreement, Magna enters into any definitive agreement with respect to, or consummates,
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For the purposes of the termination fee provisions of the merger agreement, all references to “20% or more” in the definition of “acquisition proposal” will be deemed to be a reference to “50% or more.”
The purpose of the termination fee is to encourage the commitment of MagnaAvenue to the Magna merger, and to compensate Pinnacle if MagnaAvenue engages in certain conduct which would make the Magna merger less likely to occur. The effect of the termination fee could be to discourage other companies from seeking to acquire or merge with MagnaAvenue prior to completion of the Magna merger, and could cause MagnaAvenue to reject any acquisition proposal from a third party which does not take into account the termination fee.
Extension, Waiver and Amendment of the Merger Agreement
Extension and Waiver. At any time prior to the completion of the Magna merger, each of Pinnacle Pinnacle Bank and MagnaAvenue may, to the extent legally allowed:
Notwithstanding the foregoing, after the approval of the merger agreement by Magna’sAvenue’s common shareholders, there cannot be, without their further approval, any extension or waiver of the merger agreement that reduces the amount or changes the form of the consideration to be delivered to the MagnaAvenue common shareholders.
Amendment. Subject to compliance with applicable law, Pinnacle Pinnacle Bank and MagnaAvenue may amend the merger agreement at any time before or after approval of the merger agreement by Magna’sAvenue’s common shareholders. However, after any approval of the merger agreement by Magna’sAvenue’s common shareholders, there cannot be, without their further approval, any amendment of the merger agreement that reduces the amount or changes the form of the consideration to be delivered to Magna’sAvenue’s common shareholders.
Employee Benefit Plans and Existing Agreements
Employee Benefit Plans. The merger agreement provides that within one year following the effective time of the Magna merger (but in the case of Pinnacle’s 401(k) plan beginning with the first full payroll period starting after the effective time of the Magna merger, or as soon thereafter as administratively practicable), to the extent permissible under the terms of the Pinnacle employee benefit plans, the employees of Magna and its subsidiariesAvenue generally shall be eligible to participate in Pinnacle’s employee benefit plans in which similarly situated employees of Pinnacle or its subsidiaries participate, to the same extent as similarly situated employees of Pinnacle or its subsidiaries. For purposes of determining an employee’s eligibility to participate in certain plans and entitlement to benefits thereunder, Pinnacle will give full credit for the service a continuing employee had with Magna or any of its subsidiariesAvenue prior to the Magna merger, except that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits. Such service also shallwill apply for purposes of satisfying any waiting periods, evidence of insurability requirements, or the application of any preexisting condition limitations. Each Pinnacle employee benefit plan will, to the extent permissible under the terms of such plan and as permitted by the applicable insurer, waive pre-existing condition limitations to the same extent waived under the applicable MagnaAvenue employee benefit plan. MagnaAvenue employees shallwill be given credit for amounts paid under a corresponding benefit plan during the same period for purposes of applying deductibles, co-payments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the Pinnacle employee benefit plans.
Under the merger agreement, Pinnacle is not permitted, for a period of ninetwelve months following the closing date of the Magna merger, to reduce the salary or hourly wage of any MagnaAvenue employee that continues as an employee of Pinnacle or its subsidiaries below the salary or hourly wage to which such employee is entitled on the closing date of the Magna merger. Pinnacle is also obligated under the merger agreement to honor all MagnaAvenue employment, severance, change of control and other compensation agreements and arrangements between Magna or any ofAvenue and its subsidiaries and certain of their employees (to the extent not terminated in connection with the Magna merger), and all accrued and vested benefit obligations through the effective time of the merger agreement which are between Magna or any of its subsidiariesAvenue and any current or former director, officer, employee or consultant of Magna.Avenue.
From and after the effective time of the Magna merger, Pinnacle Bank will, and will cause any applicable subsidiary thereof or employee benefit plan of Pinnacle to, provide or pay when due to Magna’sAvenue’s employees as of the closing date of the Magna merger all benefits and compensation pursuant to Magna’sAvenue’s employee benefit plans, programs and arrangements in effect on the date of the merger agreement earned or accrued through, and to which such individuals are entitled, as of the closing date of the Magna merger (or such later time as such employee benefit plans as in effect at the closing date of the Magna merger are terminated or canceled by Pinnacle) subject to compliance with the terms of the merger agreement.
Each employee of MagnaAvenue that was identified on the date of the merger agreement as having his or her employment expected to be eliminated following the closing of the Magna merger will receive a specified severance payment which will be payable upon the earlier of such employee’s termination without cause by Magna or Pinnacle or nine months following the closing of the Magna merger. Each Magnaand each Avenue employee that was not one of such identified employees whose employment is terminated by Pinnacle without cause within ninetwelve months following the closing of the Magna merger will receive a severance payment equal to the amount he or she would be entitled to receive under Magna’s existingone-month of severance policy.benefits for each year of service at Avenue, with a minimum of two-months and a maximum of six-months of severance when terminated.
Stock Exchange Listing
Pinnacle’s common stock is quoted on the Nasdaq Global Select Market. Pinnacle has agreed to cause the shares of Pinnacle common stock to be issued in the Magna merger to be quoted on the Nasdaq Global Select Market. It is a condition to completion of the Magna merger that those shares be quoted on the Nasdaq Global Select Market, subject to official notice of issuance.
Expenses
The merger agreement provides that each of Pinnacle and MagnaAvenue will pay its own expenses in connection with the transactions contemplated by the merger agreement, except that Pinnacle and MagnaAvenue will share equallypay the costs and expenses of printing and mailing this proxy statement/prospectus to the shareholders of MagnaAvenue and Pinnacle will pay all filing and other fees paid to the SEC in connection with the Magna merger.
DESCRIPTION OF PINNACLE CAPITAL STOCK
General
The authorized capital stock of Pinnacle consists of 90 million shares of common stock, par value $1.00 per share, and 10 million shares of preferred stock, no par value. As of the record date, [ ]42,030,357 shares of Pinnacle common stock were outstanding, and no shares of Pinnacle preferred stock were outstanding. The preferred stock may be issued in one or more series with those terms and at those times and for any consideration as the Pinnacle board of directors determines. As of the date hereof, such number of shares of Pinnacle common stock as are required to be issued pursuant to the merger agreement were reserved for issuance to MagnaAvenue shareholders in accordance with the merger agreement and 573,714[●] shares of Pinnacle common stock were reserved for issuance upon the exercise of outstanding stock options under various employee stock option plans.
The following summary of the terms of the capital stock of Pinnacle is not intended to be complete and is subject in all respects to the applicable provisions of the TBCA, and is qualified by reference to the charter and bylaws of Pinnacle. To obtain copies of these documents, see “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94.
Common Stock
The outstanding shares of Pinnacle common stock are fully paid and nonassessable. Holders of Pinnacle common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Holders of Pinnacle common stock do not have pre-emptive rights and are not entitled to cumulative voting rights with respect to the election of directors. The Pinnacle common stock is neither redeemable nor convertible into other securities, and there are no sinking fund provisions.
Subject to the preferences applicable to any shares of Pinnacle preferred stock outstanding at the time, holders of Pinnacle common stock are entitled to dividends when and as declared by the Pinnacle board of directors from legally available funds and are entitled, in the event of liquidation, to share ratably in all assets remaining after payment of liabilities.
Preferred Stock
No shares of preferred stock are outstanding. The board of directors of Pinnacle may, without further action by the shareholders of Pinnacle, issue one or more series of Pinnacle preferred stock and fix the rights and preferences of those shares, including the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, terms of redemption, redemption price or prices, liquidation preferences, the number of shares constituting any series and the designation of such series.
Election of Directors by Shareholders
Until the annual meeting of Pinnacle’s shareholders in 2017, Pinnacle’s charter and bylaws provide that the Pinnacle board of directors is to be divided into three classes as nearly equal in number as possible. Starting with the annual meeting of Pinnacle’s shareholders in 2017, the Pinnacle board of directors will no longer be classified into three classes. In order to phase in this declassification of Pinnacle’s board, the directors comprising each class are elected to one-year terms upon the expiration of their terms. In addition, Pinnacle’s bylaws provide that the power to increase or decrease the number of directors and to fill vacancies is vested in the Pinnacle board of directors. The overall effect of this provision may be to prevent a person or entity from seeking to acquire control of Pinnacle through an increase in the number of directors on the Pinnacle board of directors.
Corporate Transactions
Due to the lack of any provision to the contrary in Pinnacle’s charter, all extraordinary corporate transactions must be approved by majority of the directors and a majority of the shares entitled to vote.
Anti-Takeover Statutes
The Tennessee Control Share Acquisition Act generally provides that, except as stated below, “control shares” will not have any voting rights. Control shares are shares acquired by a person under certain circumstances which, when added to other shares owned, would give such person effective control over one-fifth, one-third or a majority of all voting power in the election of a Tennessee corporation’s directors. Shares acquired by such person that causes it to exceed each of these thresholds will be deemed to be control shares. However, voting rights will be restored to control shares by resolution approved by the affirmative vote of the holders of a majority of the corporation’s voting stock, other than shares held by the owner of the control shares. If voting rights are granted to control shares which give the holder a majority of all voting power in the election of the corporation’s directors, then the corporation’s other shareholders that may require the corporation to redeem their shares at fair value.
The Tennessee Control Share Acquisition Act is not applicable to Pinnacle because the Pinnacle charter does not contain a specific provision “opting in” to the act as is required under the act.
The Tennessee Investor Protection Act, or TIPA, provides that unless a Tennessee corporation’s board of directors has recommended a takeover offer to shareholders, no offeror beneficially owning 5% or more of any class of equity securities of the offeree company, any of which was purchased within the preceding year, may make a takeover offer for any class of equity security of the offeree company if after completion the offeror would be a beneficial owner of more than 10% of any class of outstanding equity securities of the company unless the offeror, before making such purchase: (1) makes a public announcement of his or her intention with respect to changing or influencing the management or control of the offeree company; (2) makes a full, fair and effective disclosure of such intention to the person from whom he or she intends to acquire such securities; and (3) files with the Tennessee Commissioner of Commerce and Insurance (which we refer to as the Commissioner), and the offeree company a statement signifying such intentions and containing such additional information as may be prescribed by the Commissioner.
The offeror must provide that any equity securities of an offeree company deposited or tendered pursuant to a takeover offer may be withdrawn by an offeree at any time within seven days from the date the offer has become effective following filing with the Commissioner and the offeree company and public announcement of the terms or after 60 days from the date the offer has become effective. If the takeover offer is for less than all the outstanding equity securities of any class, such an offer must also provide for acceptance of securities pro rata if the number of securities tendered is greater than the number the offeror has offered to accept and pay for. If such an offeror varies the terms of the takeover offer before its expiration date by increasing the consideration offered to offerees, the offeror must pay the increased consideration for all equity securities accepted, whether accepted before or after the variation in the terms of the offer.
The TIPA does not apply to Pinnacle, as it does not apply to bank holding companies subject to regulation by a federal agency.
The Tennessee Business Combination Act generally prohibits a “business combination” by a Tennessee corporation with an “interested shareholder” within five years after such shareholder becomes an interested shareholder. The corporation can, however, enter into a business combination within that period if, before the interested shareholder became such, the corporation’s board of directors approved the business combination or the transaction in which the interested shareholder became an interested shareholder. After that five-year moratorium, the business combination with the interested shareholder can be consummated only if it satisfies certain fair price criteria or is approved by two-thirds (2/3) of the other shareholders.
For purposes of the Tennessee Business Combination Act, a “business combination” includes mergers, share exchanges, sales and leases of assets, issuances of securities, and similar transactions. An “interested shareholder” is generally any person or entity that beneficially owns 10% or more of the voting power of any outstanding class or series of stock of the corporation. Pinnacle’s charter does not have special requirements for transactions with interested parties.
The Tennessee Greenmail Act applies to a Tennessee corporation that has a class of voting stock registered or traded on a national securities exchange or registered with the SEC pursuant to Section 12(g) of the Exchange Act. Under the Tennessee Greenmail Act, Pinnacle may not purchase any of its shares at a price above the market value of such shares from any person who holds more than 3% of the class of securities to be purchased if such person has held such shares for less than two years, unless the purchase has been approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued by Pinnacle or Pinnacle makes an offer, of at least equal value per share, to all shareholders of such class.
Indemnification
The TBCA provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if: (a) such person acted in good faith; (b) in the case of conduct in an official capacity with the corporation, the person reasonably believed such conduct was in the corporation’s best interests; (c) in all other cases, the person reasonably believed that the person’s conduct was at least not opposed to the best interests of the corporation; and (d) in connection with any criminal proceeding, such person had no reasonable cause to believe the person’s conduct was unlawful. In actions brought by or in the right of the corporation, however, the TBCA provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation. The TBCA also provides that in connection with any proceeding charging improper personal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that such personal benefit was improperly received. In cases where the director or officer is wholly successful, on the merits or otherwise, in the defense of any proceeding instigated because of his or her status as a director or officer of a corporation, the TBCA mandates that the corporation indemnify the director or officer against reasonable expenses incurred in the proceeding. The TBCA provides that a court of competent jurisdiction, unless the corporation’s charter provides otherwise, upon application, may order that an officer or director be indemnified for reasonable expenses if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, notwithstanding the fact that (a) such officer or director was adjudged liable to the corporation in a proceeding by or in the right of the corporation; (b) such officer or director was adjudged liable on the basis that personal benefit was improperly received by the officer or director; or (c) such officer or director breached the officer’s or director’s duty of care to the corporation.
Pinnacle’s charter provides that it will indemnify its directors and officers to the maximum extent permitted by the TBCA. Pinnacle’s bylaws provide that its directors and officers shall be indemnified against expenses that they actually and reasonably incur if they are successful on the merits of a claim or proceeding. In addition, the bylaws provide that Pinnacle will advance to its directors and officers reasonable expenses of any claim or proceeding so long as the director or officer furnishes Pinnacle with (1) a written affirmation of his or her good faith belief that he or she has met the applicable standard of conduct and (2) a written statement that he or she will repay any advances if it is ultimately determined that he or she is not entitled to indemnification.
When a case or dispute is settled or otherwise not ultimately determined on its merits, the indemnification provisions of Pinnacle’s bylaws provide that Pinnacle will indemnify its directors and officers when they meet the applicable standard of conduct. The applicable standard of conduct is met if the director or officer acted in a manner he or she in good faith believed to be in or not opposed to Pinnacle’s best interests and, in the case of a criminal action or proceeding, if the individual had no reasonable cause to believe his or her conduct was unlawful. Pinnacle’s board of directors, shareholders or independent legal counsel determines whether the director or officer has met the applicable standard of conduct in each specific case.
Pinnacle’s charter and bylaws also provide that the indemnification rights contained therein do not exclude other indemnification rights to which a director or officer may be entitled under any bylaw, resolution or agreement, either specifically or in general terms approved by the affirmative vote of the holders of a majority of the shares entitled to vote. Pinnacle can also provide for greater indemnification than is provided for in the bylaws if Pinnacle chooses to do so, subject to approval by its shareholders and the limitations provided in Pinnacle’s charter as discussed in the subsequent paragraph.
Pinnacle’s charter eliminates, with exceptions, the potential personal liability of a director for monetary damages to Pinnacle and its shareholders for breach of a duty as a director. There is, however, no elimination of liability for:
Pinnacle’s charter does not eliminate or limit Pinnacle’s right or the right of its shareholders to seek injunctive or other equitable relief not involving monetary damages.
The indemnification provisions of the bylaws specifically provide that Pinnacle may purchase and maintain insurance on behalf of any director or officer against any liability asserted against and incurred by him or her in his or her capacity as a director, officer, employee or agent whether or not Pinnacle would have had the power to indemnify him or her against such liability.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Pinnacle pursuant to the foregoing provisions, Pinnacle has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
Both Pinnacle and MagnaAvenue are incorporated under the laws of the State of Tennessee. The holders of shares of MagnaAvenue common stock, whose rights as shareholders are currently governed by Tennessee law, the charter of MagnaAvenue and the bylaws of Magna,Avenue, will, upon the exchange of their shares of MagnaAvenue common stock (including shares of Magna common stock issuable automatically upon conversion of the Magna Series D Preferred Stock) immediately prior to the effective time of the Magna merger for shares of Pinnacle common stock at the effective time pursuant to the Magna merger, become holders of Pinnacle common stock and their rights as such will be governed by Tennessee law, the Pinnacle charter and the Pinnacle bylaws. The material differences between the rights of holders of shares of MagnaAvenue common stock and Pinnacle common stock, which result from differences in their governing corporate documents, are summarized below.
The following summary is not intended to be complete and is qualified in its entirety by reference to the TBCA, the Pinnacle charter, the Pinnacle bylaws, the MagnaAvenue charter and the MagnaAvenue bylaws, as appropriate. The identification of specific differences is not meant to indicate that other equally or more significant differences do not exist. Copies of the Pinnacle charter, the Pinnacle bylaws, the MagnaAvenue charter and the MagnaAvenue bylaws are available upon request. To obtain copies of these documents, see “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94.
Summary of Material Differences Between the
Rights of Pinnacle Shareholders and the Rights of MagnaAvenue Shareholders
| Pinnacle Shareholder Rights | ||||
| Description of Common Stock: | Pinnacle is authorized to issue 90,000,000 shares of common stock, par value $1.00 per share. | |||
| Description of Preferred Stock: | Pinnacle’s charter authorizes the board of directors to issue 10,000,000 shares of preferred stock with no par value. | |||
| Special Meeting of Shareholders: | Under the TBCA, the board of directors, any person authorized by the charter or bylaws or (unless the charter provides otherwise) the holders of at least 10% of the votes entitled to be cast may call a special meeting of shareholders.
Pinnacle’s bylaws allow for special meetings of the shareholders to be called at any time by its board of directors, its president, or by the holders of at least 25% of votes entitled to be cast at any special meeting, upon the delivery of a written request to its secretary. The request must describe the purpose(s) for the meeting. | Under the TBCA, the board of directors, any person authorized by the charter or bylaws or (unless the charter provides otherwise) the holders of at least 10% of the votes entitled to be cast may call a special meeting of shareholders.
Special meetings of | ||
| Pinnacle Shareholder Rights | ||||
| Shareholder Action by Written Consent: | Pinnacle’s bylaws and charter provide that any action to be or that may be taken at a meeting of shareholders may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. | Neither | ||
| Shareholder Rights Plan: | Pinnacle does not have a shareholder rights plan as a part of its charter, bylaws, or by separate agreement. | Same as Pinnacle. | ||
| Election; Qualifications and Size of Board of Directors: | The board of directors must not consist of less than five nor more than 25 members. The number may be fixed or changed from time to time, by the affirmative vote of a majority of the issued and outstanding shares of Pinnacle’s capital stock entitled to vote in an election of directors, or by the affirmative vote of a majority of all directors then in office. | The number of directors Directors need not be shareholders or Tennessee | ||
| Prior to Pinnacle’s 2015 annual meeting of shareholders, the board of directors was divided into three classes, Class I, Class II and Class III, which were nearly equal in number as possible, and each class of director served a three year term. Pinnacle’s shareholders approved an amendment to Pinnacle’s charter to declassify the board of directors at the meeting. As a result, beginning with the election of directors at the 2015 annual meeting of shareholders, directors are elected for one year terms when the prior term of the | The board of directors of | |||
| Pinnacle Shareholder Rights | ||||
| Presently, Pinnacle’s board of directors consists of | Presently, | |||
| Vacancies on the Board of Directors: | The TBCA provides that vacancies on the board of directors may be filled by the shareholders or directors, unless the charter provides otherwise. | The TBCA provides that vacancies on the board of directors may be filled by the shareholders or directors, unless the charter provides otherwise. | ||
| Pinnacle’s bylaws provide that the directors, even though less than a quorum, may fill any vacancy on the board of directors, including a vacancy created by an increase in the number of directors. Any appointment by the directors shall continue until the next meeting of Pinnacle’s shareholders at which directors are elected. | Avenue’s bylaws provide that vacancies The board of | |||
| Removal of Directors: | The TBCA provides that shareholders may remove directors with or without cause unless the charter provides that directors may be removed only for cause. However, if a director is elected by a particular voting group, that director may only be removed by the requisite vote of that voting group. | The TBCA provides that shareholders may remove directors with or without cause unless the charter provides that directors may be removed only for cause. However, if a director is elected by a particular voting group, that director may only be removed by the requisite vote of that voting group. | ||
| �� | Pinnacle’s charter or bylaws provide that a director may be removed with cause by the holders of a majority of the shares entitled to vote in an election of directors or upon the affirmative vote of a majority of all directors then in office or without cause by a vote of the holders of a majority of the shares entitled to vote in an election of directors. | |||
| Indemnification; Advancement of Expenses: | The Pinnacle charter and bylaws provide that Pinnacle shall have the power to indemnify any director or officer of Pinnacle to the fullest extent permitted by the TBCA, as amended. Pinnacle may also indemnify and advance expenses to any employee or agent of Pinnacle who is not a director or officer to the same extent as to a director or officer if the board of directors determines that to do so is in the best interests of Pinnacle. | The | ||
| Pinnacle Shareholder Rights | ||||
| Pinnacle’s bylaws provide that Pinnacle shall, in the case of any director or officer of Pinnacle, and may, in the case of any employee or agent of Pinnacle, pay in advance the reasonable expenses incurred by any such director, officer, employee or agent if he or she furnishes Pinnacle with a written affirmation of his or her good faith belief that he or she has met the standard of conduct set forth in Pinnacle’s bylaws, and with a written undertaking, executed personally or on his or her behalf, to repay any advances if it is ultimately determined that he or she is not entitled to indemnification. | ||||
| Personal Liability of Directors: | Pinnacle’s charter provides that, to the fullest extent permitted by the TBCA, a director of Pinnacle shall not be liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. | |||
| The TBCA provides that a corporation may not indemnify a director for liability 1) for any breach of the director’s duty of loyalty to the corporation or its shareholders; 2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or 3) under Sec. 48-18-302 of the TBCA (with respect to the unlawful payment of dividends), as the same exists or may be amended. | ||||
Dissenters’ Rights: | The TBCA provides that a shareholder of a corporation is generally entitled to receive payment of the fair value of his or her stock if the shareholder dissents from transactions including a proposed merger, share exchange or a sale of substantially all of the assets of the corporation. However, dissenters’ rights generally are not available to holders of shares, such as shares of Pinnacle common stock, which are registered on a national securities exchange or quoted on a national market security system. |
| ||
| Pinnacle Shareholder Rights | ||||
| Votes on Extraordinary Corporate Transactions: | Under the TBCA, a sale or other disposition of all or substantially all of the corporation’s assets, a merger of the corporation with and into another corporation, or a share exchange involving one or more classes or series of the corporation’s shares or a dissolution of the corporation must be approved by the board of directors (except in certain limited circumstances) plus, with certain exceptions, the affirmative vote of the holders of a majority of all shares of stock entitled to vote thereon. | Same as Pinnacle. | ||
| Pinnacle’s charter contains no other specific provision. | ||||
| Consideration of Other Constituencies: | The TBCA provides that no corporation (nor its officers or directors) registered or traded on a national securities exchange or registered with the SEC shall be held liable for either having failed to approve the acquisition of shares by an interested shareholder on or before such interested shareholder’s share acquisition date, or for opposing any proposed merger, exchange, tender offer or significant disposition of the assets of the corporation or any of its subsidiaries because of a good faith belief that such merger, exchange, tender offer or significant disposition of assets would adversely affect the corporation’s employees, customers, suppliers, the communities in which such corporation or its subsidiaries operate or are located or any other relevant factor if such factors are permitted to be considered by the board of directors under the charter for such corporation in connection with a merger, exchange, tender offer or significant disposition of assets. Pinnacle’s charter permits such factors to be considered. | The TBCA provides that no corporation (nor its officers or directors) registered or traded on a national securities exchange or registered with the SEC shall be held liable for either having failed to approve the acquisition of shares by an interested shareholder on or before such interested shareholder’s share acquisition date, or for opposing any proposed merger, exchange, tender offer or significant disposition of the assets of the corporation or any of its subsidiaries because of a good faith belief that such merger, exchange, tender offer or significant disposition of assets would adversely affect the corporation’s employees, customers, suppliers, the communities in which such corporation or its subsidiaries operate or are located or any other relevant factor if such factors are permitted to be considered by the board of directors under the charter for such corporation in connection with a merger, exchange, tender offer or significant disposition of assets. | ||
| Amendment of Charter: | The TBCA provides that certain relatively technical amendments to a corporation’s charter may be adopted by the directors without shareholder action. Generally, the TBCA provides that a corporation’s charter may be amended by a majority of votes entitled to be cast on an amendment, subject to any condition the board of directors may place on its submission of the amendment to the shareholders. | The TBCA provides that certain relatively technical amendments to a corporation’s charter may be adopted by the directors without shareholder action. Generally, the TBCA provides that a corporation’s charter may be amended by a majority of votes entitled to be cast on an amendment, subject to any condition the board of directors may place on its submission of the amendment to the shareholders. | ||||
| Pinnacle Shareholder Rights | Avenue Shareholder Rights | |||
| Pinnacle’s charter contains no other specific provisions. | ||||
| Amendment of Bylaws: | Under the TBCA, shareholder action is generally not necessary to amend the bylaws, unless the charter provides otherwise or the shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw. The shareholders may amend or repeal Pinnacle’s bylaws even though the bylaws may also be amended or repealed by its board of directors. | Under the TBCA, shareholder action is generally not necessary to amend the bylaws, unless the charter provides otherwise or the shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw. The shareholders may amend or repeal | ||
| Pinnacle’s bylaws may be altered or amended and new bylaws may be adopted by the shareholders at any annual or special meeting of the shareholders or by the board of directors at any regular or special meeting of the board of directors. If this action is to be taken at a meeting of the shareholders, notice of the general nature of the proposed change in the bylaws must be given in the notice of meeting. The shareholders may provide by resolution that any bylaw provision modified by them may not be modified by the board. | ||||
| Except as otherwise provided in the charter, action by the shareholders with respect to bylaws shall be taken by an affirmative vote of a majority of all shares entitled to elect directors, and action by the board of directors with respect to the bylaws shall be taken by an affirmative vote of a majority of all directors then holding office. | ||||
| Control Share Acquisitions: | The Tennessee Control Share Acquisition Act generally provides that, except as stated below, that causes it to exceed each of these thresholds will be deemed to be control shares. However, voting rights will be restored to control shares by resolution | Same as Pinnacle. | ||||
| Pinnacle Shareholder Rights | Avenue Shareholder Rights | |||
approved by the affirmative vote of the holders of a majority of the corporation’s voting stock, other than shares held by the owner of the control shares. If voting rights are granted to control shares which give the holder a majority of all voting power in the election of the corporation’s directors, then the corporation’s other shareholders may require the corporation to redeem their shares at fair value.
The Tennessee Control Share Acquisition Act is not applicable to Pinnacle because the Pinnacle charter does not contain a specific provision “opting in” to the Control Share Acquisition Act. | ||||
| Investor Protection Act: | The Tennessee Investor Protection Act (which we refer to as the TIPA) provides that unless a Tennessee corporation’s board of directors has recommended a takeover offer to shareholders, no offeror beneficially owning 5% or more of any class of equity securities of the offeree company, any of which was purchased within the preceding year, may make a takeover offer for any class of equity security of the offeree company if after completion the offeror would be a beneficial owner of more than 10% of any class of outstanding equity securities of the company unless the offeror, before making such purchase: (i) makes a public announcement of his or her intention with respect to changing or influencing the management or control of the offeree company; (ii) makes a full, fair and | |||
| effective disclosure of such intention to the person from whom he or she intends to acquire such securities; and (iii) files with the | Same as Pinnacle. | |||
The offeror must provide that any equity securities of an offeree company deposited or tendered pursuant to a takeover offer may be withdrawn by an offeree at any time within seven days from the date the offer has become effective following filing with the Commissioner and the offeree company and public announcement of the terms or | ||||
| Pinnacle Shareholder Rights | Avenue Shareholder Rights | |||
| after 60 days from the date the offer has become effective. If the takeover offer is for less than all the outstanding equity securities of any class, such an offer must also provide for acceptance of securities pro rata if the number of securities tendered is greater than the number the offeror has offered to accept and pay for. If such an offeror varies the terms of the takeover offer before its expiration date by increasing the consideration offered to offerees, the offeror must pay the increased consideration for all equity securities accepted, whether accepted before or after the variation in the terms of the offer. | ||||
| The TIPA does not apply to Pinnacle, as it does not apply to bank holding companies subject to regulation by a federal agency. | The TIPA does not apply to | |||
| Business Combinations Involving Interested Shareholders: | The Tennessee Business Combination Act generally prohibits a “business combination” by Pinnacle or a subsidiary with an “interested shareholder” within five years after the shareholder becomes an interested shareholder. Pinnacle or a subsidiary can, however, enter into a business combination within that period if, before the interested shareholder became such, Pinnacle’s board of directors approved the business combination or the transaction in which the interested shareholder became an interested shareholder. After that five-year moratorium, the business combination with | |||
| the interested shareholder can be consummated only if it satisfies certain fair price criteria or is approved by two-thirds of the other shareholders. | Same as Pinnacle. | |||
| For purposes of the Tennessee Business Combination Act, a “business combination” includes mergers, share exchanges, sales and leases of assets, issuances of securities, and similar transactions. An “interested shareholder” is generally any person or entity that beneficially owns 10% or more of the voting power of any outstanding class or series of Pinnacle stock. | ||||
| Pinnacle’s charter does not have special requirements for transactions with interested parties. | ||||
| Pinnacle Shareholder Rights | Avenue Shareholder Rights | |||
| Greenmail Act | The Tennessee Greenmail Act applies to a Tennessee corporation that has a class of voting stock registered or traded on a national securities exchange or registered with the SEC pursuant to Section 12(g) of the Exchange Act. Under the Tennessee Greenmail Act, Pinnacle may not purchase any of its shares at a price above the market value of such shares from any person who holds more than 3% of the class of securities to be purchased if such person has held such shares for less than two years, unless the purchase has been approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued by Pinnacle or Pinnacle makes an offer, of at least equal value per share, to all shareholders of such class. |
ABOUT PINNACLE FINANCIAL PARTNERS, INC. AND PINNACLE BANK
General
Pinnacle, a bankfinancial holding company under the laws of the United States, is a Tennessee corporation that was incorporated on February 28, 2000. Pinnacle is the parent company of Pinnacle Bank and owns 100% of the capital stock of Pinnacle Bank. Pinnacle Bank started operations on October 27, 2000, in Nashville, Tennessee, and has since grown to 3444 offices, including 29 in eight Middle Tennessee counties. Pinnacle Bank also has five offices in Knoxville, Tennessee, the state’s third-largest banking market.five offices in Memphis and one in Chattanooga as well as other offices in nearby communities. Prior to September 4, 2012, when it converted from a national bank to a state bank, Pinnacle Bank was known as Pinnacle National Bank.
Pinnacle Bank operates as a community bank primarily in the urban markets of Nashville, Memphis, Knoxville and Knoxville, Tennessee.Chattanooga, Tennessee and surrounding counties. As an urban community bank, Pinnacle provides the personalized service most often associated with small community banks, while seeking to offeroffering the sophisticated products and services, such as investments and treasury management, more typically offered byfound at large regional and national banks. This approach has enabled Pinnacle to attract clients from the regional and national banks in the Nashville, Knoxville, Memphis and Knoxville MSAs.Chattanooga MSAs and surrounding markets. As a result, Pinnacle has grown to the fourth largest market share in the Nashville MSA and to the sixth largest market share in the Knoxville MSA, based on 20142015 FDIC Summary of Deposits data.data and including the impact of any mergers and acquisitions.
Pinnacle Bank has established a broad base of core deposits, including savings, checking, interest-bearing checking, money market and certificate of deposit accounts. Pinnacle Bank’s deposits are insured by the FDIC to the maximum extent provided by law. Pinnacle Bank also offers a broad array of convenience-centered products and services, including 24 hour telephone and Internet banking, debit cards, direct deposit and cash management services for small to medium-sized businesses. Additionally, Pinnacle Bank is associated with a nationwide network of automated teller machines of other financial institutions that may be used throughout Tennessee and other regions.
Pinnacle offers a full range of lending products, including commercial, real estate and consumer loans to individuals and small-to medium-sized businesses and professional entities.
Pinnacle Bank contracts with RJFS, a registered broker-dealer and investment adviser, to offer and sell various securities and other financial products to the public from Pinnacle Bank’s locations through Pinnacle Bank employees that are also RJFS employees. RJFS is a subsidiary of Raymond James Financial, Inc.
Pinnacle Bank also maintains a trust department which provides fiduciary and investment management services for individual and commercial clients. Account types include personal trust, endowments, foundations, individual retirement accounts, pensions and custody. Pinnacle Advisory Services, Inc., a registered investment advisor, provides investment advisory services to its clients. Additionally, Miller Loughry Beach Insurance Services, Inc., an insurance agency subsidiary of Pinnacle Bank, provides insurance products, particularly in the property and casualty area, to its clients.
In the firstthird quarter of 2015, Pinnacle and Pinnacle Bank acquired CapitalMark Bank & Trust, a 30%Tennessee state chartered bank with its principal office in Chattanooga, Tennessee and Magna Bank, a Tennessee state-chartered bank with its principal office in Memphis.
In the first quarter of 2016, Pinnacle and Pinnacle Bank collectively acquired an additional 19% interest in Bankers Healthcare Group, LLC (which we refer to as BHG), a privately held company that is a leading provider of financing solutions for healthcare professionals throughout the United States. Pinnacle and Pinnacle Bank isnow collectively own 49% of the equity interests of BHG. Pinnacle Bank also enhancingenhanced its products and services by establishing PNFP Capital Markets Inc., a capital markets subsidiary that intends towill partner with Pinnacle Bank’s financial advisors to offer corporate clients merger & acquisition advisory services, private debt, equity and mezzanine, interest rate derivatives and other selected middle-market advisory services.
As of March 31, 2015,2016, Pinnacle had total consolidated assets of approximately $6.31$9.26 billion, total deposits of approximately $4.79$7.08 billion, and total shareholders’ equity of approximately $824.2 million.$1.23 billion.
Pending Acquisition of CapitalMark Bank & Trust
On April 7, 2015, Pinnacle, Pinnacle Bank and CapitalMark announced the signing of a definitive agreement for CapitalMark to merge with and into Pinnacle Bank. The CapitalMark merger has been approved by the board of directors of each of Pinnacle, Pinnacle Bank and CapitalMark and is expected to close in the third quarter or fourth quarter of 2015. Completion of the CapitalMark merger is subject to customary closing conditions, including receipt of required regulatory approvals and approval of CapitalMark’s common shareholders.
Under the terms of the CapitalMark merger agreement, upon consummation of the CapitalMark merger, each holder of CapitalMark common stock, par value $1.00 per share (which we refer to as the CapitalMark common stock), issued and outstanding, subject to certain exceptions, will have the right to elect to receive either (i) 0.50 shares of Pinnacle common stock, par value $1.00 per share (which we refer to as Pinnacle common stock), for each share of CapitalMark common stock owned by such CapitalMark shareholder at the effective time of the CapitalMark merger (which we refer to as the Pinnacle stock consideration), or (ii) an amount in cash equal to the product of 0.50 multiplied by the average closing price of Pinnacle’s common stock during the ten (10) trading days ending on the business day immediately preceding the closing date of the CapitalMark merger (which we refer to as the Pinnacle cash consideration), or (iii) a combination of Pinnacle stock consideration and Pinnacle cash consideration; provided, however, that the aggregate amount of Pinnacle stock consideration and Pinnacle cash consideration issued to holders of CapitalMark common stock will be prorated such that 90% of the shares of CapitalMark common stock outstanding as of the effective time of the CapitalMark merger will be converted into shares of Pinnacle common stock and 10% of the shares of CapitalMark common stock outstanding as of the effective time of the CapitalMark merger will be converted into cash. Fractional shares will not be issued by Pinnacle, but instead will be paid in cash based on the average closing price of Pinnacle’s common stock for the 10 trading days ending on the business day immediately preceding the closing date of the CapitalMark merger.
CapitalMark’s 1,725,007 outstanding stock options will be fully vested upon consummation of the CapitalMark merger pursuant to CapitalMark’s stock option plan. Any such outstanding stock options to purchase shares of common stock of CapitalMark will be assumed by Pinnacle and converted into the right to purchase that number shares of Pinnacle common stock equal to the product of (i) the number of shares of CapitalMark common stock for which the option may be exercised and (ii) 0.50, with the exercise price of the option equal to the quotient of (A) the exercise price of the option divided by (B) 0.50. At the closing, CapitalMark shareholders will own approximately 8.1% percent of Pinnacle, assuming the Magna merger is consummated at the same time.
As of April 7, 2015, the transaction was valued at approximately $187.0 million based on a closing price of Pinnacle’s common stock, based on the issuance of approximately 3.3 million shares of Pinnacle common stock and $16.4 million in cash, in each case assuming none of the outstanding options to acquire shares of CapitalMark common stock are exercised prior to closing. Additionally, Pinnacle plans to redeem at closing the $18.2 million in preferred stock issued by CapitalMark in connection with its participation in the U.S. Treasury’s Small Business Lending Fund program.
As of March 31, 2015, CapitalMark, which is headquartered in Chattanooga, Tennessee, reported $968.0 million in total assets and $840.0 million in deposits and currently operates four banking offices in Tennessee, one each in Chattanooga and Cleveland, as well as an office in Knoxville and an office in Oak Ridge. For the year ended December 31, 2014 and the first quarter of 2015, CapitalMark reported net income of $7.4 million and $2.3 million, respectively. See page 19 for “SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF CAPITALMARK BANK & TRUST”.
Subordinated Debt Issuance in Connection With the CapitalMark merger and the Magna merger
In connection with the consummation of the Magna merger and the CapitalMark merger, Pinnacle Bank expects to issue approximately $50.0 million in subordinated debt (which we refer to as the Debt Issuance) in a private placement to institutional investors. The proceeds from the Debt Issuance, together with available cash, will be used to pay the cash amounts owed by Pinnacle as a result of the Magna merger and the CapitalMark merger, including the redemption of the preferred shares sold by Magna and CapitalMark to the U.S. Treasury pursuant to the Small Business Lending Fund program. In connection with the Debt Issuance, Pinnacle anticipates that it will repay all of its outstanding borrowings under the Pinnacle Loan Agreement.
Additional Information Concerning Pinnacle
Information concerning:
is included or incorporated by reference in its Annual Report on Form 10-K for the year ended December 31, 2014,2015, filed with the SEC on February 25, 201529, 2016 (which we refer to as the Form 10-K). Additionally, financial statements and information as well as management’s discussion and analysis of financial condition and results of operations are includeincluded in the Form 10-K and in Pinnacle’s quarterly report on Form 10-Q for the quarter ended March 31, 2015.10-K. These reports are incorporated by reference in this proxy statement/prospectus. See “WHERE YOU CAN FIND MORE INFORMATION” beginning on page 101.94. Shareholders of either Pinnacle or MagnaAvenue desiring a copy of such documents may contact Pinnacle at the address listed on the inside front cover page, or the SEC which also maintains a web site on the Internet at www.sec.gov that contains reports that Pinnacle files electronically with the SEC. These reports also are available at Pinnacle’s website at www.pnfp.com. Pinnacle’s website address is provided as an inactive textual reference only. Information contained on or accessible through Pinnacle’s website is not part of this proxy statement/prospectus and is therefore not incorporated by reference, and you should not consider it a part of this proxy statement/prospectus.
ABOUT MAGNAAVENUE FINANCIAL HOLDINGS, INC. AND AVENUE BANK
General
MagnaAvenue is headquartered in Nashville, Tennessee. Avenue was formed as a Tennessee state-chartered commercial bank with it principal offices locatedsingle-bank holding company in Memphis, Tennessee. MagnaOctober 2006 and operates banking branches in Memphis, Germantown, and Cordova, Tennessee and mortgage origination offices in Shelby County, Tennessee, Middle Tennessee and Desoto County, Mississippi. At March 31, 2015, Magna had total assets of $589.2 million and was the third largest financial institution based in Memphis, Tennessee as measured by total assets at that date. Magna’s core businesses include retail banking, commercial banking, private banking, mortgage banking (both residential and commercial), loan servicing, construction lending and consumer lending.
Retail Banking
Magna’s business is the delivery of retail and commercial banking products in east Memphis and Germantown, Tennessee; areas of stable growth and above average median income households. At March 31, 2015, Magna had five bank branches in the greater Memphis area. Magna’s branches are located in high traffic commercial corridors and attract a convenience oriented customer base. Its customers can access Magna’s banking products and services through:
Lending Activities
General. Magna’s lending activities reflectprimarily through its community banking philosophy, emphasizing secured loans to individuals and businesses in the Memphis market.
Consumer loans. Consumer loans largely consist of single family residential first and junior lien mortgage loans. Historically, Magna has not been a significant lender in the non-real estate consumer loan sector.
Commercial loans. Commercial real estate loans comprise the largest component of the commercial loan segment of Magna’s portfolio. In descending order, commercial real estate loanssubsidiary, Avenue Bank. Avenue Bank’s operations are concentrated in the following sectors:Nashville metropolitan statistical area (MSA) and provides a range of financial services through its five locations (four of which are retail hotel/motel, self-storage, multi-family, industrial, condominiumbranches) and industrial.a limited deposit courier service (mobile branch) for select commercial banking clients.
CommercialFounded by a team of executives and banking professionals having substantial experience with large regional institutions in the middle Tennessee market, Avenue Bank’s strategy is to serve Nashville’s rapidly growing need for local banking services. As a company of more than 120 employees, Avenue Bank is woven into the very fabric of its community, through the widespread service and leadership of its employees in non-profit and civic engagement. Avenue Bank believes this genuine passion and engagement in its community, across the board in the company, provides Avenue Bank with the ability to capture a disproportionate amount of business.
Avenue Bank’s growth strategy focuses primarily on commercial and private banking. Avenue Bank provides products and services that compete with large, national competitors, but with the personalized attention and nimbleness of a community bank. Avenue Bank believes it provides unparalleled levels of client service through the talent and expertise of its people, the responsiveness of its credit processes, and the efficiency with which it conducts business. This leads to the development of significant, long-term relationships with many of Nashville’s leading individuals and businesses.
While Avenue Bank’s lines of business loansreflect a traditional business strategy, Avenue Bank approaches them in non-traditional ways through its people, culture, and brand. Avenue Bank has built its company on a corporate culture focused on creating a team of highly capable bankers with a depth of leadership and banking talent who provide exceptional service to its customers. Avenue Bank strives to create an environment to encourage personal and professional success, a company where achievements are the second largest sector of Magna’s commercial loan portfolio. In this area, Magnacelebrated and challenges are shared.
Avenue Bank’s culture is a full service providercritical component of treasury management, business e-Banking, remote deposit capture, overnight sweepattracting and other small business oriented services. C&I loans are generally secured by owner-occupied real estate and business assets and are maderetaining experienced banking talent as well as clients. Avenue Bank believes its culture has enabled it to build a brand within the Nashville market for a variety of purposes, including working capital and purchase of trade equipment.
Construction, land and land development loans are alsobeing not just “another bank,” but a significant partcontributor to the financial well-being of its community. Avenue Bank also believes that the commercial loan portfolio. Within this segmentalignment of its culture and brand provides a consistent and differentiating message to its clients, in addition to being a significant contributor to increasing shareholder value.
CERTAIN BENEFICIAL OWNERS OF AVENUE FINANCIAL HOLDINGS, INC. COMMON STOCK
The following table sets forth information as of May 4, 2016 regarding the loan portfolio, loans are concentrated as follows:beneficial ownership of Avenue common stock for:
MagnaAvenue has virtually no concentrationdetermined beneficial ownership in loans made to construct non-residential properties.
Private Banking
Magna operates a department of professionals whose focus is delivery of a very high level of personal service to high income/net worth individuals.
Mortgage Banking Activities
A significant part of Magna’s business model is fee-based mortgage banking, both residential and commercial. In these two areas Magna originates loans for sale to third party investors. Magna is a FNMA approved seller/servicer for residential mortgages and a commercial mortgage seller/servicer for FHLMC. In addition, Magna represents twelve large life insurance companies for commercial mortgage origination and sells residential mortgages to multiple non-agency mortgage aggregators.
Loan Servicing Activities
Mortgage loan servicing is another fee-based business within Magna and is conducted through two separate departments. The largeraccordance with the rules of the twoSEC. These rules generally provide that a person is the residential mortgage servicing area comprisedbeneficial owner of approximately 8,300 loans totaling $1.2 billion. A portionsecurities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities, or has the right to acquire such powers within 60 days. For purposes of calculating each person’s percentage ownership, common stock issuable pursuant to options exercisable within 60 days are included as outstanding and beneficially owned for that person or group, but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as disclosed in the footnotes to this servicingtable and subject to applicable community property laws, Avenue believes that each beneficial owner identified in the table possesses sole voting and investment power over all Avenue common stock shown as beneficially owned by the beneficial owner.
The percentage of beneficial ownership is conductedbased on a sub-servicing basis.10,419,888 shares of Avenue common stock outstanding as of May 4, 2016.
Commercial mortgage servicing consists of approximately 175 loans totaling $575 million and is conducted as part of Magna’s commercial mortgage brokerage business.
Sources of Funds
Deposits. Deposits are Magna’s primary source of balance sheet funding. Inflows and outflows are significantly influenced by competitors’ rates,Unless otherwise noted, the supply of funds,address for each shareholder listed in the returns from alternative investments and general economic conditions. Consumer, small business and commercial deposits are attracted from within Magna’s primary markets through a combination of:table below is: c/o Avenue Financial Holdings, Inc., 111 10th Avenue South, Suite 400, Nashville, TN 37203.
| Shares Beneficially Owned | ||||||||||||
Name: | Number of Shares | Percentage of Shares | ||||||||||
Greater than 5% shareholders | ||||||||||||
Patriot Financial Partners II, L.P Cira Centre 2929 Arch Street, 27th Floor Philadelphia, PA 19104 | (1 | ) | 758,947 | 7.33 | % | |||||||
Patriot Financial Partners Parallel II, L.P Cira Centre 2929 Arch Street, 27th Floor Philadelphia, PA 19104 | (1 | ) | 88,553 | 0.85 | ||||||||
Steven R. Gerbel and Brown Trout Management, LLC 311 South Wacker Drive, Suite 6025 Chicago, IL 60606 | (2 | ) | 520,879 | 5.03 | ||||||||
Directors | ||||||||||||
David G. Anderson | 25,501 | 0.24 | ||||||||||
Patrick G. Emery | 22,815 | 0.22 | ||||||||||
Agenia Clark | 18,789 | 0.18 | ||||||||||
G. Kent Cleaver | 209,107 | 2.01 | ||||||||||
James F. Deutsch | (4 | ) | 848,500 | 8.14 | ||||||||
Marty Dickens | 49,414 | 0.47 | ||||||||||
Nancy Falls | 6,213 | 0.06 | ||||||||||
Joseph C. Galante | 41,515 | 0.40 | ||||||||||
David Ingram | (5 | ) | 531,200 | 5.10 | ||||||||
Steve Moore | 29,614 | 0.28 | ||||||||||
Ken Robold | 17,359 | 0.17 | ||||||||||
Ronald L. Samuels | 204,443 | 1.96 | ||||||||||
Karen Saul | 62,863 | 0.60 | ||||||||||
Executive Officers Who Are Not Directors | ||||||||||||
Barbara J. Zipperian | (3 | ) | 106,242 | 1.02 | ||||||||
E. Andrew Moats | (3 | ) | 37,475 | 0.36 | ||||||||
Directors and Executive Officers as a Group (15 persons) | (3 | ) | 2,211,050 | 21.15 | % | |||||||
The mix of deposits has a significant impact on Magna’s profitability as non-interest bearing demand accounts generally have a lower overall cost than time deposits. Deposits are also sourced from brokers. Magna can accept brokered deposits as long as Magna remains “well capitalized”. Should its capital levels fall below well capitalized, further use of brokered deposits would require advance authorization by the FDIC.
Borrowings. Borrowings are another funding source for balance sheet growth. Magna’s principal source of borrowings is the Federal Home Loan Bank of Cincinnati where it borrows under the terms of a blanket collateral pledge agreement covering a portion of Magna’s loan portfolio, as well as the majority of its securities portfolio.
Magna also has an established credit facility with the Federal Reserve Bank of St. Louis, but this source of funds is of limited use because advances under the facility must be repaid within ninety days.
Magna has maintained a short-term, unsecured federal funds line with its principal correspondent bank which provides an additional $16.1 million of available short-term funding.
Competition
The banking business is highly competitive. Competition arises from a number of sources, including other bank holding companies and commercial banks, consumer finance companies, thrift institutions, other financial institutions and financial intermediaries. In addition to commercial banks, savings and loan associations, savings banks and credit unions actively compete to provide a wide variety of banking services. Mortgage banking firms, finance companies, insurance companies, brokerage companies, financial affiliates of industrial companies and government agencies provide additional competition for loans and for many other financial services. Magna also currently competes for interest-bearing funds with a number of other financial intermediaries, including brokerage firms and mutual funds, which offer a diverse range of investment alternatives. Some of Magna’s competitors are not subject to the same degree of regulatory review and restrictions that apply to Magna. In addition, Magna must compete with much larger financial institutions that have greater financial resources than Magna.
Supervision and Regulation
Magna is subject to supervision and regulation by the Federal Reserve and the TDFI. The requirements and restrictions applicable to Magna are similar to those applicable to Pinnacle Bank.
Employees
At March 31, 2015, the number of employees of Magna was 153.
Legal Proceedings
Magna is from time to time involved in routine legal proceedings occurring in the ordinary course of business that, in the aggregate, Magna’s management believes will not have a material impact on its financial condition and results of operation. Further, Magna maintains liability insurance to cover some, but not all, of the potential liabilities normally incident to the ordinary course of our businesses as well as other insurance coverage’s customary in its business, with coverage limits it deems prudent.
| (1) | Based on Schedule 13G filed February 24, 2015 and subsequent discussions with Patriot Financial Partners. |
| (2) | Based on Schedule 13G filed February 8, 2016. |
| (3) | Amounts and percentages include exercise of stock options granted to Ms. Zipperian and Mr. Moats, who have been granted stock options for 26,000, and 10,000, respectively. All of the options are exercisable. |
| (4) | Includes 847,500 shares held by Patriot Financial Partners II, L.P. and Patriot Financial Partners Parallel II, L.P. Mr. Deutsch is a member of the investment committees which make investment decisions on behalf of both entities. |
| (5) | Includes 380,000 shares held in a trust for the benefit of Mr. Ingram’s children, as to which Mr. Ingram’s wife serves as trustee. Mr. Ingram disclaims beneficial ownership of such shares. |
PROPOSAL #2: ADJOURNMENT OF MAGNA SPECIAL MEETING
The MagnaIf there are not sufficient votes to constitute a quorum at the time of the special meeting, the special meeting may be adjourned to a later date or postponed to another time or place, if necessary or appropriate,dates in order to permit among other things, further solicitation of proxies if necessary to obtain additional proxies if necessary to obtain a quorum or to obtain additional votes in favor ofproxies. Except as required by the merger proposal.
If, atTBCA, the Magna special meeting, there are an insufficient number of shares of Magna common stock and Magna Series D Preferred Stock present in person or by proxy to constitute a quorum or approve the merger proposal, in accordance with its bylaws, Magna may propose to adjourn or postpone the Magna special meeting, which will enable the MagnaAvenue board of directors is not required to solicit additional proxiesfix a new record date to establish a quorum or approvedetermine the merger proposal.MagnaAvenue shareholders entitled to vote at the adjourned special meeting. At the adjourned special meeting, any business may be transacted which might have been transacted at the special meeting. If the Avenue board of directors does not intendfix a new record date, it is not necessary to call a vote ongive any notice of the merger proposaltime and place of the adjourned special meeting other than an announcement at the Magna special meeting ifat which the votes cast in favoradjournment is taken, unless the adjournment is for more than four months after the date fixed for the original special meeting. If a new record date is fixed, notice of the proposal are insufficient to approve it.adjourned special meeting shall be given as in the case of an original special meeting.
In order to allow proxies that have been received at the time of the special meeting to be voted for an adjournment, if necessary, this proposal regarding the question of adjournment is being submitted to the Avenue common shareholders as a separate matter for their consideration. If approved, the adjournment proposal Magna is asking its shareholders towill authorize the holder of any proxy solicited by the MagnaAvenue board of directors to vote in favor of granting discretionary authority to proxy holders to adjourn or postponeadjourning the Magna special meeting to another time and place forany later adjournments. If the purpose of soliciting additional proxies. If MagnaAvenue common shareholders approve this adjournment proposal, MagnaAvenue could adjourn the special meeting and any adjourned session of the Magna special meeting to use the additional time to solicit additional proxies to gain a quorum for the special meeting or approve the merger agreement proposal, including the solicitation of proxies from MagnaAvenue common shareholders who previously have previously voted. Thevoted against the merger agreement proposal. Among other things, approval of the adjournment proposal will be approved uponcould mean that, even if proxies representing a sufficient number of votes against the merger agreement proposal have been received, Avenue could adjourn the special meeting without a vote on the merger agreement proposal and seek to convince the holders of those shares of common stock to change their votes to votes in favor of the merger agreement proposal.
Vote Required
The affirmative vote of a majority of the shares of MagnaAvenue common stock and Magna Series D Preferred Stock who are present in person or by proxy and entitled to vote on the matter at the Magna special meeting.meeting is required to approve the proposal to authorize adjournment. Accordingly, abstentions and broker non-votes, if any, will have the same effect as a vote “AGAINST” the proposal to authorize the MagnaAvenue board of directors to adjourn or postpone the Magnaspecial meeting. If you fail to submit a proxy and fail to attend the special meeting whileor if your shares of Avenue common stock are held through a bank, brokerage firm or other nominee and you do not in attendance atinstruct your bank, brokerage firm or other nominee to vote your shares of Avenue common stock, your shares of Avenue common stock will not be voted on the Magnaproposal to adjourn the special meeting, but this will not have noan effect on the outcomeapproval of any vote to adjourn or postpone the Magna special meeting.adjournment proposal. Properly executed proxies that do not contain voting instructions will be voted “FOR” approval of this proposal. Approvalproposal (other than proxies related to shares of the adjournment proposal is notAvenue common stock held through a condition to completion of the Magna merger.bank, brokerage firm or other nominee).
The Magna board of directors unanimously recommends that Magna shareholders voteAVENUE’S BOARD OF DIRECTORS RECOMMENDS THAT AVENUE COMMON SHAREHOLDERS VOTE “FOR” the proposal to adjourn or postpone the Magna special meeting, if necessary or appropriate, including the solicitation of additional proxies needed to approve the merger proposal.THE PROPOSAL TO AUTHORIZE ADJOURNMENT.
The consolidated financial statements of Pinnacle as of December 31, 20142015 and 2013,2014, and for each of the years in the three-year period ended December 31, 2014,2015, and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 20142015 have been incorporated by reference herein and in the registration statement of which this proxy statement/prospectus is a part in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Avenue as of December 31, 2015 and for the year ended December 31, 2015 have been incorporated by reference herein and in the registration statement of which this proxy statement/prospectus is a part in reliance upon the report of BKD, LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Avenue as of December 31, 2014 and for each of the years in the two-year period ended December 31, 2014 have been incorporated by reference herein and in the registration statement of which this proxy statement/prospectus is a part in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
Avenue has agreed to indemnify and hold KPMG LLP harmless against and from any and all legal costs and expenses incurred by KPMG LLP in successful defense of any legal action or proceeding that arises as a result of KPMG LLP’s consent to the incorporation by reference of its audit report on Avenue’s past financial statements incorporated by reference in the registration statement of which this proxy statement/prospectus is a part.
Certain matters pertaining to the validity of the Pinnacle common stock to be issued in connection with the Magna merger will be passed upon by Bass, Berry & Sims PLC. Certain matters pertaining to the federal income tax consequences of the Magna merger will be passed upon for Pinnacle by Bass, Berry & Sims PLC and for MagnaAvenue by Wyatt, Tarrant & Combs,Bradley Arant Boult Cummings LLP.
Pinnacle
In order for shareholder proposals for Pinnacle’s 20162017 annual meeting of shareholders to be eligible for inclusion in Pinnacle’s 20162017 proxy statement, all such proposals must be mailed to Hugh M. Queener, Corporate Secretary, Pinnacle Financial Partners, Inc., 150 Third Avenue South, Suite 900, Nashville, Tennessee 37201, and must be received no later than the close of business on November 11, 2015.9, 2016. After this date, a shareholder who intends to raise a proposal to be acted upon at Pinnacle’s 2016 annual meeting of shareholders, but who does not desire to include the proposal in Pinnacle’s 20162017 proxy statement, must inform Pinnacle in writing no later than January 25, 2016.24, 2017. If notice is not provided by that date, such notice will be considered untimely and Pinnacle’s board of directors may exclude such proposals from being acted upon at the 20162017 annual meeting of shareholders. Further, if Pinnacle’s board of directors elects not to exclude the proposal from consideration at the meeting (although not included in the proxy statement), the persons named as proxies in Pinnacle’s proxy statement for the 20162017 annual meeting of shareholders may exercise their discretionary authority to act upon any such proposal. If the date of the 20162017 annual meeting of shareholders is changed, the dates set forth above may change.
MagnaAvenue
If the Magna merger is consummated, there will be no MagnaAvenue annual meeting of shareholders for 2016.2016 or 2017. In that case, MagnaAvenue shareholders holding Pinnacle common stock as a result of the Magna merger must submit shareholder proposals to Pinnacle in accordance with the procedures described above.
If the Magna merger is not consummated, then MagnaAvenue will hold an annual meeting later in 2016.
WHERE YOU CAN FIND MORE INFORMATION
Pinnacle filesand Avenue file annual, quarterly and current reports, proxy statements and other information with the SEC. Pinnacle’s and Avenue’s SEC filings are also available over the Internet at the SEC’s website at www.sec.gov. The SEC’s website is included in this proxy statement/prospectus as an inactive textual reference only. The information contained on the SEC’s website is not incorporated by reference into this proxy statement/prospectus and should not be considered to be part of this proxy statement/prospectus unless such information is otherwise specifically
referenced elsewhere in this proxy statement/prospectus. You may also read and copy any document Pinnacle or Avenue files at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 to obtain information on the operation of the public reference room. Each of Pinnacle and Avenue makes available free of charge through its website its annual, quarterly and current reports, proxy statements and other information, including amendments thereto, as soon as reasonably practicable after such material is filed with or furnished to the SEC. Pinnacle’s website address is www.pnfp.com. Pinnacle’sAvenue’s website address is www.avenuenashville.com. Pinnacle’s and Avenue’s website addresses are provided as an inactive textual referencereferences only. Information contained on or accessible through Pinnacle’s website isand Avenue’s websites are not part of this proxy statement/prospectus and isare therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this proxy statement/prospectus.
Pinnacle “incorporatesand Avenue “incorporate by reference” into this proxy statement/prospectus, which means Pinnacle and Avenue can disclose important information to you by referring you specifically to those documents. This means that the information incorporated by reference is deemed to be part of this proxy statement/prospectus, unless superseded by information contained directly in this proxy statement/prospectus. Certain information that Pinnacle and Avenue subsequently files with the SEC will automatically update and supersede information in this proxy statement/prospectus and in Pinnacle’s or Avenue’s, as the case may be, other filings with the SEC. Pinnacle incorporatesand Avenue incorporate by reference the documents listed below, which Pinnacle hasor Avenue, as the case may be, have already filed with the SEC, and any future filings Pinnacle or Avenue makes with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, between the date of this proxy statement/prospectus and before the adjournment of the Magna special meeting, and after the date of the initial registration statement and prior to the effectiveness of the registration statement, except that Pinnacle isand Avenue are not incorporating any information included in a Current Report on Form 8-K that has been or will be furnished (and not filed) with the SEC, unless such information is expressly incorporated herein by reference to a furnished Current Report on Form 8-K or other furnished document:
Pinnacle’s Filings:
| 1. | Pinnacle’s Annual Report on Form 10-K for the year ended December 31, |
| 2. |
| the information in Pinnacle’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on March 10, |
| Pinnacle’s Current Reports on Form 8-K filed with the SEC on January |
| the description of Pinnacle’s common stock contained in Pinnacle’s Registration Statement onForm 8-A/A filed with the SEC and dated January 12, 2009, including all amendments and reports filed for purposes of updating such description. |
Avenue’s Filings:
| 1. | Avenue’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 29 2016; and |
| 2. | Avenue’s Current Report on Form 8-K filed with the SEC on January 29, 2016. |
You may request a copy of these documents, which will be provided to you at no cost, by writing or telephoning us using the following contact information:information, as applicable:
Pinnacle Financial Partners, Inc.
150 Third Avenue South, Suite 900
Nashville, Tennessee 37201
Attention: Investor Relations
Pinnacle Financial Partners, Inc. 150 Third Avenue South, Suite 900 Nashville, Tennessee 37201 Attention: Harold R. Carpenter Telephone: (615) 744-3700 | or | Avenue Financial Holdings, Inc. 111 10th Avenue South, Suite 400 Nashville, Tennessee 37203 Attention: Barbara J. Zipperian Telephone: (615) 736-6940 |
Pinnacle has filed a registration statement on Form S-4 to register with the SEC shares of Pinnacle common stock that holders of MagnaAvenue common stock (including shares of Magna common stock issuable upon conversion of the Magna Series D preferred stock) will receive in connection with the consummation of the transactions
contemplated by the merger agreement, if Magna’sAvenue’s common shareholders approve the merger agreement and the transactions contemplated thereby are completed. This proxy statement/prospectus is a part of the registration statement of Pinnacle on Form S-4 and is a prospectus for Pinnacle and a proxy statement for Magna.Avenue.
You should only rely on the information in, or incorporated by reference into, this proxy statement/prospectus. No one has been authorized to provide you with different information. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than the date on the front page. We are not making an offer to sell or exchange any securities, soliciting any offer to buy any securities, or soliciting any proxy, in any state where it is unlawful to do so.
EXECUTION VERSIONCOPY
AGREEMENT AND PLAN OF MERGER
by and between
PINNACLE FINANCIAL PARTNERS, INC.,
PINNACLE BANK
and
MAGNA BANKAVENUE FINANCIAL HOLDINGS, INC.
Dated as of AprilJanuary 28, 20152016
TABLE OF CONTENTS
ARTICLE I.THE MERGER | A-1 | ||||||
1.1 | The Merger | A-1 | |||||
1.2 | Effective Time | A-2 | |||||
1.3 | Effects of the Merger | A-2 | |||||
1.4 | Conversion of Target Common Stock | A-2 | |||||
1.5 |
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| Acquiror Capital Stock | ||||||
1.6 | Options | A-3 | |||||
1.7 |
| A-3 | |||||
1.8 |
| A-3 | |||||
1.9 |
| A-3 | |||||
1.10 |
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| Officers and Directors of Surviving Corporation | ||||||
| Appointment of Target Director to | ||||||
| Offices of Acquiror and Target; Headquarters of Surviving Corporation | ||||||
| Approval of Shareholders | ||||||
1.14 | Subordinated Notes | A-4 | |||||
ARTICLE II.DELIVERY OF MERGER CONSIDERATION | |||||||
2.1 | Deposit of Merger Consideration | ||||||
2.2 | Delivery of Merger Consideration | ||||||
2.3 | Withholding | ||||||
ARTICLE III.REPRESENTATIONS AND WARRANTIES OF | A-6 | ||||||
3.1 | Corporate Organization | A-6 | |||||
3.2 | Capitalization | A-7 | |||||
3.3 | Authority; No Violation | A-8 | |||||
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3.5 | Reports | A-9 | |||||
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3.7 | Broker’s Fees | A-10 | |||||
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3.8 | Absence of Certain Changes or Events | ||||||
3.9 | Legal Proceedings | ||||||
3.10 | Taxes and Tax Returns | ||||||
3.11 | Employees | ||||||
3.12 | SEC Reports | ||||||
3.13 | Compliance with Applicable Law | ||||||
3.14 | Agreements with Regulatory Agencies | ||||||
3.15 | Deposit Insurance | ||||||
3.16 | CRA | ||||||
3.17 | Reorganization | ||||||
3.18 | Information Supplied | ||||||
3.19 | Data Privacy | ||||||
3.20 | No Further Representations | ||||||
ARTICLE IV.REPRESENTATIONS AND WARRANTIES OF TARGET | A-14 | ||||||
4.1 | Corporate Organization | A-14 | |||||
4.2 | Capitalization | A-15 | |||||
4.3 | Authority; No Violation | A-16 | |||||
4.4 | Consents and Approvals | A-16 | |||||
4.5 | Reports | A-17 | |||||
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A-(i)
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4.8 | Absence of Certain Changes or Events | ||||||
4.9 | Legal Proceedings | ||||||
4.10 | Taxes and Tax Returns | A-20 | |||||
4.11 | Employees | A-21 | |||||
4.12 | Employee Benefits | A-22 | |||||
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4.13 | Compliance with Applicable Law | ||||||
4.14 | Certain Contracts | ||||||
4.15 | Agreements with Regulatory Agencies | ||||||
4.16 | Real Estate | ||||||
4.17 | Interest Rate Risk Management Instruments | ||||||
4.18 | Undisclosed Liabilities | ||||||
4.19 | Insurance | ||||||
4.20 | Intellectual Property; Data Privacy | ||||||
4.21 | Investment Securities | ||||||
4.22 | Regulatory Capitalization | ||||||
4.23 | Loans; Nonperforming and Classified Assets | ||||||
4.24 | Allowance for Loan and Lease Losses | ||||||
4.25 |
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| Investment Management and Related Activities | ||||||
4.26 | Repurchase Agreements | A-30 | |||||
4.27 |
| A-30 | |||||
4.28 |
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| CRA, Anti-money Laundering and Customer Information Security | ||||||
| Transactions with Affiliates | ||||||
4.30 | Environmental Liability | A-30 | |||||
4.31 |
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| State Takeover Laws | ||||||
4.32 | Reorganization | A-31 | |||||
4.33 |
| A-31 | |||||
4.34 | Information Supplied | ||||||
4.35 | Internal Controls | ||||||
4.36 | Directors and Officers | ||||||
4.37 | Opinion of Target Financial Advisor | ||||||
4.38 | No Further Representations | ||||||
ARTICLE V.COVENANTS RELATING TO CONDUCT OF BUSINESS | |||||||
5.1 | Conduct of Businesses Prior to the Effective Time | ||||||
5.2 | Target Forbearances | ||||||
5.3 |
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ARTICLE VI.ADDITIONAL AGREEMENTS | |||||||
6.1 | Regulatory Matters | A-36 | |||||
6.2 | Access to Information | ||||||
6.3 | Shareholder Approval | ||||||
6.4 | Legal Conditions to Merger | ||||||
6.5 | Stock Quotation or Listing | ||||||
6.6 | Employee Benefit Plans; Existing Agreements | ||||||
6.7 | Indemnification; Directors’ and Officers’ Insurance | ||||||
6.8 | Additional Agreements | ||||||
6.9 | Advice of Changes | ||||||
6.10 | Acquisition Proposals; Board Recommendation | ||||||
6.11 | Financial Statements and Other Current Information | ||||||
6.12 | Exemption from Liability under Section 16(b) | ||||||
6.13 |
| A-44 | |||||
6.14 | Exchange Matters | A-45 | |||||
A-(ii)
ARTICLE VII.CONDITIONS PRECEDENT | |||||||
7.1 | Conditions to Each Party’s Obligation to Effect the Merger | ||||||
7.2 | Conditions to Obligations of Target | ||||||
7.3 | Conditions to Obligations of Acquiror | A-46 | |||||
ARTICLE VIII.TERMINATION AND AMENDMENT | |||||||
8.1 | Termination | ||||||
8.2 | Effect of Termination | ||||||
8.3 | Termination Fee | ||||||
ARTICLE IX.GENERAL PROVISIONS | |||||||
9.1 | Closing | ||||||
9.2 | Nonsurvival of Representations, Warranties and Agreements | ||||||
9.3 | Expenses | ||||||
9.4 | Notices | ||||||
9.5 | Interpretation | ||||||
9.6 | Amendment | ||||||
9.7 | Extension; Waiver | ||||||
9.8 | Counterparts | ||||||
9.9 | Entire Agreement | ||||||
9.10 | Governing Law | ||||||
9.11 | Waiver of Jury Trial | ||||||
9.12 | Publicity | ||||||
9.13 | Assignment; Third Party Beneficiaries | ||||||
9.14 | Severability | ||||||
9.15 | Delivery by Facsimile or Electronic Transmission | ||||||
9.16 | Specific Performance | ||||||
A-(iii)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of AprilJanuary 28, 20152016 (this “Agreement”“Agreement”), by and between MAGNA BANK,AVENUE FINANCIAL HOLDINGS, INC., a Tennessee state-chartered bankcorporation (“Target”), and PINNACLE FINANCIAL PARTNERS, INC., a Tennessee corporation (“Parent”), and PINNACLE BANK, a Tennessee state-chartered bank and a direct, wholly-owned subsidiary of Parent (“Acquiror”).
RECITALS:
WHEREAS, the Boards of Directors of Parent, Acquiror and Target have approved, and deem it advisable and in the best interests of their respective corporations and shareholders to consummate the strategic business combination transaction provided for herein in which Target will, subject to the terms and conditions set forth herein, merge with and into Acquiror (the “Merger”), so that Acquiror is the surviving corporation (hereinafter sometimes referred to in such capacity as the “Surviving Corporation”) in the Merger;
WHEREAS, the Boards of Directors of Parent, Acquiror and Target have each determined that the Merger and the other transactions contemplated hereby are consistent with, and in furtherance of, their respective business strategies and goals;
WHEREAS, as a material inducement and as additional consideration to ParentAcquiror to enter into this Agreement, certain holders of the Target’s Common Stock and Target Series D Preferred Stock have entered into a voting agreement with ParentAcquiror dated as of the date hereof, the form of which is attached hereto asExhibit A (each a “Voting Agreement” and collectively, the “Voting Agreements”), pursuant to which each such person has agreed, among other things, to vote all shares of Target Common Stock and Target Series D Preferred Stock owned by such person in favor of the approval of this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe certain conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger will qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Treasury Regulation Section 1.368-2(g).
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I.
THE MERGER
1.1The Merger.Merger.
(a) Subject to the terms and conditions of this Agreement, in accordance with the Tennessee Business Corporation Act (the “TBCA”) and the Tennessee Banking Act (the “TBA”), at the Effective Time, Target shall merge with and into Acquiror. Acquiror shall be the Surviving Corporation in the Merger, and shall continue its corporate existence under the laws of the State of Tennessee. Upon consummation of the Merger, the separate corporate existence of Target shall terminate.
(b) The parties may by mutual agreement at any time change the method of effecting the combination of Target and Acquiror, including without limitation the provisions of thisArticle I, if and to the extent they deem such change to be desirable;provided,however, that no such change shall (i) alter or change the amount or form of Merger Consideration to be provided to holders of Target Common Stock and Target Series D Preferred Stock
as provided for in this Agreement, (ii) adversely affect the tax treatment of holders of Target Common Stock and Target Series D Preferred Stock as a result of receiving the Merger Consideration or (iii) materially impede or delay consummation of the transactions contemplated by this Agreement.
1.2Effective Time. The Merger shall become effective upon the filing of this Agreement with the Commissioner of the Tennessee Department of Financial Institutions or such later date as shall be set forth in the articles of merger (the “Articles of Merger”) that shall be filed with the Secretary of State of the State of Tennessee (the “Tennessee Secretary”) on the Closing Date. The term “Effective Time” shall be the date and time when the Merger becomes effective.effective, as set forth in the Articles of Merger.
1.3Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in Section 48-21-108 of the TBCA.
1.4Conversion of Target Common Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Target, Parent, Acquiror or the holder of any of the following securities:
(a) Subject toSection 2.2(e) and the election, proration and redesignation provisions ofSection 1.4(b), each (i) share of the common stock, $1.00no par value per share, of Target (the “Target Common Stock”) and (ii) share of Non-Cumulative Perpetual Preferred Stock, Series D, par value of $1.00 per share (the “Target Series D Preferred Stock”), which by its terms shall convert automatically into a share of Target Common Stock immediately prior to the Effective Time, issued and outstanding immediately prior to the Effective Time, except for Target Dissenting Shares (as defined below) and shares of Target Common Stock owned by Target, ParentAcquiror or Acquirorany of their respective Subsidiaries (other than shares of Target Common Stock held in trust accounts, managed accounts and the like, or otherwise held in a fiduciary capacity, that are beneficially owned by third parties (any such shares held in a fiduciary capacity by Target, ParentAcquiror or Acquiror,any of their respective Subsidiaries, as the case may be, being referred to herein as “Trust Account Shares”) and shares of Target Common Stock held on account of a debt previously contracted (“DPC Shares”)), shall be converted into the right to receive either (i) 0.33690.36 shares (the “Exchange Ratio”) of the common stock, $1.00 par value per share, of ParentAcquiror (the “ParentAcquiror Common Stock”), together with cash in lieu of any fractional shares in accordance with the provisions ofSection 2.2(e) of this Agreement (the “Stock Consideration”) orand (ii) an amount in cash equal to $14.32,$2.00, without interest (the “Cash Consideration” and together with the Stock Consideration, the “Merger Consideration”). Assuming that the SBLF Redemption (as defined below) is completed, noNo shares of preferred stock of Acquiror or Parent will be issued in connection with the transactions contemplated by this Agreement.
(b) (i) The number of shares of Target Common Stock (including shares of Target Common Stock issuable automatically upon conversion of the Target Series D Preferred Stock immediately prior to the Effective Time) to be converted into the right to receive the Cash Consideration shall be equal to 25% of the number of shares of Target Common Stock (including shares of Target Common Stock issuable automatically upon conversion of the Target Series D Preferred Stock) outstanding immediately prior to the Effective Time (excluding shares to be cancelled pursuant toSection 1.4(d)) (the “Cash Election Number”). For purposes of determining the Cash Election Number, each holder of Target Dissenting Shares shall be deemed to have made a Cash Election (as defined below) unless such holder shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s right to payment as dissenting shareholders under the TBCA at or prior to the Effective Time. The number of shares of Target Common Stock (including shares of Target Common Stock issuable automatically upon conversion of the Target Series D Preferred Stock) to be converted into the right to receive the Stock Consideration shall be equal to 75% of the number of shares of Target Common Stock (including shares of Target Common Stock issuable automatically upon conversion of the Target Series D Preferred Stock) outstanding immediately prior the Effective Time (excluding shares to be cancelled pursuant toSection 1.4(d)) (the “Stock Election Number”).
(ii) Subject to the proration and election procedures set forth in thisSection 1.4(b), each holder of record of shares of Target Common Stock (including shares of Target Common Stock issuable automatically upon conversion of the Target Series D Preferred Stock) issued and outstanding immediately prior to the
Effective Time (excluding shares held by Target, Parent, Acquiror or any of the subsidiaries of Parent or Acquiror (other than Trust Account Shares and DPC Shares) and Target Dissenting Shares) will be entitled to elect to receive (a) the Cash Consideration for all such shares (a “Cash Election”), (b) the Stock Consideration for all of such shares (a “Stock Election”) or (c) the Cash Consideration for 25% of such shares and the Stock Consideration for 75% of such shares (a “Combination Election”). All such elections shall be made on a form designed for that purpose prepared by Parent and reasonably acceptable to Target (a “Form of Election”). The Form of Election will include appropriate stock certificate transmittal materials which transmittal materials shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon delivery of a certificate or certificates representing shares of Target Common Stock or shares of Target Series D Preferred Stock to the Exchange Agent (as defined below) and instructions for use in effecting the surrender to the Exchange Agent of certificates for Target Common Stock or shares of Target Series D Preferred Stock in exchange for the Merger Consideration. Holders of record of shares of Target Common Stock or shares of Target Series D Preferred Stock who hold such shares as nominees, trustees or in other representative capacities (a “Representative”) may submit multiple Forms of Election, provided that such Representative certifies that each such Form of Election covers all the shares of Target Common Stock and Target Series D Preferred Stock held by each such Representative for a particular beneficial owner.
(iii) Parent and Target shall mail, or cause to be mailed, the Form of Election (including the stock certificate transmittal materials) to all persons who are holders of record of Target Common Stock and Target Series D Preferred Stock on the record date for the Target Shareholders’ Meeting (as defined below), on a date that is no less than 30 business days prior to the Effective Time (or any such other date as Parent and Target may mutually agree (the “Mailing Date”)), and thereafter Parent and Target shall each use its reasonable efforts to make the Form of Election available to all persons who become holders of Target Common Stock or Target Series D Preferred Stock subsequent to such day and no later than the close of business on the fifth business day prior to the Effective Time. A Form of Election must be received by the Exchange Agent in the manner described below no later than by 5:00 p.m., New York City time, on the 30th day following the Mailing Date (or such other time and date as Parent and Target may mutually agree) (the “Election Deadline”) in order to be effective. All elections will be irrevocable.
(iv) A holder of Target Common Stock or Target Series D Preferred Stock who does not submit a Form of Election which is received by the Exchange Agent prior to the Election Deadline shall be deemed to have made a Combination Election. If Parent or the Exchange Agent shall determine that any purported Cash Election or Stock Election was not properly made, such purported Cash Election or Stock Election shall be deemed to be of no force and effect and the holder of shares of Target Common Stock or Target Series D Preferred Stock making such purported Cash Election or Stock Election shall for purposes hereof be deemed to have made a Combination Election.
(v) All shares of Target Common Stock or Target Series D Preferred Stock which are subject to Cash Elections are referred to herein as “Cash Election Shares.” All shares of Target Common Stock or Target Series D Preferred Stock which are subject to Stock Elections are referred to herein as “Stock Election Shares.” If, after the results of the Forms of Election are calculated, the number of shares of Target Common Stock and Target Series D Preferred Stock to be converted into shares of Parent Common Stock exceeds the Stock Election Number, the Exchange Agent shall, after the Election Deadline but prior to the Effective Time, determine the number of Stock Election Shares which must be redesignated as Cash Election Shares in order to reduce the number of such shares to the Stock Election Number. All holders who have Stock Election Shares shall, on a pro rata basis, have such number of their Stock Election Shares redesignated as Cash Election Shares so that the Stock Election Number and the Cash Election Number are achieved. If, after the results of the Forms of Election are calculated, the number of shares of Target Common Stock and Target Series D Preferred Stock to be converted into cash exceeds the Cash Election Number, the Exchange Agent, after the Election Deadline but prior to the Effective Time, shall determine the number of Cash Election Shares which must be redesignated as Stock Election Shares in order to reduce the number of such shares to be converted into cash to the Cash Election Number. All holders who have Cash Election Shares shall, on a pro rata basis, have such number of their Cash
Election Shares redesignated as Stock Election Shares so that the Cash Election Number and the Stock Election Number are achieved. Notwithstanding the foregoing, no redesignation shall be effected for a holder who has made a Cash Election but, as a result of such redesignation, would receive fewer than 10 shares of Parent Common Stock in exchange for all of such holder’s shares of Target Common Stock and Target Series D Preferred Stock. In this event, the Cash Election Shares of the remaining holders of shares of Target Common Stock and Target Series D Preferred Stock shall be redesignated on a pro rata basis to achieve the Cash Election Number and the Stock Election Number. Holders who make Combination Elections will not be subject to the redesignation procedures described herein. Holders of Target Dissenting Shares who are deemed to have made Cash Elections shall not be subject to the redesignation procedure described herein. Parent or the Exchange Agent shall make in good faith all computations contemplated by thisSection 1.4(b)(v) and all such computations shall be conclusive and binding on the holders of Target Common Stock and Target Series D Preferred Stock.
(vi) After the redesignation procedure, if any, set forth inSection 1.4(b)(v), is completed, all Cash Election Shares and 25% of the shares of Target Common Stock (including those shares of Target Common Stock into which the shares of Target Series D Preferred Stock shall have converted immediately prior to the Effective Time) which are subject to Combination Elections shall be converted into the right to receive the Cash Consideration, and all Stock Election Shares and 75% of the shares of Target Common Stock (including those shares of Target Common Stock into which the shares of Target Series D Preferred Stock shall have converted immediately prior to the Effective Time) which are subject to Combination Elections shall be converted into the right to receive the Stock Consideration.
(c) All of the shares of Target Common Stock (including those shares of Target Common Stock into which the shares of Target Series D Preferred Stock shall have converted immediately prior to the Effective Time) converted into the right to receive the Merger Consideration pursuant to thisArticle I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate previously representing any such shares of Target Common Stock or Target Series D Preferred Stock (each, a “Certificate”) and each uncertificated share Target Common Stock (each, an “Uncertificated Share”) registered to a holder of Target Common Stock on the stock transfer books of Target shall thereafter represent only the right to receive (i) a certificate representing the Stock Consideration in whole shares of ParentAcquiror Common Stock together with any cash in lieu of fractional shares pursuant toSection 2.2(e); and/orand (ii) the Cash Consideration deliverable with respect to the shares of Target Common Stock or Target Series D Preferred Stock represented by such Certificate or Uncertificated Share, into which the shares of Target Common Stock or Target Series D Preferred Stock represented by such Certificate or Uncertificated Share have been converted pursuant to thisSection 1.4 andSection 2.2(e). Certificates and Uncertificated Shares previously representing shares of Target Common Stock or Target Series D Preferred Stock other than shares of Target Common Stock owned by Target Parent or Acquiror (other than Trust Account Shares and DPC Shares) or Target Dissenting Shares shall be exchanged for (i) certificates representing whole shares of ParentAcquiror Common Stock, equal to the Stock Consideration, together with any cash in lieu of fractional shares; and/orand (ii) the Cash Consideration in consideration therefor upon the surrender of such Certificates or transfer of such Uncertificated Shares in accordance withSection 2.2, without any interest thereon. If, prior to the Effective Time and not prohibited by the terms of this Agreement, the outstanding shares of ParentAcquiror Common Stock or Target Common Stock or Target Series D Preferred Stock shall have been increased, decreased, or changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, an equitable and proportionate adjustment shall be made to the Exchange Ratio per share payable pursuant to this Agreement and the amount of Cash Consideration payable pursuant to this Agreement.
(d) Notwithstanding anything in this Agreement to the contrary, at the Effective Time, all shares of Target Capital Stock (as defined below) that are owned by Target, ParentAcquiror or Acquirorany of their respective Subsidiaries (other than Trust Account Shares and DPC Shares) shall be cancelled and shall cease to exist, and no Merger Consideration shall be delivered in exchange therefor.
(e) Notwithstanding anything in this Agreement to the contrary, shares of Target Common Stock and Target Series D Preferred Stock which are outstanding immediately prior to the Effective Time and with respect to which dissenters’ rights shall have been properly demanded in accordance with Sections 48-23-201, et. seq. of
the TBCA (“Target Dissenting Shares”) shall not be converted into the right to receive, or to be exchangeable for, the Merger Consideration but, instead, the holders thereof shall be entitled to payment of the appraised value of such Target Dissenting Shares in accordance with the provisions of Sections 48-23-201, et. seq. of the TBCA;provided, however, that (i) if any holder of Target Dissenting Shares shall subsequently deliver a written withdrawal of such holder’s demand for appraisal of such shares, or (ii) if any holder fails to establish such holder’s entitlement to dissenters’ rights as provided in Sections 48-23-201, et. seq. of the TBCA, such holder or holders (as the case may be) shall forfeit the right to appraisal of such shares of Target Common Stock or Target Series D Preferred Stock and each of such shares shall thereupon be deemed to have been converted into the right to receive, and to have become exchangeable for, as of the Effective Time, the Merger Consideration, without any interest thereon, as provided inSections 1.4(a) and1.4(b) andArticle II hereof as if such holder or holders had made a Combination Election.
(f) For the avoidance of doubt, nothing in this Agreement shall affect the right of holders of Series D Preferred Stock who have not prior to the Merger received the Certificates for said shares to receive all dividends and distributions declared and paid by Target thereon but which have not been paid to such holder (excluding however if paid to an exchange agent in escrow for such holder) prior to the Merger upon the surrender of appropriate transmittal materials.
1.5ParentAcquiror Capital Stock. At and after the Effective Time, each share of ParentAcquiror Capital Stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and shall not be affected by the Merger.
1.6Acquiror Capital Stock. At and after the Effective Time, each share of Acquiror common stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of common stock of the Surviving Corporation and shall not be affected by the Merger.Schedule 1.6 sets forth the amount of Acquiror’s capital and the number of shares, and par value per share thereof, of Acquiror’s capital stock issued and outstanding as of December 31, 2014.
1.7Options. Except to the extent otherwise agreed in writing by Target and Parent prior to the Effective Time:
(a) Target shall ensure that, (i) immediately prior to the Effective Time, each outstanding option to acquire shares of Target Common Stock (the “Target Stock Options”) issued pursuant to Target’s equity-based compensation plans identified inSection 4.12(a) of the Target Disclosure Schedule (the “Target Stock Plans”), shall become, subject to Closing, fully vested and exercisable (without regard to whether the Target Stock Options are then vested or exercisable), (ii) at the Effective Time all Target Stock Options not theretofore exercised shall be cancelled and, in exchange therefor, converted automatically into the right to receive a cash payment from the Surviving Corporation (the “Cash Out Amount”) in an amount equal to the product of (x) the excess, if any, of $14.32$20.00 over the exercise price of each such Target Stock Option and (y) the number of shares of Target Common Stock subject to such option to the extent not previously exercised (such payment, if any, to be net of applicable Taxes withheld pursuant toSection 2.3), and (iii) after the Effective Time, any such cancelled Target Stock Option shall no longer be exercisable by the former holder thereof, but shall only entitle such holder to the payment of the Cash Out Amount, without interest. In the event the exercise price per share of Target Common Stock subject to a Target Stock Option is equal to or greater than the Cash Consideration,$20.00, such Target Stock Option shall be cancelled without consideration and have no further force or effect.
(b) Target shall use its reasonable best efforts to ensure that, as of the Effective Time, the Target Stock Plans shall terminate and that no person shall have any right under the Target Stock Plans, except as set forth herein (including, to the extent necessary, using reasonable best efforts to obtain any necessary consents, if any, of the holders of Target Stock Options in order to give effect to thisSection 1.71.6).
(c) At or promptly after the Effective Time (and(which may be in connection with the payment of the first regular base salary payment due to such holder following the Closing, and in any event shall occur within thirty (30) days thereafter)of the Effective Time), the Surviving Corporation or Acquiror Bank shall and Parent shall cause the Surviving Corporation to, deliver the Cash Out Amount to the holders of Target Stock Options, without interest.
1.7 Charter
1.8SBLF Redemption. Target and Parent each shall use its reasonable best efforts to cause or facilitate the redemption as of immediately prior to or concurrently with the Effective Time of each share of Non-Cumulative Perpetual Preferred Stock, Series C, par value $1.00 per share (the “Target Series C Preferred Stock”) issued and outstanding in such amount as shall be determined in accordance with the terms of the Target Series C Preferred Stock (as defined in Section 4.2(a)) set forth in the Target Charter and the terms of any purchase agreement entered into by Target in connection with the issuance of the Target Series C Preferred Stock (the “SBLF Redemption”). Parent or Acquiror shall make all payments necessary to fund the SBLF Redemption. In furtherance of the foregoing, Target shall provide, and shall cause its officers, employees, agents, advisors and representatives, to provide, all reasonable cooperation and take all reasonable actions as may be requested by Parent or Acquiror in connection with such SBLF Redemption, including by (i) furnishing all information concerning Target that Parent or Acquiror or any applicable Regulatory Agency (as defined below) or Governmental Entity may request in connection with such redemption or with respect to the effects of such SBLF Redemption on Acquiror or its pro forma capitalization; (ii) assisting with the preparation of any analyses or presentations Parent or Acquiror deems necessary or advisable in its reasonable judgment in connection with such redemption or the effects thereof; and (iii) entering into any agreement with the holder of the Target Series C Preferred Stock to effect the redemption of such shares as Parent or Acquiror may reasonably request. Such Target Series C Preferred Stock shall, at the Effective Time, cease to exist, and the certificates for such shares shall be cancelled as promptly as practicable thereafter, and no payment or distribution (other than the amount necessary to accomplish the SBLF Redemption) shall be made in consideration therefor.
1.9Charter. Subject to the terms and conditions of this Agreement, at the Effective Time, the Chartercharter of Acquiror, as then amended (the “Acquiror Charter”), shall be the Chartercharter of the Surviving Corporation until thereafter amended in accordance with applicable law.
1.101.8Bylaws. Subject to the terms and conditions of this Agreement, at the Effective Time, the Bylawsbylaws of Acquiror, as then amended (the “Acquiror Bylaws”), shall be the Bylawsbylaws of the Surviving Corporation until thereafter amended in accordance with applicable law.
1.111.9Tax Consequences. It is intended that the Merger shall constitute a “reorganization” within the meaning of Section 368(a) of the Code and that this Agreement shall constitute a “plan of reorganization” for the purposes of Sections 354 and 361 of the Code.
1.121.10Officers and Directors of Surviving Corporation. The officers and directors of Acquiror as of immediately prior to the Effective Time shall continue as the officers and directors of the Surviving Corporation. The names and addresses of these individuals are set forth onSchedule 1.12 attached hereto.
1.131.11Appointment of Target Director to Parent’sAcquiror’s and Acquiror’s BoardAcquiror Bank’s Boards of Directors.Directors. As soon as reasonably practicable following the Closing, Parent and Acquiror shall take all requisite action to elect Thomas C. Farnsworth, III,Ron Samuels and Marty Dickens, or if heeither of them is unwilling or unable to serve, another member of Target’s Boardboard of Directorsdirectors as of the date hereof designated by Parent,Acquiror to Parent’sthe board of directors of Acquiror and Acquiror’s Boards of Directors.bank subsidiary (the “Acquiror Bank”).
1.14
1.12Offices of Acquiror and Target; Headquarters of Surviving Corporation. From and after the Effective Time, the location of the headquarters and principal executive offices of the Surviving Corporation shall be 150 3rdThird Avenue South, Suite 900, Nashville, Tennessee 37201, which is the headquarters and principal executive offices of Acquiror as of the date hereof. As of the date hereof, Acquiror and Target maintain offices at the locations set forth onSchedule 1.14 attached hereto.
1.151.13Approval of Shareholders and Commissioner.Shareholders. Prior to consummation of the Merger, this Agreement shall be approved by the shareholders of eachTarget.
1.14Subordinated Notes. Upon consummation of Target and Acquiror entitled to vote on the Merger, (which in the case of Acquiror either is not required or has already been obtained), andSurviving Corporation shall, also be approved by the Commissionervirtue of the Tennessee DepartmentMerger, have assumed as of Financial Institutions.the Effective Time Target’s obligations under Target’s Fixed/Floating Rate Subordinated Notes due 2024 in accordance with the terms thereof.
ARTICLE II.
DELIVERY OF MERGER CONSIDERATION
2.1Deposit of Merger Consideration. At or prior to the Closing, ParentAcquiror shall deposit, or shall cause to be deposited, with a bank or trust company reasonably acceptable to each of Target Parent and Acquiror (the “Exchange Agent”), for the benefit of the holders of Certificates and Uncertificated Shares, for exchange in accordance with thisArticle II, the Cash Consideration, certificates (or at Acquiror’s option, evidence of shares in book entry form) representing the shares of ParentAcquiror Common Stock constituting the Stock Consideration and cash in lieu of any fractional shares with respect to the Stock Consideration (such cash and certificates for shares of ParentAcquiror Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the “Exchange Fund”), to be issued pursuant toSection 1.4 and paid pursuant toSection 1.4 andSection 2.2(e) in exchange for shares of Target Common Stock and Target Series D Preferred Stock outstanding as of the Effective Time. The Exchange Agent shall not be entitled to vote or exercise any other rights of ownership with respect to the shares of ParentAcquiror Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends and other distributions payable or distributable with respect to such shares for the account of the persons entitled thereto.
2.2Delivery of Merger Consideration.
(a) As soon as practicable, but in no event later than five business days, after the Effective Time, the Exchange Agent shall mail to each holder of record of one or more Certificates who has not previously surrendered such Certificates with a Form of Electionor Uncertificated Shares a letter of transmittal (“Letter of Transmittal”) in customary form as reasonably agreed by the parties hereto (which shall specify that delivery shall be effected, and risk of loss of and title to the Certificates shall pass, only upon delivery of the Certificates or transfer of the Uncertificated Shares to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates or the transfer of the Uncertificated Shares in exchange for the Merger Consideration. Upon proper surrender to the Exchange Agent of a Certificate or Certificates to the Exchange Agent for exchange and cancellation, together with such properly completed and duly executed FormLetter of Election and letterTransmittal or upon receipt of transmittal inan “agent’s message” by the Exchange Agent (or such formother evidence, if any, of transfer as the Exchange Agent may reasonably require,request) in the case of a book entry transfer of Uncertificated Shares, the holder of such Certificate or Certificates or Uncertificated Shares, as applicable, shall be entitled to receive in exchange therefor, as applicable, (i) the Merger Consideration that such holder of the Certificate or Uncertificated Share shall have become entitled pursuant to the provisions ofArticle I; and (ii) a check representing the amount of any dividends or distributions that such holder is entitled to receive pursuant toSection 2.2(b), and the Certificate or Certificates so surrendered or the Uncertificated Share or Uncertificated Shares transferred shall forthwith be cancelled. No interest will be paid or accrued on any cash or on any unpaid dividends and distributions payable to holders of Certificates.Certificates or Uncertificated Shares.
(b) No dividends or other distributions declared with respect to ParentAcquiror Common Stock shall be paid to the holder of any unsurrendered Certificate or untransferred Uncertificated Share with respect to the shares of ParentAcquiror Common Stock represented thereby until the holder thereof shall surrender such Certificate or transfer such Uncertificated Share in accordance with thisArticle II. After the surrender of a Certificate or transfer of an
Uncertificated Share in accordance with thisArticle II, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of ParentAcquiror Common Stock represented by such Certificate.Certificate or Uncertificated Share.
(c) If any certificate representing shares of ParentAcquiror Common Stock is to be issued in a name other than that in which the Certificate or Certificates surrendered or the Uncertificated Share or Uncertificated Shares transferred in exchange therefor is or are registered, it shall be a condition of the issuance thereof that the Certificate or Certificates so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer or such Uncertificated Share or Uncertificated Shares shall be properly transferred, and that the person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the issuance of a certificate representing shares of ParentAcquiror Common Stock in any name other than that of the registered holder of the Certificate or Certificates surrendered or Uncertificated Share or Uncertificated Shares transferred, or required for any other reason, or shall establish to the reasonable satisfaction of the Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock transfer books of Target of the shares of Target Common Stock or Target Series D Preferred Stock that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for the Merger Consideration.
(e) Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of ParentAcquiror Common Stock shall be issued upon the surrender of Certificates or transfer of Uncertificated Shares for exchange, no dividend or distribution with respect to ParentAcquiror Common Stock shall be payable on or with respect to any fractional share, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a shareholder of Parent.Acquiror. In lieu of the issuance of any such fractional share, ParentAcquiror shall pay to each former shareholder of Target who otherwise would be entitled to receive such fractional share an amount in cash determined by multiplying (i) the average of the closing prices of ParentAcquiror Common Stock on the NASDAQNasdaq Global Select Market (“NASDAQNasdaq”), or such other securities market or stock exchange on which the ParentAcquiror Common Stock then principally trades, for the ten (10) trading days ending on the business day immediately preceding the Closing Date by (ii) the fraction of a share (rounded to the nearest thousandth when expressed in decimal form) of ParentAcquiror Common Stock to which such holder would otherwise be entitled to receive pursuant toSection 1.4.
(f) Any portion of the Exchange Fund that remains unclaimed by the shareholders of Target as of the first anniversary of the Effective Time shall be delivered to Parent.Acquiror. Any former shareholders of Target who have not theretofore complied with thisArticle II shall thereafter look only to ParentAcquiror for payment of the Merger Consideration and any unpaid dividends and distributions on the ParentAcquiror Common Stock deliverable in respect of each share of Target Common Stock (including such shares of Target Common Stock issuable upon conversion of the Target Series D Preferred Stock immediately prior to the Effective Time) such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Target, Parent,the Target Subsidiary (as defined below), Acquiror, Acquiror Bank, the Exchange Agent or any other person shall be liable to any former holder of shares of Target Common Stock or Target Series D Preferred Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by Parent,Acquiror, the posting by such person of a bond in such amount as ParentAcquiror may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent, or if the Merger Consideration payable with respect to such Certificate has been returned to Acquiror pursuant toSection 2.2(f), Acquiror, will issue the Merger Consideration in exchange for such lost, stolen or destroyed Certificate.
(h) The payment of any transfer, documentary, sales, use, stamp, registration, value added and other Taxes and fees (including any penalties and interest) incurred solely by a holder of shares of Target Common Stock in connection with the Merger, and the filing of any related Tax returns and other documentation with respect to such Taxes and fees, shall be the sole responsibility of such holder.
2.3Withholding. Each of Parent,Acquiror, Target and the Surviving Corporation is entitled to deduct and withhold, or cause the Exchange Agent to deduct and withhold, from any amounts payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of shares of Target Common Stock (including shares of Target Common Stock issuable upon conversion of the Target Series D Preferred Stock) or Target Stock Options such amounts as are required to be deducted or withheld therefrom under the Code, or any provision of state, local or foreign Tax law or under any other applicable legal requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the person to whom such amounts would be otherwise have been paid.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUIROR
Except as disclosed in (a), other than with respect to the Parentrepresentations and warranties inSection 3.2,Section 3.3(a) andSection 3.7, the Acquiror Reports (defined below) filed after January 1, 2012,2013, and prior to the date hereof, but excluding any risk factors or forward-looking disclosures set forth under the heading “Risk Factors” or under the heading “Special Note Regarding Forward-Looking Statements” or any other disclosure that is cautionary, predictive or forward lookingforward-looking in nature, or (b) the disclosure schedule (the “ParentAcquiror Disclosure Schedule”) delivered by Parent and Acquiror to Target prior to the execution of this Agreement (which schedule sets 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 thisArticle III or to one or more of Parent’s or Acquiror’s covenants contained inArticle V,provided, however, that, notwithstanding anything in this Agreement to the contrary, (i) no such item is required to be set forth in such schedule as an exception to a representation or warranty if its absence would
not result in the related representation or warranty being deemed untrue or incorrect, and (ii) the mere inclusion of an item in such schedule as an exception to a representation or warranty shall not be deemed an admission by Parent or Acquiror that such item represents a material exception or material fact, event or circumstance or that such item has had or would reasonably be expected to have a Material Adverse Effect), Parent and Acquiror hereby representrepresents and warrantwarrants to Target as follows:
3.1Corporate Organization.
(a) ParentAcquiror is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee. ParentAcquiror has the corporate and other power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified or in good standing would not, either individually or in the aggregate, have a Material Adverse Effect on Parent.Acquiror. As used in this Agreement, the term “Material Adverse Effect” means, (A) with respect to Target, a material adverse effect on (i) the business, operations, results of operations, or financial condition of Target and the Target SubsidiariesSubsidiary, taken as a whole, or (ii) the ability of Target to timely consummate the transactions contemplated hereby and (B) with respect to Parent,Acquiror, a material adverse effect on (i) the business, operations, results of operations, or financial condition of ParentAcquiror and its Subsidiaries, taken as a whole, or (ii) the ability of Parent and/or Acquiror to timely consummate the transactions contemplated hereby;provided, however,that with respect to clause (A)(i) and (B)(i) the following shall not be deemed to have a Material Adverse Effect: any change or event caused by or resulting from (I) changes, after the date hereof, in prevailing interest rates, currency exchange rates or other economic or monetary conditions in the United States or elsewhere, (II) changes, after the date hereof, in United States or foreign securities markets, including changes in price levels or trading volumes, (III) changes or events, after the
date hereof, affecting the financial services industry generally and not specifically relating to Parent, Acquiror or Target or their respective Subsidiaries or Target and the Target Subsidiaries, as the case may be, (IV) changes, after the date hereof, in generally accepted accounting principles or regulatory accounting requirements applicable to banks or savings associations and their holding companies generally, (V) changes, after the date hereof, in laws, rules or regulations of general applicability or interpretations thereof by any Governmental Entity, (VI) actions or omissions of ParentAcquiror or Acquiror, on the one hand, or Target on the other, taken with the prior written consent of the other or required hereunder, (VII) the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or the announcement thereof, or (VIII) any outbreak of major hostilities in which the United States is involved or any act of terrorism within the United States or directed against its facilities or citizens wherever located; and provided, further, that in no event shall a change in the trading prices, or trading volume, of a party’s capital stock, by itself, be considered material or constitute a Material Adverse Effect.Effect, or (IX) the failure by Target or Acquiror to meet any internal or published industry analyst projections, forecasts or estimates of revenues or earnings or other financial or operating metrics for any period (it being understood that any facts or circumstances giving rise to or contributing to such failure that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect).
(b) ParentAcquiror is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). True and complete copies of the Parent’sAcquiror Charter and the Acquiror’s Charter andAcquiror Bylaws, as in effect as of the date of this Agreement, have previously been made available by ParentAcquiror to Target.
(c) Each ParentAcquiror Subsidiary, including Acquiror Bank, (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) is, in the case of Acquiror Bank, a Tennessee state banking corporation, (iii) is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not reasonably be expected to have a Material Adverse Effect on ParentAcquiror and (iv) has all requisite corporate or other power and authority to own or lease its properties and assets and to carry on its business as now conducted, except to the extent that the failure to have such power or authority would not reasonably be expected to result inhave a Material Adverse Effect on Parent.Acquiror. As used in this Agreement, the word “Subsidiary” when used with respect to any party means any bank, savings bank, corporation, partnership, limited liability company, or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes under GAAP.
3.2Capitalization.
(a) The authorized capital stock of ParentAcquiror consists of ninety million (90,000,000) shares of ParentAcquiror Common Stock, of which, as of MarchDecember 31, 2015, 35,864,66740,906,064 shares were issued and outstanding (inclusive of 770,176866,314 shares of ParentAcquiror Common Stock granted in respect of restricted share awards for which the forfeiture restrictions have not at that date lapsed), and ten million (10,000,000) shares of preferred stock, no par value per share (the “ParentAcquiror Preferred Stock,”, and together with the ParentAcquiror Common Stock, the “ParentAcquiror Capital Stock”), of which, as of MarchDecember 31, 2015, no shares were issued and outstanding. As of the date hereof, no shares of ParentAcquiror Capital Stock were reserved for issuance except as disclosed inSection 3.2(a) of the Acquiror Disclosure Schedule or for 629,732(i) 1,249,166 shares of ParentAcquiror Common Stock reserved for issuance upon the exercise of outstanding options to purchase shares of ParentAcquiror Common Stock (each a “ParentAcquiror Stock Option”);, (ii) 217,6022,435 shares of ParentAcquiror Common Stock reserved for issuance upon the exercise of outstanding stock appreciation rights and (iii) 3,200217,602 shares of ParentAcquiror Common Stock reserved for issuance in settlement of outstanding restricted stock unit awards (including performance-based restricted stock units), in each case pursuant to the equity-based compensation plans of ParentAcquiror (the “ParentAcquiror Stock Plans”) as identified inSection 3.2(a) of the ParentAcquiror Disclosure Schedule. All of the issued and outstanding shares of ParentAcquiror Capital Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. All of the ParentAcquiror Stock Plans have been approved by the Parent’sAcquiror’s shareholders, or shareholders of corporations that ParentAcquiror has acquired, in accordance with the requirements of the TBCA and the Code.
(b) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which shareholders may vote (“Voting Debt”) of ParentAcquiror are issued or outstanding.
(c) Except as disclosed inSection 3.2(c) of the ParentAcquiror Disclosure Schedule, ParentAcquiror owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each of its Subsidiaries, (including Acquiror), free and clear of any liens, pledges, charges, encumbrances and security interests whatsoever (“Liens”), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. No Subsidiary of ParentAcquiror has or is bound by any outstanding subscription, option, warrant, call, commitment or agreement of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary.
3.3Authority; No Violation.
(a) Each of Parent and Acquiror has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Boardboard of Directorsdirectors of each of Parent and Acquiror. The Boardboard of Directorsdirectors of each of Parent and Acquiror determined that the Merger, on the terms and conditions set forth in this Agreement, is advisable and in the best interests of ParentAcquiror and Acquiror, respectively, and their respectiveits shareholders. No other corporate proceedings on the part of either Parent or Acquiror are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of Parent and Acquiror and (assuming due authorization, execution and delivery by Target) constitutes a valid and binding obligation of each of Parent and Acquiror, enforceable against Parent and Acquiror in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies). The shares of ParentAcquiror Common Stock to be issued in the Merger have been validly authorized and, when issued, will be validly issued, fully paid and nonassessable, and no current or past stockholder of ParentAcquiror will have any preemptive right or similar rights in respect thereof.
(b) Neither the execution and delivery of this Agreement by each of Parent and Acquiror, nor the consummation by each of Parent and Acquiror of the transactions contemplated hereby, nor compliance by each
of Parent and Acquiror with any of the terms or provisions hereof, will (i) violate any provision of the organization documents of Parent or Acquiror as applicable, or (ii) assuming that the consents, approvals and filings referred to inSection 3.4 are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Parent, Acquiror or any of theirits Subsidiaries or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Parent, Acquiror or any of theirits Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Parent, Acquiror or any of theirits Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except in the case of clause (ii) above for such violations, conflicts, breaches, losses, defaults, terminations, cancellations, accelerations, or Liens which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent.Acquiror.
3.4Consents and Approvals. Except for (i) the filing of applications and notices, as applicable, with the Board of Governors of the Federal DepositoryReserve System (the “FRB”), Federal Deposit Insurance Corporation (the “FDIC”) and the Tennessee Department of Financial Institutions (the “TDFI”) and approval of such applications and notices, (ii) the filing of any required applications, waiver requests or notices with any other federal, state or foreign agencies or regulatory authorities and approval or grant of such applications, waiver requests and notices (the “Other Regulatory Approvals”), (iii) the filing with the Securities and Exchange Commission (the “SEC”) of a Proxy Statement/Prospectus in definitive form relating to the meeting of Target’s shareholders to be held in connection with this Agreement and the transactions contemplated hereby (the “Proxy Statement/Prospectus”),
and of the registration statement on FormS-4 (the “FormS-4”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”) in which the Proxy Statement/Prospectus will be included as a prospectus, and declaration of effectiveness of the Form S-4, (iv) the filing of the Articles of Merger with the Tennessee Secretary pursuant to the TBCA, (v) any notice or filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (vi) any consents, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of broker-dealers, investment advisers or transfer agents, and the rules of NASDAQ,Nasdaq, or which are required under consumer finance, insurance, mortgage banking and other similar laws, (vii) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of ParentAcquiror Common Stock pursuant to this Agreement, and (viii) the approval of the listing on NASDAQNasdaq of the shares of ParentAcquiror Common Stock to be issued as a portion of the Merger Consideration, no consents or approvals of or filings or registrations with any court, administrative agency or commission or other governmental authority or instrumentality (each a “Governmental Entity”) or Regulatory Agency are necessary in connection with (A) the execution and delivery by each of Parent and Acquiror of this Agreement and (B) the consummation by each of Parent and Acquiror of the Merger and the other transactions contemplated hereby. Except for any consents, authorizations, or approvals which are listed inSection 3.4 of the ParentAcquiror Disclosure Schedule, no consents, authorizations, or approvals of any person, other than a Governmental Entity or Regulatory Agency, are necessary in connection with (A) the execution and delivery by each of Parent and Acquiror of this Agreement and (B) the consummation by each of Parent and Acquiror of the Merger and the other transactions contemplated hereby. No vote or other approval of the shareholders or any of the securityholders of ParentAcquiror is required in connection with the execution, delivery or performance of this Agreement or to consummate the transactions contemplated hereby (including the issuance of Stock Consideration) in accordance with the terms hereof, whether by reason of applicable law, the organizational documents of Parent,Acquiror, the rules or requirements of any exchange or self-regulatory organization, including NASDAQ,Nasdaq, or otherwise.
3.5Reports. Each of Parent, Acquiror and their respectiveits Subsidiaries havehas timely filed or furnished, as applicable, all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file (or furnish, as applicable) since January 1, 20122013 with (i) the Board of Governors of the Federal Reserve System (the “FRB,”), (ii) the FDIC, (iii) any state regulatory authority (each
a “State Regulator”), including without limitation the TDFI or (iv) the SEC, or (v) in(individually, a “Regulatory Agency” and collectively, the case of Acquiror prior to the date that it converted to a Tennessee state-chartered bank, the Office of the Comptroller of the Currency (the “OCC”), (collectively “Regulatory Agencies”), and all other reports and statements required to be filed or furnished by them since January 1, 2012,2013, including, without limitation, any report or statement required to be filed or furnished pursuant to the laws, rules or regulations of the United States, any state, or any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file or furnish such report, registration or statement or to pay such fees and assessments, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent.Acquiror. Except for normal examinations conducted by a Regulatory Agency in the ordinary course of the business of Parent, Acquiror and their respectiveits Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the knowledge of Parent or Acquiror, investigation into the business or operations of Parent, Acquiror or any of their respectiveits Subsidiaries since January 1, 2012,2013, except where such proceedings or investigationinvestigations would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.Acquiror. There is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any written report or statement relating to any examinations of Parent, Acquiror or any of their respectiveits Subsidiaries which, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Parent.Acquiror.
3.6Financial Statements. The consolidated financial statements of ParentAcquiror and its Subsidiaries included in the ParentAcquiror Reports (as defined herein) (including the related notes, where applicable) fairly present in all material respects the consolidated results of operations, changes in shareholders’ equity, cash flows and financial position of ParentAcquiror and its 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) complies in all material respects 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 prepared in all material respects in accordance with accounting principles generally accepted in the United States (“GAAP”)
consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of ParentAcquiror and its Subsidiaries have been since January 1, 2012,2013, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements.
3.7Broker’s Fees. Except for Sandler O’Neill + Partners, L.P., neither Parent nor Acquiror nor any of their respectiveits Subsidiaries or any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement.
3.8Absence of Certain Changes or Events.
(a) Since December 31, 2014,September 30, 2015, there have been no events, occurrences, developments or changes that have had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Parent.Acquiror.
(b) Since December 31, 2014,September 30, 2015, through and including the date of this Agreement, ParentAcquiror and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course.
3.9Legal Proceedings.
(a) Except as disclosed inSection 3.9(a) of the ParentAcquiror Disclosure Schedule, neither Parent, Acquiror nor any of their respectiveits Subsidiaries is a party to any, and there are no pending or, to Parent’s and Acquiror’s knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Parent, Acquiror or any their respectiveof its Subsidiaries or challenging the validity or propriety of the transactions contemplated by this Agreement as to which, in any such case, there is a reasonable probability of an adverse determination, and which if adversely determined would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.Acquiror.
(b) There is no injunction, order, judgment, decree, or regulatory restriction (other than those that apply to similarly situated bank holding companies or banks) imposed upon Parent, Acquiror, any of their respectiveits Subsidiaries or the assets of Parent, Acquiror or any of their respectiveits Subsidiaries that, either individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect on Parent.Acquiror.
3.10Taxes and Tax Returns.
(a) Each of ParentAcquiror and its Subsidiaries has duly filed all federal, state, foreign and local information returns and Tax returns required to be filed by it on or prior to the date of this Agreement and has duly paid or made provision for the payment of all Taxes that have been incurred or are due or claimed to be due from it by federal, state, foreign or local taxing authorities other than (i) Taxes or other governmental charges that are not yet delinquent or are being contested in good faith or have not been finally determined and have been adequately reserved against under GAAP, or (ii) information returns, Tax returns or Taxes as to which the failure to file, pay or make provision for would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.Acquiror. All such Tax returns are accurate and complete in all material respects. There are no material disputes pending, or to the knowledge of Parent,Acquiror, claims asserted, for Taxes or assessments upon ParentAcquiror or any of its Subsidiaries for which ParentAcquiror does not have reserves that are adequate under GAAP. Neither ParentAcquiror nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among ParentAcquiror and its Subsidiaries). Within the past five years, neither ParentAcquiror nor any of its Subsidiaries has been a “distributing corporation” or a “controlled corporation” in a distribution intended to qualify under Section 355(a) of the Code. ParentAcquiror has no liability for Taxes of any person arising from the application of Treasury Regulation Section 1.1502-6 or any analogous provision of state, local or foreign law, or as a transferee or successor, by contract, or otherwise. No closing agreement pursuant to Section 7121 of the Code (or any
similar provision of state, local or foreign law) has been entered into by or with respect to Parent.Acquiror. All Taxes required to be withheld, collected or deposited by or with respect to ParentAcquiror have been timely withheld, collected or deposited as the case may be, and to the extent required, have been paid to the relevant taxing authority, except for failures to so withhold, collect or deposit that are immaterial, individually and in the aggregate. ParentAcquiror has not been requested to grant, nor has it granted, any waiver of any federal, state, local or foreign statute of limitations with respect to, or any extension of a period for the assessment of, any Tax, which waiver or extension has not since expired. ParentAcquiror has not participated in any “listed transaction” or “reportable transaction” or “tax shelter” within the meaning of the Code requiring it to file, register, prepare, produce or maintain any disclosure, report, list or any other statement or document under Sections 6111 or 6112 of the Code. ParentAcquiror is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(b) As used in this Agreement, the term “Tax” or “Taxes” means (i) all federal, state, local, and foreign income, excise, gross receipts, gross income, ad valorem, profits, gains, property, capital, sales, transfer, use, payroll, employment, severance, withholding, duties, intangibles, franchise, backup withholding, and other taxes, charges, levies or like assessments together with all penalties and additions to tax and interest thereon and (ii) any liability for Taxes described in clause (i) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law).
3.11Employees.
(a)Section 3.11(a) of the ParentAcquiror Disclosure Schedule sets forth a true and complete list of the material benefit or compensation plans, arrangements or agreements, and any material bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control or fringe benefit plans, programs, arrangements or agreements that are sponsored by ParentAcquiror or its Subsidiaries or maintained or contributed to, or required to be contributed to, for the benefit of current or former directors or employees of ParentAcquiror and its Subsidiaries or with respect to which ParentAcquiror or its Subsidiaries may, directly or indirectly, have any liability to such directors or employees, as of the date of this Agreement (the “ParentAcquiror Benefit Plans”).
(b) Except as would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent,Acquiror, (i) each of the ParentAcquiror Benefit Plans has been operated and administered in all material respects in compliance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code, (ii) each of the ParentAcquiror Benefit Plans intended to be “qualified” within the meaning of Section 401(a) of the Code has received a favorable determination letter or opinion letter (upon which ParentAcquiror is entitled to rely) from the United States Internal Revenue Service (“(the “IRS”) that such ParentAcquiror Benefit Plan is so qualified, and to the knowledge of Parent,Acquiror, there are no existing circumstances or any events that have occurred that are reasonably likely to adversely affect the qualified status of any such ParentAcquiror Benefit Plan, (iii) no material liability under Title IV of ERISA has been incurred by Parent,Acquiror, its Subsidiaries or any trade or business, whether or not incorporated, all of which together with Parent,Acquiror, would be deemed a “single employer” under Section 4001 of ERISA (a(an “ParentAcquiror ERISA Affiliate”) that has not been satisfied in full, and, to the knowledge of Parent,Acquiror, no condition exists that presents a material risk to Parent,Acquiror, its Subsidiaries or any ParentAcquiror ERISA Affiliate of incurring a material liability thereunder, (iv) no ParentAcquiror Benefit Plan is a “multiemployer pension plan” (as such term is defined in Section 3(37) of ERISA), (v) all contributions due and payable by ParentAcquiror or its Subsidiaries with respect to each ParentAcquiror Benefit Plan in respect of current or any prior plan years have been paid or accrued in accordance with GAAP, (vi) none of Parent,Acquiror, its Subsidiaries or any other person, including any fiduciary, has engaged in a transaction in connection with which Parent,Acquiror, its Subsidiaries or any ParentAcquiror Benefit Plan will be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material Tax imposed pursuant to Section 4975 or 4976 of the Code, and (vii) there are no pending or, to the knowledge of Parent and Acquiror, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the ParentAcquiror Benefit Plans or any trusts related thereto.
(c) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) (i) result (either alone or upon the occurrence of any additional acts or events) in any payment (including, without limitation, severance, unemployment compensation, “excess parachute payment” (within the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming due to any director or employee of Parent, Acquiror or any of theirits affiliates from Parent, Acquiror or any of theirits affiliates under any ParentAcquiror Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any ParentAcquiror Benefit Plan or (iii) result in any acceleration of the time of payment or vesting of any such benefits.
(d) There is no collective bargaining agreement in effect between Parent, Acquiror or any of theirits affiliates and any labor unions or organizations representing any of the employees of Parent, Acquiror or any of theirits affiliates. Neither Parent, Acquiror nor any of theirits affiliates havehas experienced any organized slowdown, work interruption strike or work stoppage by theirits employees, and, to the knowledge of Parent and Acquiror, there is no strike, labor dispute or union organization activity pending or threatened affecting Parent, Acquiror or any of theirits affiliates.
(e) Each ParentAcquiror Benefit Plan that is a “nonqualified deferred compensation plan” (within the meaning of Section 409A(d)(1) of the Code) has been operated in compliance with Section 409A of the Code, IRS Notice 2005-1, Treasury Regulations issued under Section 409A of the Code, and any subsequent guidance relating thereto, and no additional tax under Section 409A(a)(1)(B) of the Code has been or is reasonably expected to be incurred by a participant in any such ParentAcquiror Benefit Plan.
3.12SEC Reports. ParentAcquiror has filed all required reports, schedules, registration statements and other documents with the SEC that it ishas been required to file since January 1, 20122013 (the “ParentAcquiror Reports”). As of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), the ParentAcquiror Reports complied in all material respects with the requirements of the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as the case may be, and the rules and regulations of the SEC thereunder applicable to such ParentAcquiror Reports, and none of the ParentAcquiror Reports when filed with the SEC, or if amended prior to the date hereof, as of the date of such amendment, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
3.13Compliance with Applicable Law.
(a) Each of Parent, Acquiror and each of their respectiveits Subsidiaries hold, and hashave at all times since January 1, 20122013 held, all material licenses, franchises, permits, patents, trademarks and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to each (and have paid all material fees and assessments due and payable in connection therewith), and to the knowledge of Parent and Acquiror, no suspension or cancellation of any such necessary license, franchise, permit, patent, trademark or authorization is threatened. Parent, Acquiror and each of their respectiveits Subsidiaries have since January 1, 20122013 complied in all material respects with and are not in default in any material respect under any, applicable law, statute, order, rule, regulation, policy, agreement and/or guideline of any Governmental Entity or Regulatory Agency relating to Parent, Acquiror or any of their respectiveits Subsidiaries, except where the failure to hold such license, franchise, permit or authorization or such noncompliance or default would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent,Acquiror, including, without limitation, laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, and any other law relating to discriminatory lending, financing or leasing practices, and Sections 23A and 23B of the Federal Reserve Act.
(b) Each of Parent, Acquiror and each of their respectiveits Subsidiaries isare and since January 1, 2012 has2013 have been conducting operations at all times in compliance in all material respects with all money laundering laws administered or enforced by any Governmental Entity in jurisdictions where each of them conducts business, including, without
limitation, applicable financial record keeping and reporting requirementsrequirement of such laws (collectively, the “Anti-Money Laundering Laws”). Each of Parent, Acquiror and each of their respectiveits Subsidiaries hashave established and maintainsmaintain a system of internal controls designed to ensure material compliance by each of them with applicable financial recordkeeping and reporting requirements of the Anti-Money Laundering Laws.
(c) Except as would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent, ParentAcquiror, Acquiror and each of its Subsidiaries has properly administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents, applicable state and federal law and regulation and common law. None of Parent,Acquiror, any of its Subsidiaries, or any director, officer or employee of ParentAcquiror or of any of its Subsidiaries, has committed any breach of trust with respect to any such fiduciary account that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Parent,Acquiror, and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect the assets of such fiduciary account.
3.14Agreements with Regulatory Agencies. Neither ParentAcquiror nor any of its Subsidiaries is subject to any cease-and-desist or other 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 order or directive by, or has been ordered to pay any civil monetary penalty by, or has been since January 1, 2012,2013, a recipient of any supervisory letter from, or since January 1, 2012,2013, has adopted any board resolutions at the request of, any Regulatory Agency or other Governmental Entity, that, in each of any such cases, currently restricts in any material respect the conduct of its business, would restrict the consummation of the transactions contemplated by this Agreement, or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not set forth in the ParentAcquiror Disclosure Schedule, aan “ParentAcquiror Regulatory Agreement”), nor to the knowledge of Parent and Acquiror has ParentAcquiror or any of its Subsidiaries been advised since January 1, 2012,2013, by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering or requesting any such ParentAcquiror Regulatory Agreement.
3.15Deposit Insurance. The deposits of Acquiror Bank are insured by the FDIC in accordance with the Federal Deposit Insurance Act (“FDIA”) to the full extent permitted by law, and Acquiror Bank has paid all premiums and assessments and filed all reports required by the FDIA. No proceedings for the revocation or termination of such deposit insurance are pending or, to Parent’s and Acquiror’s knowledge, threatened.
3.16CRACRA.. Acquiror’s Acquiror Bank’s most recent examination rating under the Community Reinvestment Act was “satisfactory” or better.
3.17Reorganization. As of the date of this Agreement, neither Parent nor Acquiror is not aware of any fact or circumstance that would reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
3.18Information Supplied. None of the information supplied or to be supplied by ParentAcquiror or any of its Subsidiaries for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Proxy Statement/Prospectus will, at the date of mailing to Target’s shareholders and at the time of the Target Shareholders’ Meeting, contain any untrue statement of a material fact about ParentAcquiror or its Subsidiaries or omit to state any material fact about ParentAcquiror or its Subsidiaries required to be stated therein or necessary in order to make the statements therein about ParentAcquiror or its Subsidiaries, in light of the circumstances under which they were made, not misleading. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC thereunder, except that no representation or warranty is made by ParentAcquiror with respect to statements made therein based on information supplied by Target for inclusion in the Form S-4.
3.19Data Privacy. ParentAcquiror and Acquiror Bank have in place commercially reasonable data protection and privacy policies and procedures to protect, safeguard and maintain the confidentiality, integrity and security of (i) Parent’sAcquiror’s and Acquiror’sAcquiror Bank’s information technology systems, Software owned or purported to be owned by ParentAcquiror and Acquiror Bank (“Parent-OwnedAcquiror-Owned Software”), and (ii) all information, data and transactions stored or contained therein or transmitted thereby, including personally identifiable information, financial information, and credit card data (as such information or terms are defined and/or regulated under applicable laws, statutes, orders, rules, regulations, policies, agreements, and guidelines of any Governmental Entity or Regulatory Agency) (the “ParentAcquiror Data”), against any unauthorized or improper use, access, transmittal, interruption, modification or corruption, except where the failure to have in place such policies and procedures has not had and would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. ParentAcquiror. Acquiror and Acquiror Bank are in compliance with applicable confidentiality and data security laws, statutes, orders, rules, regulations, policies, agreements, and guidelines of any Governmental Entity or Regulatory Agency, and all industry standards applicable to the ParentAcquiror Data, including card association rules and the payment card industry data security standards, except where such failure to be in compliance has not had and would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.Acquiror. There currently are not any, and since January 1, 2012,2013, have not been any, pending or, to knowledge of Parent and Acquiror, threatened, claims or written complaints with respect to unauthorized access to or breaches of the security of (i) any of Parent’sAcquiror’s and Acquiror’sAcquiror Bank’s information technology systems, including the Parent-OwnedAcquiror-Owned Software; or (ii) ParentAcquiror Data or any other such information collected, maintained or stored by or on behalf of ParentAcquiror and Acquiror Bank (or any unlawful acquisition, use, loss, destruction, compromise or disclosure thereof).
3.20No Further Representations.Representations. Except for the representations and warranties set forth inArticle III of this Agreement, Parent and Acquiror dodoes not make, and shall not be deemed to make, any representation or warranty to Target, express or implied, with respect to the transactions contemplated by this Agreement, and Parent and Acquiror hereby disclaimdisclaims any such representation or warranty not set forth inArticle III of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF TARGET
Except as disclosed in (a), other than with respect to the representations and warranties inSection 4.1,Section 4.3(a),Section 4.7,Section 4.32 andSection 4.38, the Target Reports (defined below) filed after August 21, 2014, and prior to the date hereof, but excluding any risk factors or forward-looking disclosures set forth under the heading “Risk Factors” or under the heading “Special Note Regarding Forward-Looking Statements” or any other disclosure that is cautionary, predictive or forward looking in nature, or (b) the disclosure schedule (the “Target Disclosure Schedule”) delivered by Target to Parent and Acquiror prior to the execution of this Agreement (which schedule sets 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 thisArticle IV or to one or more of Target’s covenants contained inArticle V,provided, however, that, notwithstanding anything in this Agreement to the contrary, (i) no such item is required to be set forth in such schedule as an exception to a representation or warranty if its absence would not result in the related representation or warranty being deemed untrue or incorrect, and (ii) the mere inclusion of an item in such schedule as an exception to a representation or warranty shall not be deemed an admission by Target that such item represents a material exception or material fact, event or circumstance or that such item has had or would reasonably be expected to have a Material Adverse Effect on Target), Target hereby represents and warrants to Parent and Acquiror as follows:
4.1Corporate Organization.
(a) Target is a Tennessee state banking corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee. Target has full corporate and other power and authority to carry on its business as
now conducted, except to the extent that the failure to have such power or authority would not reasonably be expected to result inhave a Material Adverse Effect on Target. Target has full power and authority (including all licenses, franchises, permits and other governmental authorizations which are legally required) to own, lease and operate its properties and to engage in the business and activities now conducted by it, except where the failure to have such licenses, franchises, permits and other governmental authorizations would not, either individually or in the aggregate, have a Material Adverse Effect on Target. Target’s deposits are insured by the FDIC in the manner and to the full extent provided by applicable law, and all premiums and assessments required to be paid in connection therewith have been paid by Target when due.
(b) Target is a member ofbank holding company registered under the FRB.
(b)BHC Act. True and complete copies of the CharterTarget’s charter (the “Target Charter”), and Bylaws of Target,bylaws, as in effect as of the date of this Agreement, have previously been made available by Target to Parent and Acquiror.
(c) Magna Commercial, Inc.,Avenue Bank, a Tennessee state banking corporation, and 1st Trust CDE, Inc, a Tennessee corporation, (collectively,is the only Subsidiary of Target (the “Target SubsidiariesSubsidiary”) are the only wholly-owned subsidiaries of Target. Each of the. The Target SubsidiariesSubsidiary is (i) is duly organized, and validly existing and in good standing under the laws of the jurisdictionState of organization,Tennessee, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified, and in whichexcept where the failure to be so qualified or in good standing would not reasonably be expected to have a Material Adverse Effect on Target and (iii) has all requisite corporate or other power and authority to own or lease its properties and assets and to carry on its business as now conducted, except to the extent that the failure to have such power or authority would not reasonably be expected to have a Material Adverse Effect on Target.
4.2Capitalization.
(a) The authorized capital stock of Target consists of tenone hundred million (10,000,000)(100,000,000) shares of Target Common Stock, of which 4,891,268ten million three hundred twenty-two thousand fifty-five (10,322,055) shares arewere issued and outstanding as of the date of this Agreement, and ten million (10,000,000) shares of preferred stock, $1.00no par value per share (the “Target Preferred Stock” and, together with the Target Common Stock, the “Target Capital Stock”), none of which 18,350 shares have been designated as Non-Cumulative Perpetual Preferred Stock, Series C and 1,000,000 shares have been designated as Non-Cumulative Perpetual Preferred Stock, Series D, and of which 18,350 shares of Non-Cumulative Perpetual
Preferred Stock, Series C and 352,886 shares of Non-Cumulative Perpetual Preferred Stock, Series D are issued and outstanding as of the date of this Agreement. As of the date hereof, no shares of Target Capital Stock were reserved for issuance except for 328,350257,639 shares of Target Common Stock reserved for issuance upon the exercise of outstanding Target Stock Options issued pursuant to the Target Stock Plans.Section 4.2(a) of the Target Disclosure Schedule sets forth the name of each holder of Target Stock Options, and the number of Target Stock Options held by each such holder. All of the issued and outstanding shares of Target Capital Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof.
(b) No Voting Debt of Target is issued or outstanding.
(c) Except for (i) this Agreement, and (ii) the rights under the Target Stock Plans which, as of the date of this Agreement, represent the right to acquire up to an aggregate of 328,350257,639 shares of Target Common Stock, there are no options, subscriptions, warrants, calls, rights, commitments or agreements of any character to which Target or any of the Target SubsidiariesSubsidiary is a party or by which itTarget or any of the Target SubsidiariesSubsidiary is bound obligating Target or any of the Target SubsidiariesSubsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Target Capital Stock or shares of capital stock of the Target Subsidiary or any Voting Debt or stock appreciation rights of Target or any of the Target SubsidiariesSubsidiary or obligating Target or any of the Target SubsidiariesSubsidiary to extend or enter into any such option, subscription, warrant, call, right, commitment or agreement. Except for obligations under the terms of Target Series C Preferred Stock and Target Series D Preferred Stock, thereThere are no outstanding contractual obligations of Target or any of the Target SubsidiariesSubsidiary (A) to repurchase, redeem or otherwise acquire any shares of Target Capital Stock or shares of capital stock of any of the Target SubsidiariesSubsidiary or (B) pursuant to which Target or any of the Target SubsidiariesSubsidiary is or could be required to register shares of Target Capital Stock or other securities under the Securities Act. Other than the Voting Agreements, and as set forth inSection 4.2(c) of the Target Disclosure Schedules, there are no agreements, arrangements or other understandings with respect to the voting of Target Capital Stock binding on Target or any of the Target Subsidiaries.Stock. All of the Target Stock Plans have been approved by the Target’s shareholders to the extent required by the TBCA and the Code.
(d) Target owns, directly or indirectly,owns all of the issued and outstanding shares of capital stock or other equity ownership interests of the Target Subsidiaries,Subsidiary, free and clear of any Liens, and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. EachThe Target Subsidiary is not, and has not been, bound by any outstanding subscription, option, warrant, call, commitment or agreement of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of suchthe Target Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of suchthe Target Subsidiary.
4.3Authority; No Violation.Violation.
(a) Target has full corporate power and authority to execute and deliver this Agreement and, subject in the case of the consummation of the Merger to the adoption of this Agreement by the requisite vote of the holders of Target Common Stock, and Target Series D Preferred Stock and, so long as outstanding, the Target Series C Preferred Stock, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Boardboard of Directorsdirectors of Target. The Boardboard of Directorsdirectors of Target determined that the Merger is advisable and in the best interest of Target and its shareholders and has directed that this Agreement and the transactions contemplated hereby be submitted to Target’s shareholders for adoption at a meeting of such shareholders and, except for the adoption of this Agreement by the affirmative vote of the holders of the requisite percentage of the outstanding shares of Target Common Stock, and Target Series D Preferred Stock and, so long as outstanding, the Target Series C Preferred Stock, no other corporate proceedings on the part of Target are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Target and (assuming due authorization, execution and delivery by Parent and Acquiror) constitutes valid and binding obligations of Target, enforceable against Target in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies).
(b) Except as set forth inSection 4.3(b) of the Target Disclosure Schedule, neither the execution and delivery of this Agreement by Target, nor the consummation by Target of the transactions contemplated hereby, nor compliance by Target with any of the terms or provisions hereof, will (i) violate any provision of the Target Charter or the Bylawsbylaws of Target or the comparable documents of anycharter and bylaws of the Target Subsidiaries,Subsidiary, or (ii) assuming that the consents and approvals referred to inSection 4.4 are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Target or any of the Target SubsidiariesSubsidiary or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Target or any of the Target SubsidiariesSubsidiary under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Target or any of the Target SubsidiariesSubsidiary is a party, or by which theyit or any of theirits properties or assets may be bound or affected, except in the case of clause (ii) above for such violations, conflicts, breaches, losses, or defaults, terminations, cancellations, accelerations, or Liens which would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Target.
4.4 ConsentsConsents and Approvals. Except for (i) the filing of applications and notices, as applicable, with the FRB, the FDIC and the TDFI and approval of such applications and notices, (ii) the Other Regulatory Approvals, (iii) the filing with the SEC of the FormS-4 (which shall include the Proxy Statement/Prospectus) and declaration of effectiveness of the Form S-4, (iv) compliance with the applicable requirements of the Exchange Act and such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of Acquiror Common Stock pursuant to this Agreement, (v) the filing of the Articles of Merger with the Tennessee Secretary pursuant to the TBCA, (v)(vi) any notice or filings under the HSR Act, (vi)(vii) any consents, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers, investment advisers or transfer agents, and the rules of NASDAQ,Nasdaq, or which are required under consumer finance, insurance, mortgage banking and other similar laws, (vii)and (viii) the approval by the shareholders of Target of this Agreement by the requisite vote of the shareholders of Target, and (viii) in connection with the SBLF Redemption, no consents or approvals of or filings or registrations with any Governmental Entity or Regulatory Agency are necessary in connection with (A) the execution and delivery by Target of this Agreement and (B) the consummation by Target of the Merger and the other transactions contemplated hereby. Except for the approval by the shareholders of Target of this Agreement by the requisite vote of the shareholders of Target and any consents, authorizations, or approvals which are listed inSection 4.4 of the Target Disclosure Schedule, no consents, authorizations, or approvals of any person, other than a Governmental Entity or Regulatory Agency, are necessary in connection with (A) the execution and delivery by Target of this Agreement and (B) the consummation by Target of the Merger and the other transactions contemplated hereby.
4.5Reports.Reports Except as set forth inSection 4.5. Each of the Target Disclosure Schedule Target and the Target Subsidiaries haveSubsidiary has timely filed or furnished, as applicable, all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file or furnish, as applicable, since January 1, 20122013 with the Regulatory Agencies, and all other reports and statements required to be filed or furnished, as applicable, by them since January 1, 2012,2013, including, without limitation, any report or statement required to be filed or furnished pursuant to the laws, rules or regulations of the United States, any state, or any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file or furnish such report, registration or statement or to pay such fees and assessments, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Target. Except for normal examinations conducted by a Regulatory Agency in the ordinary course of the business of Target or any ofand the Target Subsidiaries,Subsidiary, no Regulatory Agency has initiated any proceeding or, to the knowledge of Target, investigation into the business or operations of Target or any of the Target SubsidiariesSubsidiary since January 1, 2012,2013, except where such proceedings or investigation, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Target. There (x) is no
unresolved violation, criticism, or exception by any Regulatory Agency with respect to any written report or statement relating to any examinations or inspections of Target or any of the Target Subsidiaries,Subsidiary, and (y) have been no material formal or informal inquires by (other than in the ordinary course of routine regulatory examinations and visitations), or material disagreements or disputes with, any Regulatory Agency with respect to the business, operations, policies or procedures of Target or any of the Target SubsidiariesSubsidiary since January 1, 2012.2013.
4.6Financial Statements. Target has previously made available to Parent true and correct copies of (i) the auditedThe consolidated balance sheetsfinancial statements of Target and the Target Subsidiaries as of December 31, 2013 and 2014, (ii) the related audited consolidated statements of income, changesSubsidiary included in shareholders’ equity and cash flows for the fiscal years ended December 31, 2013 and 2014, (the “Target Financial Statements,” and accompanied by the audit report of HORNE LLP, independent public accountants with respect to Target and the Target Subsidiaries (the consolidated balance sheet of Target as of December 31, 2014 is referenced herein as the “Target Balance Sheet” and the date of the Target Balance Sheet is the “Target Balance Sheet Date”). The Target Financial Statements referred to in thisSection 4.6Reports (as defined herein) (including the related notes, where applicable) fairly present in all material respects the consolidated results of operations, changes in shareholders’ equity, cash flows and financial position of Target and the Target SubsidiariesSubsidiary for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) complies in all material respects with applicable accounting requirements. The Target Financial Statementsrequirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) havehas been prepared in all material respects in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of Target and the Target SubsidiariesSubsidiary since January 1, 2012 have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements. HORNE LLP has not resigned (or informed Target that it intends to resign) or been dismissed as independent public accountants for Target as a result of or in connection with any disagreements with Target or any of the Target Subsidiaries on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
4.7Broker’s Fees. Except for Stephens, Inc. and SunTrust Robinson Humphrey,Keefe, Bruyette & Woods, Inc., neither Target nor any of the Target SubsidiariesSubsidiary nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement. Target has provided Parent withor made available to Acquiror a complete and accurate copy of Target’s agreementagreements with Stephens, Inc. and SunTrust Robinson Humphrey,Keefe, Bruyette & Woods, Inc.
4.8Absence of Certain Changes or Events. Except as set forth inSection 4.8 of
Since the Target Disclosure Schedule, since the Target Balance Sheet DateSeptember 30, 2015 in the case ofSection 4.8(a), and since the Target Balance Sheet DateSeptember 30, 2015 through the date of this Agreement in the case ofSectionSections 4.8(b)-(s), and except, in each case, as set forth onSection 4.8 of the
Target Disclosure Schedule, Target and the Target SubsidiariesSubsidiary have conducted their business only in the ordinary course of business consistent with past practice and Target and the Target SubsidiariesSubsidiary have not:
(a) experienced a change or development in the business, operations, assets, liabilities, condition (financial or otherwise), results of operations, cash flows or prospects of Target or any of the Target SubsidiariesSubsidiary which, individually or in the aggregate, has had, or would reasonably be expected to have a Material Adverse Effect with respect to Target;
(b) other than in the ordinary course of business consistent with past practice, incurred any indebtedness for borrowed money, or assumed, guaranteed, endorsed or otherwise as an accommodation become responsible for the obligations of any other person;
(c)
(i) adjusted, split, combined or reclassified the Target Capital Stock or any capital stock of any of the Target Subsidiaries;Subsidiary;
(ii) granted any stock options, warrants, stock appreciation rights, performance shares, restricted stock units, restricted shares or other equity-based awards or interests, or granted any person any right to acquire any shares of Target Capital Stock or any shares of the capital stock of any of the Target Subsidiaries;Subsidiary;
(iii) issued, sold or otherwise permitted to become outstanding any additional shares of Target Capital Stock or shares of capital stock of any of the Target SubsidiariesSubsidiary or securities convertible or exchangeable into, or exercisable for, any shares of Target Capital Stock or shares of capital stock of any of the Target Subsidiaries,Subsidiary, except for the issuance of shares of Target Common Stock upon the exercise of Target Stock Options or the vesting or settlement of awards under the Target Stock Plans (and dividend equivalents thereon, if any);
(d) settled any material claim, suit, action or proceeding, except in the ordinary course of business consistent with past practice, in an amount and for consideration not in excess of $50,000$75,000 individually or $250,000$350,000 in the aggregate or that did not or would not impose any material restriction on the business of Target, any of the Target SubsidiariesSubsidiary or the Surviving Corporation or adversely affect in any material respect the parties’ ability to consummate the Merger and the other transactions contemplated hereby;
(e) merged or consolidated Target or any of the Target SubsidiariesSubsidiary with any other person, or restructured, reorganized or completely or partially liquidated or dissolved Target or any of the Target Subsidiaries;Subsidiary;
(f) materially restructured or materially changed Target’s or any of the Target Subsidiaries’Subsidiary’s investment securities or derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise;
(g) made any material changes in its policies and practices with respect to (i) underwriting, pricing, originating, acquiring, selling, servicing or buying or selling rights to service Loans or (ii) its hedging practices and policies, in each case except as may have been required by such policies and practices or by any applicable laws, regulations, guidelines or policies imposed by any Regulatory Agency or other Governmental Entity;
(h) made, or committed to make, any capital expenditures in excess of the amounts specified in the capital expenditure budget made available to ParentAcquiror prior to the date hereof plus 5%;
(i) other than in the ordinary course of business consistent with past practice, made, changed or revoked any material Tax election, changed an annual Tax accounting period, adopted or materially changed any Tax accounting method, filed any amended Tax return, entered into any closing agreement with respect to Taxes, or settled any material Tax claim, audit, assessment or dispute or surrendered any right to claim a refund of a material amount of Taxes;
(j) made an application for the opening, relocation or closing of any, or opened, relocated or closed any, branch office, loan production office or other significant office or operations facility of Target or any of the Target Subsidiaries;Subsidiary;
(k) changed its accounting methods, principles or practices, other than changes required by applicable law or GAAP or regulatory accounting as concurred by Target’s independent public accountants;
(l) entered into any contract or commitment of (i) more than $100,000$150,000 individually, or $250,000$350,000 in the aggregate, per annum, other than purchases or sales of investment securities, the creation of deposit liabilities, and the making of loans and loan commitments, all in the ordinary course of business consistent with past practice;
(m) other than as set forth in Section 4.11(a) of the Target Disclosure Schedule, granted any increase in the base pay of any employee or granted any increase in or established any bonuses, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option
(including, (including, without limitation, the granting of stock options), stock purchase or other employment benefit plan, or any other increase in the compensation payable or to become payable to any directors, officers, or employees of Target or any of the Target SubsidiariesSubsidiary (other than normal salary adjustments to employees made in the ordinary course of business consistent with past practice), or any grant of severance or termination pay, or any contract or arrangement entered into to make or grant any severance or termination pay, any payment of any material bonus, or the taking of any action not in the ordinary course of business consistent with past practice with respect to the compensation or employment of directors and officers of Target or any of the Target Subsidiaries;Subsidiary;
(n) amended the Target Charter or the Bylawsbylaws of Target or comparable documents of anythe charter or the bylaws of the Target Subsidiaries;Subsidiary;
(o) made any material change in the credit policies or procedures of the Target Subsidiary, the effect of which was or is to make any such policy or procedure less restrictive in any respect;
(p) made any material acquisition or disposition of any assets or properties, or entered into any contract for any such acquisition or disposition other than (i) investments in securities in Target’s or any of the Target Subsidiaries’Subsidiary’s investment portfolio in the ordinary course of business consistent with past practice or (ii) loans and loan commitments purchased, sold, made or entered into in the ordinary course of business consistent with past practice;
(q) entered into any lease of real or personal property, other than in connection with foreclosed property or in the ordinary course of business consistent with past practice;
(r) declared, set aside or paid any dividend or distribution (whether in cash, securities or property or any combination thereof) in respect of any shares of Target Capital Stock, any shares of capital stock of any of the Target SubsidiariesSubsidiary or any securities or obligations convertible into or exchangeable for any shares of Target Capital Stock or any shares of capital stock of any of the Target SubsidiariesSubsidiary or any redemption, purchase or other acquisition of Target’s securities or any of the Target Subsidiaries’ securities, other than (i) a per share quarterly dividend of $0.07 and $0.077, respectively, paid on the Target Common Stock and Target Series D Preferred Stock on January 1 and April 1, 2015 and (ii) dividends on the Target Series C Preferred Stock in accordance with the terms of the Target Series C Preferred Stock;its securities; or
(s) entered into any agreement, whether oral or written, to do or make any commitment to do or adopted any board resolution or committee resolution to do any of the foregoing.
4.9Legal Proceedings.
(a) Except as disclosed inSection 4.9(a) of the Target Disclosure Schedule, neither Target nor any of the Target SubsidiariesSubsidiary is a party to any, and there are no pending or, to the best of Target’s knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any
nature against Target or any of the Target SubsidiariesSubsidiary or challenging the validity or propriety of the transactions contemplated by this Agreement as to which, in any such case, there is a reasonable probability of an adverse determination and which, if adversely determined, would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Target.
(b) There is no injunction, order, judgment, decree, or regulatory restriction (other than those that apply to similarly situated banks) imposed upon Target any ofor the Target SubsidiariesSubsidiary or the assets of Target or any of the Target Subsidiaries orSubsidiary that would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Target.
4.10Taxes and Tax Returns.
(a) Except as set forth inSection 4,10(a) of the Target Disclosure Schedule, Target and the Target SubsidiariesSubsidiary have duly filed all federal, state, foreign and local information returns and Tax returns required to be
filed by itthem on or prior to the date of this Agreement and have duly paid or made provision for the payment of all Taxes that have been incurred or are due or claimed to be due from them by federal, state, foreign or local taxing authorities other than (i) Taxes or other governmental charges that are not yet delinquent or are being contested in good faith or have not been finally determined and have been adequately reserved against under GAAP, or (ii) information returns, Tax returns or Taxes as to which the failure to file, pay or make provision for would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target. All such Tax returns are accurate and complete in all material respects.
(b) Target and the Target SubsidiariesSubsidiary have (i) properly and timely withheld all Taxes required to be withheld, and (ii) properly remitted to the proper taxing authority all Taxes required to be remitted for which the remittance deadline has passed, with respect to amounts paid or owed to any employee, independent contractor, stockholder or other third party.party; in each case other than Taxes as to which the failure to withhold or remit would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target.
(c) With respect to any period for which the applicable statute of limitations has not expired, Target and the Target SubsidiariesSubsidiary are not delinquent in the payment of any Tax. Target and the Target SubsidiariesSubsidiary have not executed any agreements or waivers extending any statute of limitations on, or extending the period for the assessment or collection of, any Tax.
(d) Target and the Target SubsidiariesSubsidiary do not have any material liabilities for unpaid Taxes that have not been accrued for or reserved on the most recent unaudited consolidated balance sheet of Target Balance Sheetand the Target Subsidiary contained in Target’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (the “Target Third Quarter 2015 Form 10-Q”) to the extent required by GAAP, whether asserted or unasserted, contingent or otherwise, and Target has no knowledge of any basis for the assertion of any such liability for unpaid Taxes that have not been accrued for or reserved on the Target Balance Sheet.such balance sheet.
(e) No foreign, federal, state, or local tax audits or administrative or judicial Tax proceedings are pending or being conducted with respect to Target or any of the Target Subsidiaries.Subsidiary. Target and the Target SubsidiariesSubsidiary have not received from any Governmental Entity (including jurisdictions where Target and the Target SubsidiariesSubsidiary have not filed Tax returns) any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Governmental Entity against Target or any of the Target Subsidiaries.Subsidiary.Section 4.10(e) of the Target Disclosure Schedule lists all federal, state, local, and foreign income Tax returns filed with respect to Target and the Target SubsidiariesSubsidiary for taxable periods ended on or after December 31, 2011,2012, indicates those Tax returns that have been audited, and indicates those Tax returns that currently are the subject of audit. Target has made available to ParentAcquiror complete and accurate copies of all federal income Tax returns, examination reports, and statements of deficiencies assessed against or agreed to by Target or any of the Target SubsidiariesSubsidiary filed or received since January 1, 2012.2013.
(f) Except as set forthdisclosed inSection 4.10(f) of the Target Disclosure Schedule, neither Target nor any of the Target Subsidiaries are partiesSubsidiary is party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Section 280G of the Code (or any corresponding provision of state, local or foreign Tax law) (including any payment required to be made in connection with the transactions contemplated hereby) or cause the imposition of any excise Tax or penalty under Section 4999 of the Code as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Except as set forthdisclosed inSection 4.10(f) of the Target Disclosure Schedule, neither Target nor any of the Target SubsidiariesSubsidiary is a party to or bound by any Tax sharing, allocation or indemnification agreement or arrangement with any other party, and neither Target nor any of the Target SubsidiariesSubsidiary has assumed any obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other person or agreed to indemnify any other person with respect to any Tax. Except as set forth inSection 4.10(f) ofNeither Target nor the Target Disclosure Schedule, neither Target nor any of the Target SubsidiariesSubsidiary (A) is or has ever been a member of an “affiliated group” within the meaning of Section 1504(a) of the Code filing a consolidated federal income Tax return or member of any an affiliated, consolidated, combined or unitary group with respect to any state, local or foreign Taxes, or (B) do not have any liability for the Taxes of any person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.
(g) Neither Target nor any of the Target SubsidiariesSubsidiary has been within the past two (2) years or otherwise as part of a “plan (or series of related transactions)” within the meaning of Section 355(e) of the Code of which the Merger is also a part, a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify for tax-free treatment under Section 355 the Code.
(h) Neither Target nor any of the Target SubsidiariesSubsidiary has ever been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.
(i) Neither Target nor any of the Target SubsidiariesSubsidiary will be required to include any item of income in, or to exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:
(i) change in method of accounting for a taxable period ending on prior to the Closing Date;
(ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date;
(iii) installment sale or open transaction disposition made on or prior to the Closing Date; or
(iv) prepaid amount received on or prior to the Closing Date.
(j) Target has made available to ParentAcquiror true, correct, and complete copies of any private letter ruling requests, technical advice memorandum received, voluntary compliance program statement or similar agreement, closing agreements or gain recognition agreements with respect to Taxes requested or executed in the last six years.
(k) Neither Target nor any of the Target SubsidiariesSubsidiary has participated in any “listed transaction” or “reportable transaction” or “tax shelter” within the meaning of the Code requiring it to file, register, prepare, produce or maintain any disclosure, report, list or any other statement or document under Sections 6111 or 6112 of the Code.
4.11Employees.
(a)Section 4.11(a) of the Target Disclosure Schedule sets forth the following information (to the extent applicable) with respect to each employee of Target or any of the Target SubsidiariesSubsidiary as of the date of this Agreement, including each employee on leave of absence or layoff status: name, job title, date of hire, employment status,
current annual base salary or current wages, 20142015 bonus, 20152016 bonus target, vacation leave that is accrued but unused, and services credited for purposes of vesting and eligibility under any Target Benefit Plan.Section 4.11(a) of the Target Disclosure Schedule also sets forth the name of any independent contractors who render services on a regular basis to, or are under contract with, Target or any of the Target Subsidiaries.Subsidiary. There is no collective bargaining agreement in effect between Target or any of the Target SubsidiariesSubsidiary and any labor unions or organizations representing any of the employees of Target or any of the Target Subsidiaries.Subsidiary. Neither Target andnor the Target Subsidiaries have notSubsidiary has experienced any organized slowdown, work interruption strike or work stoppage by its employees, and, to the knowledge of Target, there is no strike, labor dispute or union organization activity pending or threatened affecting Target or any of the Target Subsidiaries.Subsidiary.
(b) Except as set forth inonSection 4.11(b) of the Target Disclosure Schedule, the employment of each employee of Target and the Target Subsidiaries areSubsidiary is terminable at the will of Target or any of the Target Subsidiaries,Subsidiary, as applicable, and neither Target andnor the Target Subsidiaries are notSubsidiary is a party to any employment, non-competition, severance or similar contract or agreement with any employee of Target or any of the Target SubsidiariesSubsidiary (and
copies of all such agreements have been provided or made available to Parent and Acquiror). Except as set forth inSection 4.11(b) of the Target Disclosure Schedule, since the Target Balance Sheet Date through the date of this Agreement, noNo employee of Target or any of the Target SubsidiariesSubsidiary has provided written notice to Target or any of the Target Subsidiaries of termination of employment, and, to the knowledge of Target, no key employee of Target or any of the Target SubsidiariesSubsidiary intends to terminate his or her employment with Target or any of the Target Subsidiaries.Subsidiary. To the knowledge of Target, no employee of Target or any of the Target SubsidiariesSubsidiary is a party to, or is otherwise bound by, any agreement, including any confidentiality, non-competition or proprietary rights agreement, between such employee and any person other than Target or any of the Target SubsidiariesSubsidiary that adversely affects the performance of that employee’s duties as an employee of Target or any of the Target Subsidiaries.Subsidiary.
(c) Target and the Target SubsidiariesSubsidiary are, and since January 1, 2012,2013, have been, in compliance in all material respects with any domestic or foreign federal, state, provincial, local or municipal law, ordinance, code, principle of common law, regulation, order, directive or other legal requirements regarding employment and employment practices, terms and conditions of employment, wages and hours, anti-discrimination and occupational health and safety, including laws concerning unfair labor practices within the meaning of Section 8 of the National Labor Relations Act, as amended, and the employment of non-residents under the Immigration Reform and Control Act of 1986, as amended. There is no unfair labor practice claim or proceeding brought by or on behalf of any employee or former employee of Target or any of the Target SubsidiariesSubsidiary under the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Family Medical Leave Act or any other legal requirement pending or, to the knowledge of Target, threatened against Target or any of the Target Subsidiaries.Subsidiary.
4.12Employee Benefits.Benefits
(a)Section 4.12(a) of the Target Disclosure Schedule sets forth a true and complete list of all deferred compensation, incentive compensation, stock purchase, stock option or other equity-based, retention, employment, consulting, change in control, severance or termination pay, hospitalization or other medical, life, dental, vision, disability or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plans, programs, agreements or arrangements, and each other fringe or other employee benefit plan, program, agreement or arrangement (including any “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether written or unwritten), sponsored, maintained or contributed to or required to be contributed to by Target and the Target SubsidiariesSubsidiary or by any trade or business, whether or not incorporated, all of which together with Target, would be deemed a “single-employer” under Section 4001 of ERISA (a “Target ERISAAffiliate”), for the benefit of any current or former employee, independent contractor, consultant, officer, manager or director (and/or their dependents or beneficiaries) of Target, any of the Target SubsidiariesSubsidiary or any Target ERISA Affiliate, or with respect to which Target, any of the Target SubsidiariesSubsidiary or any Target ERISA Affiliate otherwise has any liabilities or obligations (the “Target Benefit Plans”).
(b) No Target Benefit Plan is (i) a “multiemployer plan,” as such term is defined in Section 3(37) of ERISA; (ii) a plan that is subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code; (iii) a multiple employer plan as defined in Section 413(c) of the Code; or (iv) a multiple employer welfare
arrangement as defined in Section 3(40) of ERISA, and neither Target, any of the Target Subsidiaries,Subsidiary nor any Target ERISA Affiliate has maintained, contributed to, or been required to contribute to any employee benefit plan described in clauses (i), (ii), (iii) or (iv) above within the last six (6) years.
(c) None of the Target Benefit Plans that are “welfare benefit plans,” within the meaning of Section 3(1) of ERISA, provide for continuing benefits or coverage after termination or retirement from employment, except for COBRA rights under a “group health plan” as defined in Section 4980B(g) of the Code and Section 607 of ERISA.
(d) With respect to each Target Benefit Plan, Target has delivered or made available to ParentAcquiror complete copies of each of the following documents: (i) a copy of each written Target Benefit Plan (including any
amendments thereto and all administration agreements, insurance policies, investment management or advisory agreements and all prior Target Benefit Plan documents, if amended within the last two (2) years); (ii) a copy of the three (3) most recent Form 5500 annual reports, if any, required under ERISA or the Code; (iii) a copy of the most recent summary plan description (and any summary of material modifications), if any, required under ERISA; (iv) if the Target Benefit Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement (including any amendments thereto); (v) if the Target Benefit Plan is intended to be qualified under Section 401(a) of the Code, the most recent determination letter or opinion letter upon which the plan sponsor is entitled to rely received from the IRS; (vi) any actuarial reports within the last three (3) years;reports; (vii) all material correspondence with the IRS, Department of Labor and the Pension Benefit Guaranty Corporation regarding any Target Benefit Plan within the last three (3) years;Plan; (viii) with respect to each Target Benefit Plan subject to Title IV of ERISA, if any, a copy of the three (3) most recent Form PBGC-1 reports; and (ix) all discrimination tests for each Target Benefit Plan for the three (3) most recent plan years, if any. Target has disclosed or made available to Parent and Acquiror the terms and conditions of any unwritten Target Benefit Plan.
(e) Except as identified inSection 4.12(a) of the Target Disclosure Schedule referenced above or as would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Target, (i) each of the Target Benefit Plans has been operated and administered in all material respects in compliance with ERISA and the Code, (ii) each of the Target Benefit Plans intended to be “qualified” within the meaning of Section 401(a) of the Code has received a favorable determination letter or opinion letter (upon which Target is permitted to rely) from the IRS that such Target Benefit Plan is so qualified, and to the knowledge of Target, there are no existing circumstances or any events that have occurred that will adversely affect the qualified status of any such Target Benefit Plan, (iii) with respect to each Target Benefit Plan, if any, which is subject to Title IV of ERISA, the present value of accrued benefits under such Target Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Target Benefit Plan’s actuary with respect to such Target Benefit Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Target Benefit Plan allocable to such accrued benefits, (iv) all contributions due and payable by Target or any of the Target SubsidiariesSubsidiary with respect to each Target Benefit Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP, (v) neither Target, any of the Target SubsidiariesSubsidiary nor, to the knowledge of Target, any other person, including any fiduciary, has engaged in a transaction in connection with which Target, any of the Target SubsidiariesSubsidiary or any Target Benefit Plan will be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material Tax imposed pursuant to Section 4975 or 4976 of the Code, and (vi) there are no pending or, to the knowledge of Target, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Target Benefit Plans or any trusts related thereto.
(f) Except as set forth inSection 4.12(f) of the Target Disclosure Schedule, neitherNeither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) (i) result (either alone or upon the occurrence of any additional acts or events) in any payment (including, without limitation, severance, unemployment compensation, “excess parachute payment” (within the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming due to any director or any employee of Target or any of the Target SubsidiariesSubsidiary from Target or any of the Target SubsidiariesSubsidiary under any Target Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any Target Benefit Plan or (iii) result in any acceleration of the time of payment or vesting of any such benefits.
(g) Each Target Benefit Plan that is a “nonqualified deferred compensation plan” (within the meaning of Section 409A(d)(1) of the Code) has been operated in compliance with Section 409A of the Code, IRS Notice 2005-1, Treasury Regulations issued under Section 409A of the Code, and any subsequent guidance relating thereto, and no additional tax under Section 409A(a)(1)(B) of the Code has been or is reasonably expected to be incurred by a participant in any such Target Benefit Plan, and no employee of Target or any of the Target SubsidiariesSubsidiary is entitled to any gross-up or otherwise entitled to indemnification by Target, any of the Target SubsidiariesSubsidiary or any Target ERISA Affiliate for any violation of Section 409A of the Code.
4.13Compliance with Applicable Law.
(a) Except as set forth inSection 4.13(a) of the Target Disclosure Schedule, Target and the Target SubsidiariesSubsidiary hold, and have at all times since January 1, 20122013 held, all material licenses, franchises, permits, patents, trademarks and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to each (and have paid all material fees and assessments due and payable in connection therewith), and to the knowledge of Target, no suspension or cancellation of any such necessary license, franchise, permit, patent, trademark or authorization is threatened, and Target and the Target SubsidiariesSubsidiary have since January 1, 20122013 complied in all material respects with, and are not in default in any material respect under, any applicable law, statute, order, rule, regulation, policy, agreement and/or guideline of any Governmental Entity or Regulatory Agency relating to Target or any of the Target Subsidiaries,Subsidiary, except where the failure to hold such license, franchise, permit, patent, trademark or authorization or such noncompliance or default would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Target, including, without limitation, laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, and any other law relating to discriminatory lending, financing or leasing practices, and Sections 23A and 23B of the Federal Reserve Act.
(b) Target and the Target SubsidiariesSubsidiary are and since January 1, 20122013 have been conducting operations at all times in compliance in all material respects with the Anti-Money Laundering Laws. Target and the Target SubsidiariesSubsidiary have established and maintain a system of internal controls designed to ensure material compliance by Target and the Target SubsidiariesSubsidiary with applicable financial recordkeeping and reporting requirements of the Anti-Money Laundering Laws.
(c) Except as would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Target, each of Target and the Target SubsidiariesSubsidiary has properly administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents, applicable state and federal law and regulation and common law. Neither Target, nor any of the Target Subsidiaries,Subsidiary, nor any director, officer or employee of Target or any of the Target Subsidiaries,Subsidiary, has committed any breach of trust or fiduciary duty with respect to any such fiduciary account that would reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target, and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect the assets of such fiduciary account.
4.14Certain Contracts.
(a) Except for contracts, arrangements, commitments or understandings relatedrelating to deposits, loans or other extensions of credit, and except as disclosed inSection 4.14(a) of the Target Disclosure Schedule, neither Target nor any of the Target SubsidiariesSubsidiary is a party to or bound by any legally binding written contract, arrangement, commitment or understanding (i) with respect to the employment of any directors, officers or employees other than, in the case of employees that are not officers, in the ordinary course of business consistent with past practice, (ii) which, upon the consummation or shareholder approval of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether
(whether of severance pay or otherwise) becoming due from Target, the Target Subsidiary, Acquiror, the Surviving Corporation, or any of their respective Subsidiaries to any officer or employee thereof, (iii) which would be a “material contract” (as such term is defined in Item 601(b)(10) of RegulationS-K of the SEC) to be performed after the date of this Agreement that has not been filed with or incorporated by reference in the Target Reports, (iv) which materially restricts the conduct of any line of business by Target or the Target Subsidiary or upon consummation of the Merger will materially restrict the ability of the Surviving Corporation or any of its Subsidiaries to engage in any line of business in which a bank holding company or a banking corporation may lawfully engage, (v) with or to a labor union or guild (including any collective bargaining agreement), (vi) that would solely as a result of consummation of the
Merger require the payment by Target or the Surviving Corporation or any Subsidiary thereof of amounts in excess of $50,000$75,000 individually or $250,000$350,000 in the aggregate, or (vii) (including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan) any of the benefits under which will be increased, or the vesting of the benefits under which will be accelerated, by the occurrence of any shareholder approval or the consummation of any of the transactions contemplated by this Agreement, or the value of any of the benefits under which will be calculated on the basis of any of the transactions contemplated by this Agreement. Each contract, arrangement, commitment or understanding of the type described in thisSection 4.14(a), whether or not set forth in the Target Disclosure Schedule, is referred to herein as a “Target Material Contract”, and neither Target nor any of the Target SubsidiariesSubsidiary has knowledge of, or has received notice of, any default or any violation of the above by any of the other parties thereto which would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Target. Target has delivered or made available to ParentAcquiror a complete and accurate copy of each written Target Material Contract and all amendments or modifications to each Target Material Contract.
(b)(i) Each Target Material Contract is valid and binding on Target or any of the Target Subsidiaries,Subsidiary, as applicable, and in full force and effect, (ii) Target and the Target SubsidiariesSubsidiary have in all material respects performed all obligations required to be performed by them to date under each Target Material Contract, and (iii) no event or condition currently exists which constitutes or, after notice or lapse of time or both, will constitute a default on the part of Target or any of the Target SubsidiariesSubsidiary under any such Target Material Contract, except where such default would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target.
4.15Agreements with Regulatory Agencies. Neither Target nor any of the Target SubsidiariesSubsidiary is subject to any cease-and-desist or other order or enforcement action issued by, or a party to any written agreement, consent agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or subject to any order or directive by, and neither Target nor any of the Target SubsidiariesSubsidiary has been ordered to pay any material civil monetary penalty by, or been since January 1, 2012,2013, a recipient of any supervisory letter from, or since January 1, 2012,2013, has adopted any board resolutions at the request of any Regulatory Agency or other Governmental Entity that currently restrict(s) in any material respect the conduct of its business, would restrict the consummation of the transactions contemplated by this Agreement or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, or its management (each, whether or not set forth in the Target Disclosure Schedule, a “Target Regulatory Agreement”), nor, to the knowledge of Target, has Target or any of the Target SubsidiariesSubsidiary been advised since January 1, 2012,2013, by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering or requesting any such Target Regulatory Agreement.
4.16Real Estate.
(a)Section 4.16(a) of the Target Disclosure Schedule sets forth a (i) correct legal description, street address and tax parcel identification number of each parcel of real property in which Target or any of the Target Subsidiaries hold an ownership interest (other than real property acquired through foreclosure or by deed in lieu thereof) (the “Owned Real Property”), and (ii) list of all real property leases to which Target or any of the Target Subsidiaries is a party (whether Except as a (sub)lessor, (sub)lessee, guarantor or otherwise) (the “Leases”; all real property in which Target or any of the Target Subsidiaries hold a leasehold interest, whether as lessee or sublessee, the “Leased Real Property”; the Leased Real Property and Owned Real Property, collectively, the “Real Estate”). Except for the Owned Real Property and the Leases identifieddisclosed inSection 4.16(a) of the Target Disclosure Schedule, neither Target nor any of the Target SubsidiariesSubsidiary has owned or presently owns any interest (fee, leasehold or otherwise) infee simple title to any real property (other thanproperty. All leases for real property acquired in(each a “Lease” and collectively, the ordinary course of business through foreclosure proceedings“Leases”) to which Target or through deed in lieu of foreclosure) and neither Target nor any of the Target Subsidiaries has entered into any leases, arrangements, license or other agreements relating to the use, occupancy, sale, option, disposition or alienation of all or any portion of the Owned Real Property.
(b) All LeasesSubsidiary is a party are in full force and effect and are binding and enforceable against lessee and, to the knowledge of Target, the lessors, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to creditors’ rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law. True and correct copies of all such Leases, as amended or modified, have been provided or made available to ParentAcquiror or its advisors.
(c) Target and the Target Subsidiaries own good and marketable title to the Owned Real Property, free and clear of any encumbrances, liens, claims, equitable interests, liens, options, mortgages, rights of first refusal, rights of first offer, encroachments, easements or restrictions of any kind (the “Real Estate Liens”), other than (i) liens for Taxes not yet due and payable; (ii) mechanics’, carriers’, workers’, repairers’ and similar statutory liens arising or incurred in the ordinary course of business for amounts which are not delinquent and which are not, individually or in the aggregate, material; and (iii) encroachments, easements or reservations thereof, rights of way, highway and railroad crossings, sewers, electric and other utility lines, telegraph and telephone lines, zoning, building code and other covenants, conditions and restrictions as to the use of the Owned Real Property that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Target (collectively, “Permitted Liens”).
(d)(b) To the knowledge of Target, (i) Target and the Target SubsidiariesSubsidiary are entitled to and have exclusive possession of the Leased real estate subject to the Leases (the “Real Property,Estate”), (ii) the Real Estate is not subject to any other legally binding lease, tenancy or license or any legally binding agreement to grant any such lease, tenancy or license that materially interferes with Target’s or any of the Target Subsidiaries’Subsidiary’s use of the Real Estate, (iii) there is no person in possession or occupation of, or who has any current right to possession or occupation of, the Real Estate other than Target and the Target Subsidiaries and LPL Financial,Subsidiary, and (iv) there are no easements of any kind in respect of the Real Estate materially and adversely affecting the rights of Target and the Target SubsidiariesSubsidiary to use the Real Estate for the conduct of its business.
(e)(c) With respect to the Real Estate:
(i) Target and the Target SubsidiariesSubsidiary are not in material default under the terms of the Leases with respect to the Leased Real Property;Leases;
(ii) to the knowledge of Target, the lessor is not in material default under any of the terms of the Leases;
(iii) to the knowledge of Target, (A) there is no condemnation, zoning or other land use regulation proceeding, either instituted or planned to be instituted, that would materially affect the use and operation of the Real Estate as currently being used and operated by Target and the Target Subsidiaries,Subsidiary, and (B) there are no special assessment proceedings affecting the Real Estate;
(iv) to the knowledge of Target, none of the Real Estate is located in (A) any special flood hazard area or zone on any official flood hazard map published by the United States Department of Housing and Urban Development (except as may pertain to possible 100-year flood plain status) or (B) any wetland area on any official wetland inventory map published by the United States Department of the Interior or any applicable state agency; and
(v) to the knowledge of Target, all existing water, drainage, sewage and utility facilities relating to the Real Estate are adequate for Target’s and the Target Subsidiaries’Subsidiary’s existing use and operation of the Real Estate and all such facilities enter the Real Estate directly from public rights-of-way or other public facilities.
(f)(d) To the knowledge of Target, the Real Estate is zoned for the purposes for which it is being used by Target and the Target Subsidiaries.Subsidiary.
4.17Interest Rate Risk Management Instruments. Except as set forthwould not reasonably be expected to have, either individually or inSection 4.17 of the aggregate, a Material Adverse Effect on Target, Disclosure Schedule, all interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements (the “Derivative Contracts”), whether entered into for the account of Target or any of the Target SubsidiariesSubsidiary, or for the account of a customer of Target or any of the Target SubsidiariesSubsidiary, were entered into in the ordinary course of business and, to Target’s knowledge, in accordance with prudent banking practice and applicable rules, regulations and policies of any Regulatory Authority and with counterparties believed to be financially responsible at the time, and are legal, valid and binding obligations of Target or any of the Target SubsidiariesSubsidiary enforceable in accordance with the terms thereof (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and are in full force and effect. Target and the Target SubsidiariesSubsidiary have duly performed in all material respects all of their material obligations under the Derivative Contracts to the extent that such obligations to perform have accrued, and to Target’s knowledge, there are no material breaches, violations or defaults or allegations or assertions of the same by any other party thereunder.
4.18Undisclosed Liabilities.Except for liabilities and obligations (i) set forth or adequately provided for in the consolidated balance sheet included in the Target Balance Sheet,Third Quarter 2015 Form 10-Q, (ii) incurred in the ordinary course of business and consistent with past practice since the Target Balance Sheet Date,September 30, 2015, (iii) incurred in connection with this Agreement or the transactions contemplated hereby, or (vi)(iv) set forth inSection 4.18 of the Target Disclosure Schedule, neither Target nor any of the Target SubsidiariesSubsidiary has any liabilities or obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, determined or determinable, that, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Target.
4.19 InsuranceInsurance..Section 4.19 of the Target Disclosure Schedule sets forth a complete and accurate list of all insurance policies under which any of the assets or properties of Target and the Target SubsidiariesSubsidiary are covered or otherwise relating to the business of Target and the Target SubsidiariesSubsidiary (excluding policies required in respect to any Loans in which Target or any of the Target SubsidiariesSubsidiary are named as additional insureds), including policy numbers, names and addresses of insurers and type of liability or risk covered, amounts of coverage, limitations and deductions and expirations dates, and whether each such policy is claims-made or occurrence-based. Each such policy is in full force and effect, and Target and the Target SubsidiariesSubsidiary have paid or accrued (to the extent not due and payable) all premiums due, and has otherwise performed in all material respects all of its obligations under, each such insurance policy. The policy limits of insurance policies currently in effect covering assets, employees and operations of Target and the Target SubsidiariesSubsidiary have not been materially eroded by the payment of claims or claim handling expenses.
4.20Intellectual Property; Data Privacy.
(a) “Intellectual PropertySection 4.20(a) of the Target Disclosure Schedule sets forth a true, complete and correct list of (except for “goodwill” and “other confidential information,” meanswhich are not required to be set forth on such schedule but shall still constitute “Intellectual Property” as defined in this Section 4.20) all (i) trademarks, service marks, trade names, Internet domain names, designs, logos, slogans, and general intangibles of like nature, together with all registrations and applications related to the foregoing; (ii) patents, inventions and industrial designs (including any continuations, divisionals, continuations-in-part, renewals, reissues, and applications for any of the foregoing); (iii) copyrights (including any registrations and applications for the same); (iv) computer programs, whether in source code or object code form (including any and all software implementation of algorithms, models and methodologies), databases and compilations (including any and all data and collections of data), and all documentation (including user manuals and training materials) related to the foregoing, but excluding off-the-shelf software that have individual acquisition costs of $20,000 or less (“Software”); (v) technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models, and methodologies; and (vi) licenses for any of the foregoing.foregoing (the “Target Intellectual Property” means all Intellectual Property) used by Target in or held for use by Target in the conduct of the business of Target and the Target Subsidiaries.Subsidiary (the “Section 4.20(a) of the Target Disclosure Schedule sets forth a true and complete list of all Target Intellectual Property registered or applied for before a Governmental Authority or domain name registrar.”). Target and the Target SubsidiariesSubsidiary own or have a valid and enforceable license to use all Target Intellectual Property, free and clear of all Liens and royalty or other payment obligations (except for royalties or payments with respect to off-
the-shelfoff-the-shelf software at standard commercial rates). The Target Intellectual Property constitutes, in all material respects, all of the Intellectual Property necessary to carry on the business of Target and the Target SubsidiariesSubsidiary as currently conducted. The Target Intellectual Property is valid and enforceable and has not been cancelled, forfeited, expired or abandoned, and neither Target or any ofnor the Target SubsidiariesSubsidiary has not received any written notice challenging the validity or enforceability of the Target Intellectual Property. To the knowledge of Target, neither the Target Intellectual Property nor the conduct of the business of Target and the Target Subsidiaries does not violate, misappropriateSubsidiary violates, misappropriates or infringeinfringes upon the intellectual property rights of any third party. The consummation of the transactions contemplated hereby will not result in any material loss or impairment of the right of Target or any of the Target SubsidiariesSubsidiary to own or use any of the Target Intellectual Property. All information technology equipment, Software and systems used in and necessary to the conduct of the business of Target and the Target SubsidiariesSubsidiary to operate and perform in all material respects in accordance with their documentation and functional specifications and as necessary for the conduct of the business of Target and the Target Subsidiaries.Subsidiary. No material trade secret or other material confidential information has been disclosed or authorized to be disclosed by Target or itsthe Target Subsidiary or their authorized representatives to any person,
other than pursuant to a non-disclosure agreement that protects the proprietary interests of Target and the Target SubsidiariesSubsidiary in and to such material trade secrets and confidential information. Target and the Target SubsidiariesSubsidiary have taken commercially reasonable precautions to protect the secrecy, confidentiality and value of its trade secrets and confidential know-how.
(b) Target and the Target SubsidiariesSubsidiary have in place commercially reasonable data protection and privacy policies and procedures to protect, safeguard and maintain the confidentiality, integrity and security of (i) Target’s and the Target Subsidiaries’Subsidiary’s information technology systems, Software owned or purported to be owned by Target and the Target SubsidiariesSubsidiary (“Target-Owned Software”), and (ii) all information, data and transactions stored or contained therein or transmitted thereby, including personally identifiable information, financial information, and credit card data (as such information or terms are defined and/or regulated under applicable laws, statutes, orders, rules, regulations, policies, agreements, and guidelines of any Governmental Entity or Regulatory Agency) (the “Target Data”), against any unauthorized or improper use, access, transmittal, interruption, modification or corruption, and Target and the Target SubsidiariesSubsidiary are in compliance in all material respects with applicable confidentiality and data security laws, statutes, orders, rules, regulations, policies, agreements, and guidelines of any Governmental Entity or Regulatory Agency, and all industry standards applicable to the Target Data, including card association rules and the payment card industry data security standards. There currently are not any, and since January 1, 2012,2013, have not been any, pending or, to the knowledge of Target, threatened claims or written complaints with respect to unauthorized access to or breaches of the security of (i) any of Target’s and the Target Subsidiaries’Subsidiary’s information technology systems, including the Target-Owned Software; or (ii) Target Data or any other such information collected, maintained or stored by or on behalf of Target and the Target SubsidiariesSubsidiary (or any unlawful acquisition, use, loss, destruction, compromise or disclosure thereof).
4.21Investment Securities.Section 4.21 of the Target Disclosure Schedule sets forth as of MarchDecember 31, 2015, the investment securities of Target and the Target Subsidiaries,Subsidiary, as well as any purchases or sales of such securities between MarchDecember 31, 2015 to and including the date hereof, reflecting with respect to all such securities, whenever purchased or sold, descriptions thereof, CUSIP numbers, designations as securities “available for sale” or securities “held to maturity,” as those terms are used in ASC 320, book values, fair values and coupon rates, and any gain or loss with respect to any investment securities sold during such time period after MarchDecember 31, 2015. Except as set forth inSection 4.21 of the Target Disclosure Schedule, between March 31, 2015 and the date of this Agreement, neither Target nor any of the Target Subsidiaries haveSubsidiary has not purchased or sold any such securities listed and described thereon. Except as set forth inSection 4.214.2(d) of the Target Disclosure Schedule, neither Target nor any of the Target Subsidiaries ownSubsidiary owns any of the outstanding equity of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company, mortgage or loan broker or any other financial institution.
4.22Regulatory Capitalization. The Target Subsidiary is “well-capitalized,” as such term is defined in the rules and regulations promulgated by the FDIC. Target is “well-capitalized,” as such term is defined in the rules and regulations promulgated by the FDIC.FRB.
4.23Loans; Nonperforming and Classified Assets.
(a) Except as set forth inSection 4.23(a) of the Target Disclosure Schedule, as of the date hereof, neither Target nor any of the Target SubsidiariesSubsidiary is a party to any written or oral loan, loan agreement, note, extension of credit or borrowing arrangement (including, without limitation, leases, credit enhancements, commitments, guarantees and interest-bearing assets) (collectively, “Loans”), under the terms of which the obligor was, as of MarchDecember 31, 2015, over sixty (60) days delinquent in payment of principal or interest.
(b)Section 4.23(b) of the Target Disclosure Schedule identifies (x) each Loan that as of MarchDecember 31, 2015 was classified as “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import by the Target Subsidiary or any bank examiner, together with the principal amount of each such Loan and the account number of the borrower
thereunder and (y) each asset of Target and the Target SubsidiariesSubsidiary that as of MarchDecember 31, 2015 was classified as other real estate owned (“OREO”) and the book value thereof as of MarchDecember 31, 2015.
(c) Each Loan held in Target’sthe Target Subsidiary’s loan portfolio (“Target Loan”) (i) is evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be, (ii) to the extent secured, has been secured by valid Liens which have been perfected and (iii) to the knowledge of Target, is a 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.
(d) There are no oral modifications or amendments related to the Target Loans that are not reflected in the written records of Target. All suchthe Target Subsidiary. Except as set forth inSection 4.23(d) of the Target Disclosure Schedule, all currently outstanding Target Loans are owned by the Target Subsidiary free and clear of any Liens, except for Liens on Loans granted to the Federal Home Loan Bank of Cincinnati or the Federal Reserve Bank of St. Louis.Atlanta. No claims of defense as to the enforcement of any Target Loan have been asserted in writing against the Target Subsidiary for which there is a reasonable possibility of an adverse determination, and Target has no knowledge of any acts or omissions which would give rise to any claim or right of rescission, set-off, counterclaim or defense for which there is a possibility of an adverse determination to Target.Target or the Target Subsidiary. Except as set forth inSection 4.23(d) of the Target Disclosure Schedule, none of the Target Loans are presently serviced by third parties, and there is no obligation which could result in any Target Loan becoming subject to any third party servicing.
(e) Except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target, each outstanding Target Loan has been solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant Loan files are being maintained, in all material respects in accordance with the relevant notes or other credit or security documents, the applicable written underwriting and servicing standards of the Target Subsidiary and with all applicable federal, state and local laws, regulations and rules. The loan documents with respect to each such Target Loan are complete and correct in all material respects.
(f) NeitherThe Target nor any of the Target SubsidiariesSubsidiary is not now nor has it ever been since January 1, 2012,2013, subject to any material fine, suspension, settlement or other contract or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Entity or Regulatory Agency relating to the origination, sale or servicing of mortgage or consumer Loans.
(g) Except as set forth inSection 4.23(g) ofNeither Target nor the Target Disclosure Schedule, neither Target nor any of the Target SubsidiariesSubsidiary is a party to any agreement or arrangement with (or otherwise obligated to) any person which obligates Target or the Target Subsidiary to repurchase from any such person any Loan or other asset of Target or the Target Subsidiary, unless there is a material breach of a representation or covenant by Target or any of the Target Subsidiaries.Subsidiary.
4.24Allowance for Loan and Lease Losses. Target’s allowance for loan and lease losses as reflected in each of (a) the balance sheet included in the Target’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “Target 2014 Form 10-K”) and (b) the balance sheet included in the Target Balance Sheet was,Third Quarter 2015 Form 10-Q, were, as of the Target Balance Sheet Date,applicable dates thereof, in compliance with Target’s existing methodology for determining the adequacy of its allowance for loan and lease losses as well as the standards established by applicable Governmental Entities, the Financial Accounting Standards Board and GAAP.
4.25Loan Servicing Business.
(a) Definitions. For purposes of thisSection 4.25, the following terms shall have the following meanings:
“Agency or Agencies” means Federal Housing Administration, Department of Veterans Affairs, Department of Housing and Urban Development, a State Agency, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association, as applicable.
“Investor” means, with respect to the portfolio of loans serviced or to be serviced by Target or any Target Subsidiary, any Agency or any Person other than an Agency who owns or holds Loans that are not Portfolio Loans master serviced, serviced or subserviced by Target or any of the Target Subsidiaries, pursuant to a Servicing Agreement including a holder of mortgage-backed securities, mortgage pass-through certificates, participation certificates or similar securities, including any securitization trustee acting on behalf of such holder.
“Portfolio Loan” means a residential mortgage or other Loan owned by Target or the Target Subsidiaries or other real estate owned by Target or the Target Subsidiaries which is not a Loan held for sale.
“Seller and Servicing Guides” means the (i) seller and servicer guides utilized by the Agencies and the subject assignee to which Target or any of the Target Subsidiaries have sold residential mortgage loans and other loans and/or for which Target or any of the Target Subsidiaries services residential mortgage loans and other loans and (ii) the manuals, guidelines and related employee reference materials utilized by Target or any of the Target Subsidiaries to govern its relationships with mortgage brokers, correspondent and wholesale sellers of loans or under which loans originated directly by Target or any of the Target Subsidiaries are made.
“Serviced Loan” means any mortgage or other loan (other than a Target Loan) with respect to which Target or any of the Target Subsidiaries provides the Servicing.
“Servicing” means mortgage or other loan servicing and subservicing rights and obligations including one or more of the following functions (or a portion thereof): (i) the administration and collection of payments for the reduction of principal and/or the application of interest on such loan; (ii) the collection of payments on account of taxes and insurance; (iii) the remittance of appropriate portions of collected payments; (iv) the provision of full escrow administration; (v) the pursuit of foreclosure and alternate remedies against a related mortgaged property; (vi) the administration and liquidation of real estate acquired upon foreclosure or by deed in lieu of foreclosure; (vii) the right to receive the servicing fees and compensation and any ancillary fees arising from or connected to the servicing of loans, earnings on and other benefits of the related custodial accounts and any other related accounts maintained by Target or any of the Target Subsidiaries pursuant to applicable law or contractual requirements; and (viii) the performance of administrative functions relating to any of the foregoing.
“Servicing Agreements” mean agreements pursuant to which Target or any of the Target Subsidiaries provides Servicing in connection with Serviced Loans.
“State Agency” means any state agency or other state entity with authority to regulate the lending-related activities of Target or any of the Target Subsidiaries or to determine the investment or servicing requirements with regard to mortgage or other loan origination, purchasing, servicing, master servicing or certificate administration performed by Target or any of the Target Subsidiaries.
(b) Each Loan made by Target under, or in conjunction with, any Agency program was made, and has been serviced and administered, in compliance with any applicable requirements of law and Seller and Servicing Guides, except for such non-compliances which could not have, individually or in the aggregate, a Material Adverse Effect on Target.
(c) Except as set forth on Section 4.25(c) of the Target Disclosure Schedule, each Loan sold to an Investor, which has been assigned by Target, was made, in all material respects, in accordance with applicable law and in accordance with the requirements of the subject assignee and no such assignment (the revocation of which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Target) is subject to any valid defense with respect to the enforceability of same or subject to revocation by the assignee whereby the assignee could require Target to repurchase any subject Loan.
(d) Each material Servicing Agreement is valid and binding on Target or any of the Target Subsidiaries, enforceable against it in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and is in full force and effect. Target and the Target Subsidiaries have duly performed in all material respects all obligations required to be performed by it to date under each material Servicing Agreement. No event or condition exists that constitutes or, after notice or lapse of time or both, will constitute, a breach, violation or default on the part of Target or any of the Target Subsidiaries or, to Target’s knowledge, any other party thereto under any such material Servicing Agreement, except where such default would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target. There are no disputes pending or, to Target’s knowledge, threatened with respect to any material Servicing Agreement. The Servicing of Serviced Loans complies in all material respects with all legal and contractual requirements and applicable Seller and Servicing Guides.
(e) Except for customary industry standards for indemnification and repurchase remedies in connection with agreements for the sale or servicing of mortgage loans or as set forth onSection 4.25(e) of the Target Disclosure Schedule, neither Target nor any of the Target Subsidiaries is now or has been, since January 1, 2012, subject to any material fine, suspension, settlement or enforcement agreement or sanction by, or any material indemnification liability to, an Agency or Investor relating to the origination, sale or servicing of loans by Target or any Target Subsidiary.
4.26Investment Management and Related Activities. Except as set forth onSection 4.26 ofNeither Target nor the Target Disclosure Schedule, none of Target, the Target Subsidiaries, orSubsidiary nor any of their respective directors, officers, employees or authorized representatives is required to be registered, licensed or authorized under the laws issued by any Governmental Entity or Regulatory Agency as an investment adviser, a broker or dealer, an insurance agency or company, a commodity trading adviser, a commodity pool operator, a futures commission merchant, an introducing broker, a registered representative or associated person, investment
adviser, representative or solicitor, a counseling officer, an insurance agent, or in any similar capacity with a Governmental Entity or Regulatory Agency. The investment management, broker-dealer and investment advisory business of Target haveand the Target Subsidiary has complied in all material respects with applicable legal requirements to the extent the responsibility of Target.Target or the Target Subsidiary.
4.274.26Repurchase Agreements. With respect to all agreements pursuant to which Target or any of the Target SubsidiariesSubsidiary has purchased securities subject to an agreement to resell, if any, Target or any of the Target Subsidiaries,Subsidiary, as the case may be, has a valid, perfected first lien or security interest in the government securities or other collateral securing the repurchase agreement, and the value of such collateral equals or exceeds the amount of the debt secured thereby.
4.284.27Deposit Insurance. The deposits of the Target Subsidiary are insured by the FDIC in accordance with the Federal Deposit Insurance Act (“FDIA”) to the full extent permitted by law, and the Target Subsidiary has paid all premiums and assessments and filed all reports required by the FDIA. No proceedings for the revocation or termination of such deposit insurance are pending or, to Target’s knowledge, threatened.
4.294.28CRA, Anti-money Laundering and Customer Information Security.Neither Target nor any of the Target SubsidiariesSubsidiary is a party to any agreement with any individual or group regarding Community Reinvestment Act matters and, to Target’s knowledge, no facts or circumstances exist which would cause Target:Target or the Target Subsidiary: (i) to be deemed not to be in satisfactory compliance with the Community Reinvestment Act, and the regulations promulgated
thereunder, or to be assigned a rating for Community Reinvestment Act purposes by federal or state bank regulators of lower than “satisfactory”; (ii) to be deemed to be operating in violation of the Bank Secrecy Act and its implementing regulations (31 C.F.R. Part 103), the USA PATRIOT Act, any order issued with respect to anti-money laundering by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering statute, rule or regulation; or (iii) to be deemed not to be in satisfactory compliance with the applicable privacy of customer information requirements contained in any federal and state privacy laws and regulations, including, without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated thereunder, as well as the provisions of the information security program adopted by Target pursuant to 12 C.F.R. Part 208.364. Furthermore, the Boardboard of Directorsdirectors of the Target Subsidiary has adopted and the Target Subsidiary has implemented an anti-money laundering program that contains customer identification verification procedures that has not been deemed ineffective by any Governmental Entity or Regulatory Agency and that meets the requirements of Sections 352 and 326 of the USA PATRIOT Act.
4.304.29Transactions with Affiliates. Except as set forth inonSection 4.304.29 of the Target Disclosure Schedule or for transactions, agreements, arrangements or understandings between Target and the Target Subsidiary, there are no outstanding amounts payable to or receivable from, or advances by Target or any of the Target SubsidiariesSubsidiary to, and neither Target nor any of the Target SubsidiariesSubsidiary is otherwise a creditor or debtor to, any director, executive officer, five percent (5%) or greater shareholder or other affiliate of Target or any of the Target Subsidiaries,Subsidiary, or to Target’s knowledge, any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing, other than part of the normal and customary terms of such persons’ employment or service as a director with Target or any of the Target SubsidiariesSubsidiary and other than deposits held by the Target Subsidiary or Loans made by the Target Subsidiary in the ordinary course of business and in compliance in all material respects with all applicable laws and regulations. All agreements between Target or the Target Subsidiary and any of itstheir respective affiliates comply in all material respects, to the extent applicable, with Regulation W of the FRB.
4.314.30Environmental Liability. There are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose on Target or any of the Target Subsidiaries,Subsidiary, or that could reasonably be expectexpected to result in the imposition on Target or any of the Target SubsidiariesSubsidiary of, any liability or obligation arising under any local, state or federal environmental statute, regulation or ordinance including, without limitation, CERCLA, pending or, to the knowledge of Target, threatened against Target or any of the Target Subsidiaries,Subsidiary, and to the knowledge
of Target there is no reasonable basis for any such proceeding, claim, action or governmental investigation, in each case which liability or obligation would reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target. Neither Target andnor the Target Subsidiaries are notSubsidiary is subject to any agreement, order, judgment, decree, letter or memorandum by or with any court, Governmental Entity, Regulatory Agency or third party imposing any liability or obligation with respect to the foregoing that would reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Target.
4.324.31State Takeover Laws. The Boardboard of Directorsdirectors of Target has approved the transactions contemplated by this Agreement for purposes of Sections 48-103-101 through 48-103-505 of the TBCA, if applicable to Target, such that the provisions of such sections of the TBCA will not apply to this Agreement or any of the transactions contemplated hereby.
4.334.32Reorganization. As of the date of this Agreement, Target is not aware of any fact or circumstance that would reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
4.33Target Reports. Target has filed all required reports, schedules, registration statements and other documents with the SEC that it has been required to file since January 1, 2013 (the “Target Reports”). As of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), the Target Reports complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Target Reports, and none of the Target Reports when filed with the SEC, or if amended prior to the date hereof, as of the date of such amendment, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Target and each of its officers and directors are in compliance in all material respects, and have complied in all material respects, with the applicable listing and corporate governance rules and regulations of Nasdaq.
4.34Information Supplied. None of the information supplied or to be supplied by or on behalf of Target for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Proxy Statement/Prospectus will, at the date of mailing to Target’s shareholders and the time of the Target
Shareholders’ Meeting, 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 were made, not misleading. The Proxy Statement/Prospectus will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC thereunder, except that no representation or warranty is made by Target and the Target Subsidiaries with respect to statements made or incorporated by reference therein based on information supplied by Parent or Acquiror for inclusion or incorporation by reference in the Proxy Statement/Prospectus or for which Parent or Acquiror areis responsible.
4.35Internal Controls. Except as set forth onSection 4.35The records, systems, controls, data and information of the Target Disclosure Schedule, Target and the Target SubsidiariesSubsidiary are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of Target or the Target Subsidiary or accountants engaged or utilized by Target or the Target Subsidiary (including all means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Target. Target has implemented and maintain in accordance with applicable legal requirementsmaintains a system of (i) disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to Target or the Target Subsidiary is made known to the chief executive officer and the chief financial officer of Target by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”), and (ii) internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. No material weakness in the Company’s internal control over financial reporting or reportable conditions existed as of December 31, 2015. Target has made availabledisclosed, based on its most recent evaluation prior to Parentthe date hereof, to Target’s outside auditors and the audit committee of Target’s board of directors (x) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Target’s ability to record, process, summarize and report financial information, and (y) to the knowledge of Target, any fraud, whether or not material, that involves management or other employees who have a summarysignificant role in Target’s internal controls over financial reporting. Copies of any disclosuresuch disclosures were made in writing by management to Target’s auditors and audit committee since January 1, 2012 regarding any significant deficiencies and material weaknesses in Target’s internal controls over financial reporting or any fraud, whether or not material, that involved management or other employeesa copy has been previously made available to Acquiror. To the knowledge of Target, who had a significant role inthere is no reason to believe that Target’s outside auditors and its chief executive officer and chief financial officer will not be able to give the preparationcertifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of Target’s financial statements.the Sarbanes-Oxley Act, without qualification, prior to the Closing Date.
4.36Directors and Officers.Section 4.36 of the Target Disclosure Schedule lists each of the directors and “executive officers” as that(as such term is defined in 12 C.F.R. 215.2215.2) of Target and the Target Subsidiaries.Subsidiary.
4.37Opinion of Target Financial Advisor.The Boardboard of Directorsdirectors of Target has received anthe opinion of SunTrust Robinson Humphrey, Inc.,(which, if initially rendered verbally, has been or will be confirmed by a written opinion, dated the datesame date) of this Agreement (and if it is in writing, has provided a copy to Parent),Keefe, Bruyette & Woods, Inc. to the effect that, as of the date of such opinion, and based upon and subject to the factors, assumptions and qualificationslimitations set forth therein, the consideration to be received by the holders of Target Common Stock (including the shares of Target Common Stock issuable immediately prior to the Effective Time upon conversion of the Target Series D Preferred Stock) in connection with the Merger Consideration is fair, from a financial point of view, to the holders of Target Common Stock (including the shares of Target Common Stock issuable immediately prior to the Effective Time upon conversion of the Target Series D Preferred Stock).Stock.
4.38No Further Representations.Except for the representations and warranties set forth inArticle IV of this Agreement, Target does not make, and shall not be deemed to make, any representation or warranty to Parent or Acquiror, express or implied, with respect to the transactions contemplated by this Agreement, and Target hereby disclaims any such representation or warranty not set forth inArticle IV of this Agreement.
ARTICLE V.
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1Conduct of Businesses Prior to the Effective Time. During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as expressly contemplated or permitted by this Agreement (includingSection 5.1 of the Target Disclosure Schedule), as required by law, at the written direction of a Governmental Entity or Regulatory Agency, or as consented to by Parent,Acquiror (which consent shall not be unreasonably withheld), Target shall, and shall cause each of the Target SubsidiariesSubsidiary to, (a) conduct its business in the ordinary course in all material respects and consistent in all material respects with past practice and in compliance in all material respects with all applicable laws, (b) use commercially reasonable efforts to maintain and preserve intact its business organization, employees and advantageous business relationships and retain the services of its key officers and key employees and (c) perform its covenants and agreements under this Agreement. During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as expressly contemplated or permitted by this Agreement, (including the Parent Disclosure Schedule), as required by law, at the direction of a Governmental Entity or Regulatory Agency, or as consented to by Target (which consent shall not be unreasonably withheld), each of Parent and Acquiror shall, and shall cause theireach of its Subsidiaries to, (x) conduct theirits business in the ordinary course in all material respects and consistent in all material respects with past practice and in compliance in all material respects with all applicable laws and (y) perform theirits covenants and agreements under this Agreement.
5.2Target Forbearances.Forbearances During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as set forth inSection 5.2 of the Target Disclosure Schedule and except as expressly contemplated or permitted by this Agreement, or as required by law, or at the written direction of a Governmental Entity or Regulatory Agency, Target shall not, and shall not permit any of the Target SubsidiariesSubsidiary to, without the prior written consent of ParentAcquiror (which consent shall not be unreasonably withheld):
(a) other than in the ordinary course of business consistent with past practice, incur, modify, extend or renegotiate any indebtedness for borrowed money (other than short-term indebtedness incurred to refinance short-term indebtedness), or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity (it being understood and agreed that incurrence of indebtedness in the ordinary course of business consistent with past practice shall include the creation of deposit liabilities, purchases of Federal funds, borrowings from the Federal Home Loan Bank of Cincinnati or the Federal Reserve Bank of St. Louis,Atlanta, and sales of certificates of deposit);
(b) other than as set forth inSection 5.2(b) of the Target Disclosure Schedule, (i) adjust, split, combine or reclassify any shares of Target Capital Stock; (ii) make, declare or pay any dividend, or make any other distribution, on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of Target Capital Stock or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of Target Capital Stock except (1) dividends due and payablepaid by Target to holders of Target Series C Preferred Stock in accordance with the terms of the Target Series C Preferred Stock,Subsidiary to Target in compliance with applicable laws, and (2) regular quarterly cash dividends to holders of Target Common Stock at a rate not in excess of $0.07 per share of Target Common Stock, (3) regular quarterly cash dividends to holders of Target Series D Preferred Stock at a rate not in excess of $0.077 per share of Target Series D Preferred Stock, (4) a special cash dividend of not more than $0.07 per share of Target Common Stock and $0.077 per share of Target Series D Preferred Stock per quarter to holders of Target Common Stock and Target Series D Preferred Stock for the dividends described in items (2) and (3) if the Closing will occur prior to the declaration or payment of the quarterly dividend for such applicable quarter;provided, however, that the amount of such dividend shall by reduced if the anticipated Closing Date is prior to the declaration date for any dividend declared by Parent for the same fiscal quarter to holders of Parent Common Stock by an amount equal to the amount of the dividend that will be payable to the holders of Target Common Stock or Target Series D Preferred Stock on account of their ownership of Parent Common Stock following the Merger, and (5) if permitted under the Target Stock Plans, the acceptance of shares of Target’s Common Stock as payment of the exercise price of stock options or for withholding taxes incurred in connection with the exercise of Target’s Stock Options; (iii) grant any stock options, stock appreciation rights, performance shares, shares of restricted stock, restricted stock units, or other equity-based awards or interests, or grant any individual, corporation or other entity any right to acquire any shares of Target Capital Stock; or (iv) issue, sell or otherwise permit to become outstanding any additional shares of Target Capital Stock or securities convertible or exchangeable into, or exercisable for, any shares of Target Capital Stock, except pursuant to the exercise of Target Stock Options outstanding as of the date of this Agreement;
(c) other than as set forth inSection 5.2(c) of the Target Disclosure Schedule, (i) increase the wages, salaries, compensation, employee benefits or incentives payable to any officer, employee, or director of Target or any of the Target Subsidiaries,Subsidiary, (ii) pay any pension or retirement allowance not required by any existing plan or agreement or by applicable law, (iii) pay any bonus, (iv) become a party to, amend or commit itself to enter into any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee, or (v) except as required under any existing plan, grant or agreement, accelerate the vesting of, or the lapsing of restrictions with respect to, any Target Stock Options;Options or restricted shares of Target Common Stock;
(d) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets that are material to Target and the Target Subsidiaries,Subsidiary, taken as a whole, to any person or cancel, release or assign any indebtedness owed to Target or any of the Target SubsidiariesSubsidiary that is material to Target and the Target Subsidiaries,Subsidiary, taken as a whole, to any such person or any claims held by any such person that are material to Target and the Target Subsidiary, taken as a whole, in each case other than in the ordinary course of business consistent with past practice or pursuant to contracts in force at the date of this Agreement;
(e) enter into any new line of business that is material to Target and the Target Subsidiaries,Subsidiary, taken as a whole, or change, amend or modify its lending, investment, underwriting, risk and asset liability management and other banking and operating policies that are material to Target and the Target Subsidiaries,Subsidiary, taken as a whole, except as required by applicable law, regulation or policies imposed by any Governmental Entity or Regulatory Agency;
(f) except for transactions made in the ordinary course of business consistent with past practice, make any material capital expenditure either by purchase or sale of fixed assets, property transfers, or purchase or sale of any property or assets of any other person;
(g) acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with past practice) all or any portion of the equity securities, assets, business, deposits or properties of any other entity;
(h) knowingly take any action, or knowingly fail to take any action, which action or failure to act is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;
(i) amend the Target Charter or Target’s Bylawbylaws of Target or comparable governing documents of anythe charter or bylaws of the Target SubsidiariesSubsidiary or otherwise take any action to exempt any person (other than ParentAcquiror or its Subsidiaries) or any action taken by any person from any takeover statute or similarly restrictive provisions of its organizational documents or terminate, amend or waive any provisions of any confidentiality, non-solicitation, no-hire or standstill agreements in place with any third parties;
(j)(i) terminate, materially amend, or waive any material provision of any Target Material Contract or Lease, or make any change in any instrument or agreement governing the terms of any of its securities, or (ii) enter into any contract that would constitute a Target Material Contract or Lease if it were in effect on the date of this Agreement;
(k) except for transactions in the ordinary course of business consistent with past practice, make any material investment either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other person;
(l) merge or consolidate with any other person, or restructure, reorganize or completely or partially liquidate or dissolve;
(m) other than in the ordinary course of business consistent with past practice, materially restructure or materially change its investment securities or derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise;
(n) acquire (other than by way of foreclosures or acquisitions in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith), sell or otherwise dispose of any debt security or equity investment or any certificates of depositsdeposit issued by other banks, or classify any security now held in or subsequently purchased for Target’s investment portfolio as other than “available for sale,” as that term is used in ASC 320;
(o) other than settlement of foreclosure actions in the ordinary course of business consistent with past practice, enter into any settlement or similar agreement with respect to any material action, suit, proceeding, order or investigation to which Target or any of the Target SubsidiariesSubsidiary is or becomes a party after the date of this Agreement;
(p) take any action that is intended or is reasonably likely to result (i) in any of its representations or warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or(ii) in any of the conditions to the Merger set forth inArticle VII not being satisfied or (iii) in a violation of any provision of this Agreement, except, in every case, as may be required by applicable law;Agreement;
(q) implement or adopt any change in its tax accounting or financial accounting principles, practices or methods, other than as may be required by applicable law or regulation, GAAP or regulatory guidelines;
(r) make any changes to deposit pricing other than in the ordinary course of business consistent with past practice;
(s) except for Loans approved and/or committed as of the date hereof that are listed onSection 5.2(s) of the Target Disclosure Schedule, make, renegotiate, increase, or modify any (i) unsecured new Loan over $500,000 or aggregate issuances of new unsecured Loans of greater than $7,500,000 (ii) Loan in excess of Federal Financial Institutions Examination Council regulatory guidelines relating to loan to value ratios, (iii) secured Loan over $9,000,000 (iv) Loan with a duration of more than 120 months, except for (A) any variable rate single family residential Loan or (B) fixed rate single family residential Loan which may have a duration of up to 180 months or (C) any fixed rate single family residential Loan which may have a duration of more than 180 months but only if it is classified as “held for sale”, or (v) Loan, whether secured or unsecured, if the amount of such Loan, together with any other outstanding Loans (without regard to whether such other Loans have been advanced or remain to be advanced), would result in the aggregate outstanding Loans to any borrower of Target (without regard to whether such other Loans have been advanced or remain to be advanced) to exceed $9,000,000;provided, however, that Target or any of the Target Subsidiaries may originate or participate in a Loan that exceeds the foregoing limitations as long as Target’s or such Target Subsidiary’s participation interest in such Loan does not exceed the foregoing limitations;
(t) other than in connection with the making of loans otherwise permitted bySection 5.2(s),in the ordinary course of business consistent with past practice, make any investment or commitment to invest in real estate or in any real estate development project other than by way of foreclosure or deed in lieu thereof or make any investment or commitment to develop, or otherwise take any actions to develop, any real estate owned by Target or any of the Target Subsidiaries;Subsidiary;
(u)(t) make any material changes in its policies and practices with respect to (i) underwriting, pricing, originating, acquiring, selling, servicing or buying or selling rights to service Loans or (ii) its hedging practices and policies, in each case except as may be required by such policies and practices or by any applicable laws, regulations, guidelines or policies imposed by any Governmental Entity or Regulatory Agency;
(v)(u) other than in the ordinary course of business consistent with past practice, make, change or revoke any material Tax election, change an annual Tax accounting period, adopt or materially change any Tax accounting method, file any amended Tax return, enter into any closing agreement with respect to Taxes, or settle any material Tax claim, audit, assessment or dispute or surrender any right to claim a refund of a material amount of Taxes;
(w)(v) make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or operations facility;
(x)(w) other than as set forth in Section 5.2(w), hire any person as an employee of Target or any of the Target Subsidiaries,Subsidiary, except for at-will employees to fill vacancies that may arise from time to time in the ordinary course of business;employees;
(y)(x) take any action that would materially impede or delay the ability of the parties to obtain any necessary approvals of any Regulatory Agency or Governmental Entity required for the transactions contemplated by this Agreement; or
(z)(y) agree to take, make any commitment to take, or adopt any resolutions of Target’s board of directors or a committee thereof in support of, any of the actions prohibited by thisSection 5.2.
5.3Parent and Acquiror Forbearances.Forbearances. During the period from the date of this Agreement to the Effective Time, except as set forth inSection 5.3 of the ParentAcquiror Disclosure Schedule and except as expressly contemplated or permitted by this Agreement or as required by law, neither Acquiror nor Parent, as the case may be, shall ornot, and shall not permit any of theirits Subsidiaries to, without the prior written consent of Target (which consent shall not be unreasonably withheld):
(a) knowingly take any action, or knowingly fail to take any action, which action or failure to act is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;
(b) take any action that is intended or is reasonably likely to result (i) in any of its representations or warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, (ii) in any of the conditions to the Merger set forth inArticle VII not being satisfied or (iii) in a violation of any provision of this Agreement;
(c) take any action that would materially impede or delay the ability of the parties to obtain any necessary approvals of any Regulatory Agency or Governmental Entity required for the transactions contemplated by this Agreement; or
(d) agree to take, make any commitment to take, or adopt any resolutions of its board of directors or a committee thereof in support of, any of the actions prohibited by thisSection 5.3.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1Regulatory Matters.
(a) Target and ParentAcquiror shall promptly prepare and Parent shall file with the SEC the Proxy Statement/Prospectus and ParentAcquiror shall promptly prepare and file with the SEC the FormS-4, in which the Proxy Statement/Prospectus will be included as a prospectus. Each of Target and ParentAcquiror shall use their reasonable best efforts in consultation with their respective legal counsel to have the FormS-4 declared effective under the Securities Act as promptly as practicable after such filing, and Target shall thereafter promptly mail or deliver the Proxy Statement/Prospectus to its shareholders. ParentAcquiror shall also use its reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry out the transactions contemplated by this Agreement, and Target shall furnish all information concerning Target and the holders of Target Capital Stock as may be reasonably requested in connection with any such action. If at any time prior to or after the Effective Time any information relating to any of the parties, or their respective affiliates, officers or directors, should be discovered by a party, which information should be set forth in an amendment or supplement to any of the Form S-4 or the Proxy Statement/Prospectus so that such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and, to the extent required by law, rules or regulations, an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and disseminated or made available on the SEC’s EDGAR database to the shareholders of ParentAcquiror and mailed or delivered to the shareholders of Target.
(b) The parties hereto shall cooperate with each other and use their reasonable best efforts to promptly prepare and file (and, if applicable, cause their Subsidiaries to promptly prepare and file) all necessary documentation to effect all applications, notices, petitions and filings to obtain as promptly as practicable all permits, consents, waivers, approvals and authorizations of all third parties and Governmental Entities or Regulatory Agencies which are reasonably necessary or advisable to consummate the transactions contemplated by this Agreement (including, without limitation, the Merger)Merger and, if Acquiror shall make the request described inSection 6.13, the Bank Merger (as defined herein)), and to comply with the
terms and conditions of all such permits, consents, waivers, approvals and authorizations of all such Governmental Entities, Regulatory Agencies and third parties;provided, however, that in no event shall ParentAcquiror or Acquiror Bank be required to agree to any prohibition, limitation, or other requirement which (i) would prohibit or materially limit the ownership or operation by Target, or by Parent or Acquiror or any of their Subsidiaries, of all or any material portion of the business or assets of Target or Parent or Acquiror or any of their Subsidiaries, (ii) compel Parent or Acquiror or any of theirits Subsidiaries to dispose of all or any material portion of the business or assets of Target or of Parent or Acquiror or any of their Subsidiaries or continue any portion of any Target Regulatory Agreement against Parent or Acquiror or any of theirits Subsidiaries after the Merger or (iii) would reasonably be expected to have a Material Adverse Effect on ParentAcquiror after giving effect to the Merger (together, the “Burdensome Conditions”),;provided, further, however, that (1) any prohibition, limitation or other requirement imposed by a Governmental Entity or Regulatory Agency which is customarily imposed in published orders or approvals for transactions such as the Merger (or, if Acquiror shall make the request described inSection 6.13, the Bank Merger) shall not be deemed to be a Burdensome Condition and (2) prior to declaring a Burdensome Condition and electing not to consummate the transactions contemplated hereby as a result thereof, ParentAcquiror shall, and, if applicable, shall cause Acquiror shallBank to, negotiate in good faith with the relevant Governmental Entity or Regulatory Agency to seek a commercially reasonable modification to the prohibition, limitation or other requirement to reduce the burdensome nature thereof such that the prohibition, limitation or other requirement no longer constitutes a Burdensome Condition. Without limiting the generality of the foregoing, as soon as practicable and in no event later than thirty (30) daystwenty-five (25) Business Days after the date of this Agreement, Parent and Acquiror shall, and shall cause their respectiveits Subsidiaries to, each prepare and file any applications, notices and filings required in order to obtain the Requisite Regulatory Approvals. The parties hereto agree that they will consult with eachthe other party hereto with respect to the obtaining
of all permits, consents, waivers, approvals and authorizations of all third parties and Governmental Entities or Regulatory Agencies necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the others apprised of the status of matters relating to completion of the transactions contemplated herein. ParentAcquiror and Acquiror, on the one hand, and Target on the other hand, will furnish each other and each other’s counsel with all information concerning themselves, their Subsidiaries, directors, trustees, officers and shareholders and such other matters as reasonably may be necessary or advisable in connection with the Proxy Statement/Prospectus and any application, petition or other statement or application made by or on behalf of Parent or Acquiror (and, if applicable, Acquiror Bank) or Target to any Governmental Entity or Regulatory Agency in connection with the transactions contemplated by this Agreement. ParentAcquiror and Acquiror, on the one hand, and Target on the other hand, shall have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to Parent and Acquiror or Target, as the case may be, and any of their respective Subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity or Regulatory Agency in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. Each party will provide the other with copies of any applications, notices, petitions or filings, and all correspondence relating thereto, prior to filing, other than any portions of material filed in connection therewith that contain information filed under a claim of confidentiality (except for the Interagency Bank Merger Act Application) and, in each case, subject to applicable laws relating to the exchange of information.
(c) Each of Target on the one hand, and Acquiror or Parent, on the other hand, shall, upon request, furnish to the other all information concerning itself, its Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement/Prospectus, the FormS-4 or any other statement, filing, notice or application made by or on behalf of Target, Parent, Acquiror or any of their respective Subsidiaries to any Governmental Entity or Regulatory Agency in connection with the Merger and the other transactions contemplated by this Agreement. Each of ParentAcquiror and Acquiror, on the one hand, and Target on the other hand, agrees, as to itself and its Subsidiaries, (i) that none of the information supplied or to be supplied by it for inclusion or incorporation by reference in the Form S-4 will, at the time the Form S-4 and each amendment or supplement thereto, if any, becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) that none of the information
supplied or to be supplied by it for inclusion or incorporation by reference in the Proxy Statement/Prospectus and any amendment or supplement thereto will, at the date of mailing to shareholders and at the time of the Target Shareholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make any statement therein, in light of the circumstances under which such statement was made, not misleading. Each of ParentAcquiror and Acquiror, on the one hand, and Target on the other hand, further agrees that if it becomes aware that any information furnished by it would cause any of the statements in the Form S-4 or the Proxy Statement/Prospectus to be false or misleading with respect to any material fact, or to omit to state any material fact necessary to make the statements therein not false or misleading, to promptly inform the other party thereof and to take appropriate steps to correct the Form S-4 or the Proxy Statement/Prospectus.
(d) Each of Target on the one hand, and Parent or Acquiror on the other hand, shall promptly advise theeach other upon their (or their Subsidiaries’) receiving any communication from any Governmental Entity or Regulatory Agency whose consent or approval is required for consummation of the transactions contemplated by this Agreement that causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval will not be obtained, that the receipt of any such approval will be materially delayed or that a Burdensome Condition might be imposed on any such Requisite Regulatory Approval.
(e) ParentSubject to applicable laws relating to the exchange of information, Acquiror and Acquiror, on the one hand, and Target on the other hand, shall promptly furnish each other with copies of written communications received by Parent, Acquiror or Target as the case may be,(or their Subsidiaries) or delivered by either of Parent, Acquiror or Target (or their Subsidiaries), to any Governmental Entity or Regulatory Agency in respect of the transactions contemplated by this Agreement.Agreement or the Bank Merger Agreement (as defined herein).
6.2Access to Information.
(a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, Target shall, and shall cause eachthe Target Subsidiary to, afford to the officers, employees, accountants, counsel and other representatives of Parent or Acquiror, reasonable access, during normal business hours during the period prior to the Effective Time, to all of Target’s and the Target Subsidiaries’Subsidiary’s properties, books, contracts, commitments and records and, during such period.period, Target shall, and shall cause eachthe Target Subsidiary to, make available to Parent or Acquiror (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws or federal or state banking laws (other than reports or documents which Target or any of the Target SubsidiariesSubsidiary is not permitted to disclose under applicable law) and (ii) all other information concerning Target’s or any ofand the Target Subsidiaries’, as the case may be,Subsidiary’s business, properties and personnel as Parent or Acquiror may reasonably request. Neither Target nor any of the Target SubsidiariesSubsidiary shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of their customers, jeopardize the attorney-client privilege attached to such information or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
(b) The Mutual Non-Disclosure and Confidentiality Agreement dated as of January 29, 2015,11, 2016, entered into by and between ParentAcquiror and Target (the “Confidentiality Agreement”) will remain in full force and effect following the date of this Agreement, whether or not the Merger occurs, in accordance with the terms thereof;provided, however,, that, effective as of the Effective Time, all confidential information of Target will be deemed to be “Confidential Information” of ParentAcquiror and will be subject to the protections set forth therein for the benefit of Parent.Acquiror.
(c) No investigation by any of the parties or their respective representatives pursuant to thisSection 6.2 shall affect the representations and warranties of the other party or parties set forth herein.
6.3Shareholder Approval.
(a) Target shall take, in accordance with applicable law and the Target Charter and Target’s Bylaws,bylaws of Target, all action necessary to convene a meeting of its shareholders (the “Target Shareholders’ Meeting”) to be held as soon as reasonably practicable after the Form S-4 is declared effective for the purpose of Target’s shareholders voting upon proposals to adopt and approve this Agreement and the Merger. The Boardboard of Directorsdirectors of Target shall use its reasonable best efforts to obtain from the shareholders of Target that are entitled to vote on the Merger the vote in favor of the adoption of this Agreement and the transactions contemplated hereby required by the TBCA, the TBA, the Target Charter and Target’s Bylaws,bylaws of Target, including (subject to the ability of the Target BoardTarget’s board of Directorsdirectors to take actions permitted underSection 6.10) by communicating to its shareholders its recommendation (and including such recommendation in the Proxy Statement/Prospectus) that the shareholders approve this Agreement and the transactions contemplated hereby (such approval the “Target Shareholder Approval”).
(b) Target shall adjourn or postpone the Target Shareholders’ Meeting if, (i) as of the time for which such meeting is originally scheduled there are insufficient shares of Target Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, or (ii) if on the date of such meeting Target has not received proxies representing a sufficient number of shares necessary to obtain the Requisite Shareholder Approval. Notwithstanding anything to the contrary herein, unless this Agreement has been terminated, this Agreement shall be submitted to the shareholders of Target at the Target Shareholders’ Meeting for the purpose of Target’s shareholders voting on the approval and adoption of this Agreement and nothing contained herein shall be deemed to relieve Target of such obligations.
6.4Legal Conditions to Merger. Each of Target Parent and Acquiror shall, and shall cause their respective Subsidiaries to, use their reasonable best efforts (a) to take, or cause to be taken, all actions reasonably necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such party or its Subsidiaries
with respect to the Merger and, subject to the conditions set forth inArticle VII hereof, to consummate the transactions contemplated by this Agreement, and (b) to obtain (and to cooperate with the other parties to obtain) any material consent, authorization, order or approval of, or any exemption by, any Governmental Entity or Regulatory Agency and any other third party that is required to be obtained by Parent, Acquiror or Target in connection with the Merger and the other transactions contemplated by this Agreement.
6.5Stock Quotation or Listing. ParentAcquiror shall cause the shares of ParentAcquiror Common Stock to be issued in connection with the Merger to be qualified for quotation or listing on NASDAQ,Nasdaq, subject to official notice of issuance, prior to the Effective Time.
6.6Employee Benefit Plans; Existing Agreements.
(a) Within one year following the Effective Time (but in the case of the Parent’sAcquiror’s 401(k) Plan beginning with the first full payroll period that commences following the Effective Time or as soon thereafter as is administratively practicable), to the extent permissible under the terms of the ParentAcquiror Benefit Plans and the cash and equity incentive plans of ParentAcquiror (the “ParentAcquiror Incentive Plans”), the employees of Target and the Target SubsidiariesSubsidiary as of the Effective Time (the “Target Employees”) will be eligible to participate in the ParentAcquiror Benefit Plans and the ParentAcquiror Incentive Plans in which similarly situated employees of Acquiror or its Subsidiaries participate, to the same extent as similarly situated employees of Acquiror or its Subsidiaries (it being understood that inclusion of Target Employees in the ParentAcquiror Benefit Plans and the ParentAcquiror Incentive Plans may occur at different times with respect to different plans) except as provided below.
(b) To the extent not prohibited by applicable legal requirements, the employees of Target and the Target Subsidiary employed by Acquiror or any of its Affiliates after the Effective Time (the “Continuing Employees”) shall, for a period of at least nine (9)twelve (12) months following the Effective Time (the “Protected Period”), be entitled to the same or better annual salary or hourly wages to which the Continuing Employees were entitled on the Closing Date.
(c) With regard to Target Employees identified onSchedule 6.6(c), and to the extent that during the Protected Period a Continuing Employee other than a Target Employee identified onSchedule 6.6(c) is terminated without cause, Acquiror or Acquiror Bank shall pay or cause to be paid, severance pay in an amount equal to the amounts set forth onSchedule 6.6(c). For purposes of thisSection 6.6, “cause” shall have the same meaning as provided in any written employment agreement between any Continuing Employee and ParentAcquiror or any Affiliate of ParentAcquiror on the date such Continuing Employee is terminated, or if no such definition or employment agreement exists, “cause” shall mean conduct amounting to (1) fraud or dishonesty against ParentAcquiror or any Affiliate of Parent;Acquiror; (2) the Continuing Employee’s willful misconduct, repeated refusal to follow the reasonable directions of the Parent’s BoardAcquiror’s board of Directorsdirectors or knowing violation of law in the course of performance of the duties of the Continuing Employee’s service with ParentAcquiror or any Affiliate of Parent;Acquiror; (3) repeated absences from work without a reasonable excuse; (4) repeated intoxication with alcohol or drugs while on the premises of ParentAcquiror or any Affiliate of ParentAcquiror during regular business hours; (5) a conviction or plea of guilty or NOLO CONTENDERE to a felony or a crime involving dishonesty; or (6) a breach or violation of the terms of any agreement to which the Continuing Employee and ParentAcquiror or any Affiliate of ParentAcquiror are party.
(d) With respect to each ParentAcquiror Benefit Plan that is an “employee“employee benefit plan,,” as defined in section 3(3) of ERISA, for purposes of determining eligibility to participate, and entitlement to benefits, including for severance benefits and vacation entitlement, but not for purposes of benefit accrual, service with Target or any of the Target SubsidiariesSubsidiary shall be treated as service with Acquiror;Acquiror and its Subsidiaries;provided, however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits. Such service also shall to the extent permissible under the terms of the ParentAcquiror Benefit Plans and as permitted by the applicable insurer, apply for purposes of satisfying any waiting periods, evidence of insurability requirements, or the application of any preexisting condition limitations. Each ParentAcquiror Benefit Plan shall to the extent
permissible under the terms of the ParentAcquiror Benefit Plans and as permitted by the applicable insurer, waive pre-existing condition limitations to the same extent waived under the applicable Target Benefit Plan. Target Employees shall be given credit for amounts paid under a corresponding benefit plan during the same period for purposes of applying deductibles, copayments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the ParentAcquiror Benefit Plans and to the extent permissible by the applicable insurer.
(e) From and after the Effective Time, Acquiror or the Surviving Corporation, as applicable, will assume and honor in accordance with their terms all employment, severance, change of control and other compensation agreements and arrangements between Target or any of the Target SubsidiariesSubsidiary and any of their employees (that are listed onSection 6.6(e) of the Target Disclosure Schedule), which are not terminated in connection with the consummation of the transactions contemplated by this Agreement, and all accrued and vested benefit obligations through the Effective Time which are between Target andor the Target SubsidiariesSubsidiary and any of their current or former directors, officers, employees or consultants.
(f) From and after the Effective Time, Acquiror, or the Surviving Corporation or Acquiror Bank, as applicable, will, and will cause any applicable ParentAcquiror Benefit Plan to, provide or pay when due to the Target Employees all benefits and compensation pursuant to Target Benefit Plans in effect on the date hereof earned or accrued through, and to which such individuals are entitled, as of the Effective Time (or such later time as such Target Benefit Plans as in effect at the Effective Time are terminated or canceled by Acquiror, or the Surviving Corporation)Corporation or Acquiror Bank) subject to compliance with the terms of this Agreement.
(g) At the Effective Time, Target shall, and shall cause eachthe Target Subsidiary to, cease contributions to and terminate anyTarget’s 401(k) Plan, and shall (a) adopt written resolutions (a copy of which shall be delivered to Parent and Acquiror at the Closing), to terminate the 401(k) Plan and 100% vest all participants under the 401(k) Plan, such termination and vesting to be effective immediately prior to the Effective Time; and (ii) deliver to Parent and Acquiror, prior to the Closing, notice of the 401(k) Plan termination to any trustees and custodians of the 401(k) Plan and/or its assets. Parent and Acquiror reservereserves the right to suspend the distribution of benefits from the 401(k) Plan until the later of the receipt of a favorable determination letter from the IRS with respect to the termination of the 401(k) Plan and the completion of final testing and record keeping for the 401(k) Plan.
6.7Indemnification; Directors’ and Officers’ Insurance.
(a) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation in which any individual who is now, or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Time, a director or officer or employee of Target or any of the Target Subsidiaries,Subsidiary, or who is or was serving at the request of Target or any of the Target SubsidiariesSubsidiary as a director, officer, employee or agent of another person, including any entity specified in the Target Disclosure Schedule (the “Indemnified Parties”), is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was a director, officer or employee of Target or any of the Target SubsidiariesSubsidiary or any of their respective predecessors or is or was serving at the request of Target or the Target Subsidiary or any of itstheir predecessors as a director, officer, employee or agent of another person or (ii) this Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or after the Effective Time, the parties hereto agree to cooperate and use their best efforts to defend against and respond thereto. It is understood and agreed that after the Effective Time, Parent and Acquiror shall indemnify, defend and hold harmless each such Indemnified Party to the same extent as such Indemnified Party is entitled to be indemnified as of the date of this Agreement by Target or the Target Subsidiary pursuant to the Target Charter, Target’s Bylaws or comparable documents of anybylaws, the charter and bylaws of the Target SubsidiariesSubsidiary and any indemnification agreements in existence as of the date hereof (copies of which have been provided to Parent and Acquiror) against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorney’s fees and court costs and expenses in advance of the final disposition of any claim, action, suit, proceeding or investigation to each Indemnified Party upon receipt of an undertaking (in reasonable and
customary form) to repay such advances if it is ultimately determined that such Indemnified Party is not entitled to indemnification hereunder), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation.
(b) Subject to the following sentence, for a period of six (6) years after the Effective Time, ParentAcquiror and the Surviving Corporation shall cause to be maintained in effect the current policies of directors’ and officers’ liability insurance maintained by Target (provided, that the ParentAcquiror and the Surviving Corporation may substitute therefor policies with a substantially comparable insurer of at least the same coverage and amounts containing terms and conditions which are no less advantageous to the insured) with respect to claims against the present and former officers and directors of Target and the Target SubsidiariesSubsidiary arising from facts or events which occurred at or before the Effective Time (including the transactions contemplated by this Agreement);provided,however, that the ParentAcquiror and the Surviving Corporation shall not be obligated to expend, on an annual basis, an amount in excess of 250% of the aggregate annual premium paid as of the date hereof by Target for such insurance (the “Premium Cap”), and if such premiums for such insurance would at any time exceed the Premium Cap, then ParentAcquiror and the Surviving Corporation shall cause to be maintained policies of insurance which, in the Parent’sAcquiror’s and the Surviving Corporation’s good faith determination, provide the maximum coverage available at an annual premium equal to the Premium Cap. In lieu of the foregoing, Target, in consultation with Parent,Acquiror, may (and at the request of Parent,Acquiror, Target shall use its reasonable best efforts to) obtain at or prior to the Effective Time, at Acquiror’s expense, a six-year “tail” policy under Target’s existing directors’ and officers’ liability insurance policy providing equivalent coverage to that described in the preceding sentence if and to the extent that the same may be obtained for an amount that, in the aggregate, does not exceed the Premium Cap.
(c) In the event ParentAcquiror or the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of ParentAcquiror or the Surviving Corporation, as appropriate, assume the obligations set forth in thisSection 6.7.
(d) The provisions of thisSection 6.7 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives.
6.8Additional Agreements. In case at any time before or after the Effective Time any further action is reasonably necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the Merger, the proper officers and directors of each party to this Agreement and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by the other parties to this Agreement.
6.9Advice of Changes. Each of Target on the one hand, and Parent and Acquiror on the other hand, shall promptly advise the other party or parties to this Agreement of any fact, change, event or circumstance (i) that has had or is reasonably likely to have a Material Adverse Effect on it or (ii) which it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties, covenants or agreements contained herein or that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a condition inArticle VII;provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement; provided further that a failure to comply with thisSection 6.9 shall not constitute the failure of any condition set forth inArticle VII to be satisfied unless the underlying fact, change, event or circumstance would independently result in the failure of a condition set forth inArticle VII to be satisfied or provide a basis for terminating this Agreement.
6.10Acquisition Proposals; Board Recommendation.
(a) Target and the Target SubsidiariesSubsidiary and each of their respective affiliates, directors, officers, employees, agents and representatives (including any investment banker, financial advisor, attorney, accountant or other
representative retained by Target or any of the Target SubsidiariesSubsidiary (each a “Target Representative”)) shall immediately cease any discussions or negotiations with any other parties that may be ongoing with respect to the possibility or consideration of any Acquisition Proposal. Except as otherwise provided inSection 6.10(b), from the date of this Agreement through the Effective Time, Target shall not, and shall cause eachthe Target Subsidiary not to, nor shall it authorize or permit any Target Representative to, directly or indirectly through another person, (i) solicit, initiate, facilitate or encourage (including by way of furnishing information or assistance), or take any other action designed to solicit, initiate, facilitate or encourage any inquiries or the making of any proposal that constitutes, or is reasonably likely to lead to, any Acquisition Proposal, (ii) participate in any discussions, negotiations or other communications regarding any Acquisition Proposal, (iii) make or authorize any statement, recommendation or solicitation in support of any Acquisition Proposal or (iv) provide any confidential or nonpublic information or data to any person relating to an Acquisition Proposal. Any violation of the foregoing restrictions by any Target Representative, whether or not such Target Representative is so authorized and whether or not such Target Representative is purporting to act on behalf of Target or any of the Target SubsidiariesSubsidiary or otherwise, shall be deemed to be a breach of this Agreement by Target.
(b)
(i) Notwithstanding the foregoing, the Boardboard of Directorsdirectors of Target shall be permitted, prior to the Target Shareholders’ Meeting, to engage in discussions and negotiations with, or provide any nonpublic information or data to, any person in response to an unsolicited bona fide written Acquisition Proposal by such person made after the date of this Agreement which its Boardboard of Directorsdirectors concludes in good faith constitutes or is reasonably likely to result in a Superior Proposal if and only to the extent that the Boardboard of Directorsdirectors of Target concludes in good faith (after receiving the advice of its outside legal counsel and with respect to financial matters, its financial advisors) that failure to take such actions would result in violation of its fiduciary duties under applicable law and subject to compliance with the other terms of thisSection 6.10;provided, however, that, prior to providing any nonpublic information permitted to be provided pursuant to the foregoing proviso, Target shall have provided notice to Parent and Acquiror of its intention to provide such information, and shall have provided such information to Parent and Acquiror if not previously provided to Parent and Acquiror, and shall have entered into a confidentiality agreement with such third party on terms no less favorable to it than the
Confidentiality Agreement, which confidentiality agreement shall include customary non-disclosure, confidentiality, standstill and non-solicitation and no-hire provisions and not provide such person with any exclusive right to negotiate with Target.
(ii) In addition to the obligations of Target underSection 6.10(d), Target shall notify Parent and Acquiror promptly (but in no event later than 48 hours) after receipt of any Acquisition Proposal, or any request for nonpublic information relating to Target or any of the Target SubsidiariesSubsidiary that could reasonably be expected to lead to an Acquisition Proposal, or any inquiry from any person seeking to have discussions, negotiations or other communications relating to a possible Acquisition Proposal. Such notice shall be made orally and confirmed in writing, and shall indicate the identity of the person making the Acquisition Proposal, inquiry or request and the material terms and conditions of any inquiries, requests, proposals or offers (including a copy thereof if in writing and any related documentation or correspondence). Target shall also promptly, and in any event within 48 hours, notify Parent and Acquiror, orally and in writing, if it enters into discussions, negotiations or other communications concerning any Acquisition Proposal or provides nonpublic information or data to any person in accordance with thisSection 6.10(b) and keep Parent and Acquiror informed of the status and terms of any such proposals, offers, discussions or negotiations on a current basis, including by providing a copy of all material documentation or correspondence relating thereto.
(iii) Nothing contained in thisSection 6.10 shall prohibit Target or any of the Target SubsidiariesSubsidiary from taking and disclosing to its shareholders a position required by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act;provided, however, that compliance with such rules 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.
(c) Target agrees that (i) it will and will cause eachthe Target Subsidiary and the Target Representatives to, cease immediately and terminate any and all existing activities, discussions or negotiations with any third parties conducted heretofore with respect to any Acquisition Proposal, and (ii) it will not release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which it or any of the Target SubsidiariesSubsidiary is a party with respect to any Acquisition Proposal.
(d) Except as otherwise expressly provided in this Agreement, Target’s Boardboard of Directorsdirectors shall not (i) withhold, withdraw, amend, modify, change or qualify (or publicly propose to withhold, withdraw, amend, modify, change or qualify), in a manner adverse in any respect to the interests of Parent or Acquiror, its recommendation referred to inSection 6.3(a), or (ii) approve or recommend (or publicly propose to approve or recommend or announce its intention to approve, recommend or propose) any Acquisition Proposal (either (i) or (ii), an “Adverse Recommendation Change”). Except as otherwise expressly provided in this Agreement, Target shall not, and Target’s Boardboard of Directorsdirectors shall not allow Target to, enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement relating to any Acquisition Proposal. Notwithstanding the foregoing, at any time before obtaining the Target Shareholder Approval, Target’s Boardboard of Directorsdirectors may, if it determines in good faith (after receiving the advice of its outside legal counsel and with respect to financial matters, its financial advisors) that the failure to do so would violate its fiduciary duties under applicable law, taking into account all adjustments to the terms of this Agreement that may be offered by Parent and Acquiror under thisSection 6.10(d), make an Adverse Recommendation Change; provided that Target may not make any Adverse Recommendation Change in response to an Acquisition Proposal unless (x) Target shall not have breachedSection 6.3 or thisSection 6.10 in any material respect and (y):
(i) within three (3) business days after notice to Parent and Acquiror of receipt of an Acquisition Proposal, Target’s Boardboard of Directorsdirectors determines in good faith (after receiving advice from its outside legal counsel and with respect to financial matters, its financial advisors) that such Acquisition Proposal is a Superior Proposal and such Superior Proposal has been made and has not been withdrawn and continues to be a Superior Proposal after taking into account all adjustments to the terms of this Agreement that may be offered by Parent and Acquiror under thisSection 6.10(d);
(ii) Target has given each of Parent and Acquiror at least six (6)ten (10) business days’ prior written notice of its intention to take such action (which notice shall specify the material terms and conditions of any such Superior Proposal (including the identity of the party making such Superior Proposal)) and has contemporaneously provided an unredacted copy of the relevant proposed transaction agreements with the person making such Superior Proposal;
(iii) Before effecting such Adverse Recommendation Change, Target has negotiated, and has caused Target Representatives to negotiate, in good faith with Parent and Acquiror during suchthe ten (10) business day notice period described inSection 6.10(d)(ii) to the extent Parent or Acquiror wishes to negotiate, to enable Parent or Acquiror to revise the terms of this Agreement such that it would cause such Superior Proposal to no longer constitute a Superior Proposal; and
(iv) Target’s Boardboard of Directors,directors, following the final of such six (6)ten (10) (or three (3)five (5), as applicable) business day period (as described below) again determines in good faith (after receiving advice from its outside legal counsel and with respect to financial matters, its financial advisors) that such Acquisition Proposal nonetheless continues to constitute a Superior Proposal and that failure to take such action would violate its fiduciary duties under applicable law.
In the event of any material change to the terms of such Superior Proposal, Target shall, in each case, be required to deliver to Parent and Acquiror a new written notice, the notice period shall have recommenced and Target shall be required to comply with its obligations under thisSection 6.10(d) with respect to such new written notice, except that the deadline for such new written notice shall be reduced to three (3)five (5) business days (rather than the six (6)ten (10) business days referenced in clause (D)(ii) above).
(e) Subject toSection 8.1(j) (and in that case, only if Target shall have complied in all material respects with its obligations underSection 6.3 and thisSection 6.10), nothing in thisSection 6.10 shall permit Target to terminate this Agreement or affect any other obligation of Target under this Agreement. Unless this Agreement has been terminated, Target shall not submit to the vote of its shareholders any Acquisition Proposal other than the Merger.
(f) For purposes of this Agreement, the term “Acquisition Proposal” means any inquiry, proposal or offer, filing of any regulatory application or notice (whether in draft or final form) or disclosure of an intention to do any of the foregoing from any person relating to any (w) direct or indirect acquisition or purchase of a business that constitutes a substantial portion of the consolidated net revenues, net income or assets of Target, (x) direct or indirect acquisition or purchase of any class of equity securities representing 20% or more of the voting power of any class of equity securities of Target or the Target Subsidiary or 20% or more of the consolidated assets of Target, (y) tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of the voting power of any class of equity securities of Target or the Target Subsidiary, or (z) merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or similar transaction involving Target or the Target Subsidiary, in each case other than the transactions contemplated by this Agreement.
(g) For purposes of this Agreement, “Superior Proposal” means a bona fide written Acquisition Proposal which the Boardboard of Directorsdirectors of Target concludes in good faith, after consultation with its financial advisors and outside legal counsel, taking into account the likelihood of consummation of such transaction on the terms set forth therein and all legal, financial, regulatory and other aspects of the proposal and the person making the proposal (including any break-up fees, expense reimbursement provisions and conditions to consummation), (i) is more favorable to the shareholders of Target from a financial point of view than the transactions contemplated by this Agreement and (ii) is fully financed or reasonably capable of being fully financed, reasonably likely to receive all required governmental approvals on a timely basis and otherwise reasonably capable of being completed on the terms proposed; provided that, for purposes of this definition of Superior Proposal, the term Acquisition Proposal shall have the meaning assigned to such term inSection 6.10(f) except that the reference to “20% or more” in the definition of Acquisition Proposal shall be deemed to be a reference to 50%“50% or more.”
6.11Financial Statements and Other Current Information. As soon as reasonably practicable after they become available, but in no event more than thirty (30) days after the end of each calendar month ending after the date hereof, Target will furnish to ParentAcquiror (a) consolidated financial statements of Target (including balance sheets, statements of operations and shareholders’ equity) (to the extent available) as of and for such month then ended, (b) internal management reports showing actual financial performance against plan and previous period, and (c) to the extent permitted by applicable law, any reports provided to Target’s Boardboard of Directorsdirectors or any committee thereof relating to the financial performance and risk management of Target and the Target Subsidiaries.Subsidiary.
6.12Exemption from Liability under Section 16(b). Prior to the Effective Time, ParentAcquiror and Target shall each take such steps as may be necessary or appropriate to cause any disposition of shares of Target Common Stock and Target Stock Options by shareholders or optionholders of Target in connection with the consummation of the transactions contemplated by this Agreement to be exempt under Rule 16b-3 promulgated under the Exchange Act.
6.13Disposition of Certain Business.Bank Merger. Target and the Target Subsidiaries shall use their commercially reasonable efforts to dispose of the business identified on and in accordance with the terms set forth onSchedule 6.13 attached heretoAt or prior to the Closing.Effective Time, if requested by Acquiror, Target shall cause the Target Subsidiary to enter into an Agreement and Plan of Merger (the “Bank Merger Agreement”) with Acquiror Bank pursuant to which the Target Subsidiary shall merge with and into Acquiror Bank (the “Bank Merger”) at or following the Effective Time. Promptly following execution of such Bank Merger Agreement, Target shall approve such agreement as the sole shareholder of the Target Subsidiary. The Bank Merger Agreement shall contain such terms and conditions as are reasonable, normal and customary in light of the transactions
contemplated hereby including a covenant that consummation of the merger of the Target Subsidiary with and into Acquiror Bank would not occur earlier than simultaneous with consummation of the Merger and a provision for termination of the Bank Merger Agreement upon termination of this Agreement.
6.14Exchange Matters. Prior to the Closing Date, Target shall cooperate with Acquiror and use reasonable best efforts to take, or cause to be taken, all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under applicable Laws and rules and policies of Nasdaq to enable the delisting of the shares of Target Common Stock from Nasdaq and the deregistration of the shares of Target Common Stock under the Exchange Act as promptly as practicable after the Effective Time.
ARTICLE VII.
CONDITIONS PRECEDENT
7.1Conditions to Each Party’s Obligation to Effect the Merger.Merger. The respective obligations of the parties to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:
(a)Shareholder Approval.This Agreement shall have been adopted by the requisite affirmative vote of the holders of Target Capital Stock entitled to vote thereon (such requisite affirmative vote referred to herein as the “Requisite Shareholder Approval”).
(b)Listing or Quotation. The shares of ParentAcquiror Common Stock which shall be issued to the shareholders of Target upon consummation of the Merger shall have been qualified for quotation on NASDAQ,Nasdaq, subject to official notice of issuance.
(c)Regulatory Approvals.All regulatory approvals, authorizations, waivers, consents, or orders from the FRB, FDIC or TDFI and any other approvals set forth inSection 3.4 andSection 4.4 required to consummate the transactions contemplated by this Agreement, including the Merger (and, if applicable, the Bank Merger) or those the failure of which to be obtained would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on the Surviving Corporation, shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired (all such approvals and the expiration of all such waiting periods being referred to herein as the “Requisite Regulatory Approvals”).
(d)FormS-4.The FormS-4 shall have become effective under the Securities Act and no stop order suspending the effectiveness of the FormS-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC.
(e)No Injunctions or Restraints; Illegality.Illegality. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger or any of the other transactions contemplated by this Agreement (including, if applicable, the Bank Merger) shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity or Regulatory Agency which prohibits, materially restricts or makes illegal consummation of the Merger or, if applicable, the Bank Merger.
7.2Conditions to Obligations of Target.Target. The obligation of Target to effect the Merger is also subject to the satisfaction, or waiver by Target, at or prior to the Effective Time, of the following conditions:
(a)Representations and Warranties. The representations and warranties of Parent and Acquiror set forth inSection 3.2(a) andSection 3.8(a) (in each case after giving effect to the lead-in to Article III) shall be true and correct (other than, in the case ofSection 3.2(a), such failures to be true and correct as are de minimis) in each case as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, and the representations and warranties of Parent and Acquiror set forth inSectionsSection 3.1(a),3.1(b),3.1(c),Section 3.2(b) andSection 3.3(a) (in each case
after giving effect to the lead-in to Article III) shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. All other representations and warranties of Parent and Acquiror set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the lead-in to Article III) shall be true and correct in all respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date;provided, however, that for purposes of this sentence, such representations and warranties shall be deemed to be true and correct unless the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would reasonably be likely to have a Material Adverse Effect on Parent.Acquiror. Target shall have received a certificate signed on behalf of each of Parent and Acquiror by the Chief Executive Officer and the Chief Financial Officer of each of Parent and Acquiror to the foregoing effect.
(b)Performance of Obligations of Acquiror. Acquiror shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Target shall have received a certificate signed on behalf of Acquiror by the Chief Executive Officer and the Chief Financial Officer of Acquiror to such effect.
(c)Performance of Obligations of Parent.Parent shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Target shall have received a certificate signed on behalf of Parent by the Chief Executive Officer and the Chief Financial Officer of Parent to such effect.
(d)Tax Opinion. Target shall have received an opinion of Wyatt, Tarrant & Combs,Bradley Arant Boult Cummings LLP, legal counsel to Target, dated as ofnot later than the Closing Date and in form and substance reasonably satisfactory to Target, to the effect that, on the basis of facts, representations, and assumptions set forth or referred to in such opinion, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering its opinion, such counsel may require and rely upon representations contained in certificates of officers of Target Parent and Acquiror, reasonably satisfactory in form and substance to such counsel.
(e)Target Series C Preferred Stock.Parent shall have funded the SBLF Redemption.
7.3Conditions to Obligations of Acquiror and Parent.Acquiror. The obligation of Acquiror and Parent to effect the Merger is also subject to the satisfaction or waiver by Acquiror and Parent at or prior to the Effective Time of the following conditions:
(a)Representations and Warranties. The representations and warranties of Target set forth inSection 4.2(a) andSection 4.8(a) (in each case after giving effect to the lead-in to Article IV) shall be true and correct (other than, in the case ofSection 4.2(a), such failures to be true and correct as are de minimis) in each case as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, and the representations and warranties of Target set forth inSectionsSection 4.1(a),4.1(b), Section 4.2(b), 4.2(c), andSection 4.3(a) (in each case after giving effect
to the lead-in to Article IV) shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. All other representations and warranties of Target set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the lead-in to Article IV) shall be true and correct in all respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date;provided, however, that for purposes of this sentence, such representations and warranties shall be deemed to be true and correct unless the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would reasonably be expected to have a Material Adverse Effect on Target or the Surviving Corporation. Parent and Acquiror shall have received a certificate signed on behalf of Target by the Chief Executive Officer and the Chief Financial Officer of Target to the foregoing effect.
(b)Performance of Obligations of Target. Target shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Acquiror
shall have received a certificate signed on behalf of Target by the Chief Executive Officer and the Chief Financial Officer of Target to such effect.
(c)Regulatory Agreements.There shall be no Target Regulatory Agreements in effect that would have a Material Adverse Effect on ParentAcquiror after the Effective Time.
(d)Dissenters’ Rights.Employee Matters.HoldersSubject to the Target or Target Bank or Acquiror or Acquiror Bank on the Closing Date making such payments as would have been owed those individuals listed onSchedule 7.3(d)(i) attached hereto (the “Affected Employees”) pursuant to Section 6 of no more than ten percent (10%)each Affected Employee’s existing amended and restated employment agreement with Target identified onSchedule 7.3(d)(i) attached hereto had the Merger been consummated without the termination of such employment agreements and the outstanding shares ofAffected Employees’ employment been terminated without cause immediately prior to or immediately following the Merger, such individuals and the Target Common Stock shall have exercised dissenters’ rights in accordanceentered into agreements providing for the termination of each Affected Employee’s then existing employment agreement with Target, other than the TBCAnon-competition and not effectively withdrawn or otherwise lost their respective rightsnon-solicitation provisions contained therein, which provisions shall survive the termination of such agreements, effective as of immediately prior to appraisal with respect to their respective shares of Target Common Stock.
(e)Change in Control Agreement. A Change in Controlthe Effective Time. An Employment Agreement, substantially in the form ofExhibit B, attached hereto, shall have been executed by Kirk Bailey and Target and Kirk Bailey shall have terminated any existing employment, change in control or severance agreement to which Kirk Bailey is a party.those individuals listed onSchedule 7.3(d)(ii) attached hereto.
(f)(e)Tax Opinion. Parent and Acquiror shall have received an opinion of Bass, Berry & Sims PLC, legal counsel to Parent and Acquiror, dated as ofnot later than the Closing Date and in form and substance reasonably satisfactory to Parent and Acquiror, to the effect that, on the basis of facts, representations, and assumptions set forth or referred to in such opinion, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering its opinion, such counsel may require and rely upon representations contained in certificates of officers of Target Parent and Acquiror, reasonably satisfactory in form and substance to such counsel.
ARTICLE VIII.
TERMINATION AND AMENDMENT
8.1Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Merger by the shareholders of Target:
(a) by mutual consent of ParentAcquiror and Target in a written instrument, if the Boardboard of Directorsdirectors of each so determines by a vote of a majority of the members of its respective entire Boardboard of Directors;directors;
(b) by either ParentAcquiror or Target, if a Governmental Entity or Regulatory Agency that must provide Parent, Acquiror or Target with a Requisite Regulatory Approval has denied approval of the Merger (or, if applicable, the Bank Merger) and such denial has become final and non-appealable, or any Governmental Entity or Regulatory Agency of competent
jurisdiction shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger (or, if applicable, the Bank Merger), and such order, decree, ruling or other action has become final and non-appealable;provided, however, that the right to terminate this Agreement under thisSection 8.1(b) shall not be available to any party whose failure to comply with any provision of this Agreement has been the cause of, or resulted in, such action;
(c) by either ParentAcquiror or Target, if the Merger shall not have been consummated on or before December 31, 2015; September 30, 2016;provided, however, that the right to terminate this Agreement under thisSection 8.1(c) shall not be available to any party whose failure to comply with any provision of this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date;
(d) by either ParentAcquiror or Target (provided that, if Target is the party seeking to terminate this Agreement, it shall not be in material breach of any of its obligations underSection 6.3andSection 6.10), if any approval of the shareholders of Target required for the consummation of the Merger shall not have been obtained upon a vote taken thereon at the Target Shareholders’ Meeting or at any adjournment or postponement thereof;
(e) by either ParentAcquiror or Target (provided that neither Parent nor Acquiror, in the event of termination by Parent,Acquiror, or Target, in the event of termination by Target, is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there shall have been a breach of any of the representations or warranties set forth in this Agreement by Parent or Acquiror (in the event of termination by Target) or by Target (in the event of termination by Parent)Acquiror), which breach is not cured within thirty days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Closing;provided,however, that neither party shall have the right to terminate this Agreement pursuant to thisSection 8.1(e) unless the breach of a representation or warranty, together with all other such breaches, would entitle the party receiving such representation or warranty not to consummate the transactions contemplated hereby underSection 7.2(a) (in the case of a breach of a representation or warranty by Parent and Acquiror) orSection 7.3(a) (in the case of a breach of a representation or warranty by Target);
(f) by either ParentAcquiror or Target (provided that neither Parent nor Acquiror, in the event of termination by Parent,Acquiror, or Target, in the event of termination by Target, is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there shall have been a breach of any of the covenants or agreements set forth in this Agreement by Parent or Acquiror (in the event of termination by Target) or by Target (in the event of termination by Parent)Acquiror), which breach shall not have been cured within thirty days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Closing;provided,,however,, that neither party shall have the right to terminate this Agreement pursuant to thisSection 8.1(f) unless the breach of covenant or agreement, together with all other such breaches, would entitle the party entitled to the benefit of such covenant or agreement not to consummate the transactions contemplated hereby underSection 7.2(b) orSection 7.2(c) (in the case of a breach of covenant or agreement by Parent or Acquiror) orSection 7.3(b) (in the case of a breach of covenant or agreement by Target);
(g) by ParentAcquiror if (i) the Boardboard of Directorsdirectors of Target does not publicly recommend in the Proxy Statement/Prospectus that Target’s shareholders approve and adopt this Agreement, (ii) after recommending in the Proxy Statement/Prospectus that Target’s shareholders approve and adopt this Agreement, the Boardboard of Directorsdirectors of Target shall have effected any Adverse Recommendation Change, or (iii) Target materially breaches its obligations under this Agreement by reason of a failure to prepare and mail to its shareholders the Proxy Statement/Prospectus or a failure to call a meeting of its shareholders in accordance withSections 6.1 and6.3, respectively;
(h) by Parent,Acquiror, if the Boardboard of Directorsdirectors of Target has authorized, recommended, or publicly announced its intention to authorize or recommend any Acquisition Proposal with any persons other than Acquiror or Parent or if Target otherwise breaches, in any material respect, its obligations underSection 6.10 of this Agreement;
(i) by Target, if both (i) the Average Closing Price (as defined below) is less than $40.00and (ii) (1) the number obtained by dividing the Average Closing Price by the average closing price per share of ParentAcquiror Common Stock on NASDAQNasdaq for the ten (10) consecutive trading days ending on (and including) the date of this Agreement, rounded to four decimal places, is less than (2) the difference between (x) the number obtained by dividing the Index Value (as defined below) on the Determination Date by the Index Value on the Starting Date, rounded to four decimal places, minus (y) 0.20. For purposes of thisSection 8.1(i), “Average Closing Price” means the average closing price per share of ParentAcquiror Common Stock as reported on NASDAQNasdaq for the ten (10) consecutive trading days ending on (and including) the Determination Date; “Determination Date” means that certain date which is the fifth business day prior to the Closing Date; “Index Value” on a given date shall mean the closing index value for the NASDAQNasdaq Bank Index as reported by Bloomberg, L.P.; and “StartingDate” means the date of this Agreement, or if the date of this Agreement is not a date on which the Index Value is available (an “Index Availability Date”) the Index Availability Date that is closest to, but prior to, the date of this Agreement; or
(j) by Target, at any time prior to the approval of this Agreement by the shareholders of Target, for the purpose of entering into a definitive agreement with respect to a Superior Proposal, provided that Target is not in material breach of any of its obligations underSection 6.3 orSection 6.10 of this Agreement; provided that any such purported termination pursuant to thisSection 8.1(j) shall be void and of no force or effect unless Target has paid the Termination Fee (as defined below) in accordance withSection 8.3.
The party desiring to terminate this Agreement pursuant to clause (b), (c), (d), (e), (f), (g), (h), (i) or (j) of thisSection 8.1 shall give written notice of such termination to the other party in accordance withSection 9.4, specifying the provision or provisions hereof pursuant to which such termination is effected.
8.2Effect of Termination. In the event of termination of this Agreement by either Target or ParentAcquiror as provided inSection 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any of the parties to this Agreement or their respective officers or directors, except (A) with respect toSections 6.2(b),8.2, orand8.3, andArticle IX, which shall survive such termination and (B) notwithstanding anything to the contrary contained in this Agreement, with respect to any liabilities or damages incurred or suffered by a party as a result of the willful and material breach by the other party of any of its representations, warranties, covenants or other agreements set forth in this Agreement.
8.3Termination Fee.
(a) Target shall pay Parent,Acquiror, by wire transfer of immediately available funds, the sum of $2,850,000$8,000,000.00 (the “Termination Fee”) if this Agreement is terminated as follows:
(i) if ParentAcquiror shall terminate this Agreement pursuant toSection 8.1(g) orSection 8.1(h) (or if this Agreement is terminated pursuant toSection 8.1(c), but at the time of such termination ParentAcquiror could have terminated this Agreement pursuant toSections 8.1(g) or8.1(h)), then Target shall pay the Termination Fee on the business day following such termination;
(ii) if (A) either ParentAcquiror or Target shall terminate this Agreement pursuant toSection 8.1(d) because the required Target Shareholder Approval shall not have been received and (B) at any time after the date of this Agreement and at or before the Target Shareholders Meeting a bona fide Acquisition Proposal shall have been publicly announced by or otherwise communicated or made known to senior management or to the Boardboard of Directorsdirectors of Target (a “Public Proposal”), which has not been withdrawn prior to the date of the termination of this Agreement, and within nine (9) months of the date of such termination of this Agreement Target enters into a definitive agreement with respect to, or consummates, any Acquisition Proposal (whether or not the same Acquisition Proposal as that referred to above), then Target shall pay the Termination Fee on the earlier of the date of Target’s execution of such definitive agreement or consummation of such Acquisition Proposal;
(iii) if (A) ParentAcquiror or Target shall terminate this Agreement pursuant toSection 8.1(c) or ParentAcquiror shall terminate this Agreement pursuant toSection 8.1(e) or(f), and (B) at any time after the date of this
Agreement and before such termination there shall have been a Public Proposal with respect to Target that has not been withdrawn prior to such termination and within nine (9) months of the date of such termination of this Agreement Target enters into a definitive agreement with respect to, or consummates, any Acquisition Proposal (whether or not the same Acquisition Proposal as that referred to above), then Target shall pay the Termination Fee on the earlier of the date of Target’s execution of such definitive agreement or consummation of such Acquisition Proposal; or
(iv) if Target shall terminate this Agreement pursuant toSection 8.1(j).
For purposes of thisSection 8.3(a), all references in the definition of Acquisition Proposal to “20%” shall instead refer to “50%”.
(b) If Target fails to pay the Termination Fee payable under thisSection 8.3 on the dates specified, then Target shall pay all costs and expenses (including reasonable legal fees and expenses) incurred by ParentAcquiror in connection with any action or proceeding (including the filing of any lawsuit) taken by ParentAcquiror to collect such unpaid amounts, together with interest on such unpaid amounts at the prime lending rate prevailing at such time, as published in the Wall Street Journal, from the date such amounts were required to be paid until the date actually received.
(c) The parties acknowledge (i) that the agreements contained inSection 8.2 andSection 8.3 are an integral part of the transactions contemplated by this Agreement and constitute liquidated damages and not a penalty, (ii) that, without these agreements, the parties would not have entered into this Agreement and (iii) except in the event of fraud or a termination of this Agreement resulting from the willful or intentional breach in any material respect of this Agreement by Target, the Termination Fee provided for inSection 8.3 shall be the sole and exclusive remedy of Parent and Acquiror in the event of the termination of this Agreement in any of the manners stipulated inSection 8.3.
(d) Notwithstanding anything to the contrary herein, but without limiting the right of any party to recover liabilities or damages, the maximum aggregate amount of fees payable by Target under thisSection 8.3 shall be equal to the Termination Fee and in no event shall Target be obligated to pay the Termination Fee on more than one occasion.
ARTICLE IX.
GENERAL PROVISIONS
9.1Closing.Subject to the terms and conditions of this Agreement, the closing of the Merger (the “Closing”) will take place at 10:00 a.m. on a date and at a place to be specified by the parties, which shall be no later than 5 business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions set forth inArticle VII hereof (other than those conditions that by their nature or terms are to be satisfied or waived at Closing), unless another date or time is agreed to in writing by ParentAcquiror and Target. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date.”.
9.2Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement (other than the Confidentiality Agreement, which shall terminate in accordance with its terms) shall survive the Effective Time, except forSection 1.131.10,Section 2.2,Section 6.6,Section 6.7 andSection 6.8 and for those other covenants and agreements contained herein and therein which by their terms apply in whole or in part after the Effective Time.
9.3Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses;provided, however, that the costs and expenses of printing and mailing the Proxy Statement/Prospectus shall be borne by Target. ParentAcquiror shall pay all filing and other fees paid to the SEC, or with respect to filings with the SEC, in connection with the Merger and costs associated with the SBLF Redemption.Merger.
9.4Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
(a) if to Target, to: | with a copy to: | |||
Attn: Facsimile: | John W. Titus Bradley Arant Boult Cummings LLP 1600 Division Street, Suite 700 Nashville, Tennessee 37203 Facsimile: |
| ||
(b) if to Acquiror, | with a copy to: | |||
Pinnacle Financial Partners, Inc. 150 Third Avenue South, Suite 900 Nashville, Attn: M. Terry Turner Facsimile: (615) 744-3770 | Bob F. Thompson Bass, Berry & Sims PLC 150 Third Avenue South, Suite 2800 Nashville, Facsimile: (615) 742-2762 | |||
9.5Interpretation. The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference shall be to an Article or Section of or Exhibit or Schedule to this Agreement, unless otherwise indicated. The ParentAcquiror Disclosure Schedule, Target Disclosure Schedule and each other Exhibit and Schedule hereto shall be deemed part of this Agreement and included in any reference to this Agreement. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” Whenever the singular or plural formsform of any word is used in this Agreement, such word shall encompass both the singular and plural form of such word. As used in this Agreement, the “knowledge” of Target means the actual knowledge of any of the officers of Target listed onSection 9.5 of the Target Disclosure Schedule, and the “knowledge” of Parent or Acquiror means the actual knowledge of any of the officers of Parent or Acquiror listed onSection 9.5 of the ParentAcquiror Disclosure Schedule. As used herein, (i) “business day” means any day other than a Saturday, a Sunday or a day on which banks in New York, New York or Nashville, Tennessee are authorized by law or executive order to be closed, (ii) the term “person” means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature and (iii) an “affiliate” of a specified person is any person that directly or indirectly controls, is controlled by, or is under common control with, such specified person. Any document or item will be deemed “delivered,” “provided” or “made available” within the meaning of this Agreement if such document or item is (i) made available specifically for review in person by the other party or (ii) contained and accessible for a continuous period of at least forty-eight hours immediately prior to the execution of this Agreement (if to be delivered, provided or made available prior to the date hereof) or the Closing Date (if to be delivered, provided or made available prior to Closing) in the electronic data room hosted by IntralinksFirmex established by Target in connection with the transactions contemplated hereby to which Parent and Acquiror and theirits designated representatives had access rights during such period or the online portal used by ParentAcquiror to make information available to its board of directors to which Target and its designated representatives had access rights during such period.
9.6Amendment.Subject to compliance with applicable law andSection 1.1(b), this Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the shareholders of Target;
provided, however, that after any approval of the transactions contemplated by this Agreement by the shareholders of Target, there may not be, without further approval of such shareholders, any amendment of this Agreement that changes the amount or the form of the consideration to be delivered hereunder to the holders of Target Common Stock, and Target Series D Preferred Stock, other than as contemplated by this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties in interest at the time of the amendment.
9.7Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boardboard of Directors,directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein;provided, however, that after any approval of the transactions contemplated by this Agreement by the shareholders of Target, there may not be, without further approval of such shareholders, any extension or waiver of this Agreement or any portion thereof which reduces the amount or changes the form of the consideration to be delivered to the holders of Target Common Stock and Target Series D Preferred Stock hereunder, other than as contemplated by this Agreement. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
9.8Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
9.9Entire Agreement. This Agreement (including the documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.
9.10Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee, without regard to any applicable conflicts of law principles, except to the extent mandatory provisions of federal law apply. Any legal action or proceeding with respect to this Agreement by one party against any other party shall be brought only in a court of record of, or in any federal court located in, that county in the State of Tennessee in which the principal executive office of such other party is located, which shall have exclusive jurisdiction and venue for such purpose. By execution and delivery of this Agreement, the parties hereby accept for themselves, and in respect of their property, generally and unconditionally, the jurisdiction and venue of the aforesaid courts and waive any objection to the laying of venue on the grounds of forum non convenience which they may now or hereafter have to the bringing or maintaining of any such action or proceeding in such jurisdiction.
9.11Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR OTHER PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THISSECTION 9.11.
9.12Publicity. Except as otherwise required by applicable law or the rules of NASDAQ,Nasdaq or as such party shall determine is advisable under the rules and regulations of the SEC, neither Target nor Parent or Acquiror shall, or shall permit any of their respective Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the prior consent of Parent,Acquiror, in the case of a proposed announcement or statement by Target, or Target, in the case of a proposed announcement or statement by Parent or Acquiror, which consents shall not be unreasonably withheld or delayed.
9.13Assignment; Third Party Beneficiaries.Neither this Agreement nor any of the rights, interests or obligations of the parties hereto shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties.party hereto. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Except as otherwise specifically provided inSection 6.7, and, from and after the Effective Time, but only if the Effective Time shall occur, except for the rights of holders of Target Common Stock (including the shares of Target Common Stock issuable upon conversion of the Target Series D Preferred Stock) to receive the Merger Consideration as provided inArticle II, and the rights of holders of Target Stock Options underSection 1.7, this Agreement (including the documents and instruments referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. Any purported assignment in contravention hereof shall be null and void. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance herewith without notice or liability to any other person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties hereto may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.
9.14Severability. Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction such that the invalid, illegal or unenforceable provision or portion thereof shall be interpreted to be only so broad as is enforceable.
9.15Delivery by Facsimile or Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments or waivers hereto or thereto, to the extent signed and delivered by means of a facsimile machine or by e-mail delivery of a “.pdf” format data file, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Agreement or any amendment hereto or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation of a contract, and each party hereto forever waives any such defense.
9.16Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this instrument to be executed and delivered as of the day and year first above written, such execution having been duly authorized by the respective Boardboard of Directorsdirectors of Parent, Acquiror and Target.
| Attest: | PINNACLE FINANCIAL PARTNERS, INC.: | ||||||
/s/ Hugh M. Queener | By: | /s/ M. Terry Turner | |||||
| Secretary | Name: | M. Terry Turner | |||||
| Title: | President and Chief Executive Officer | ||||||
| Attest: | |||||||
/s/ | By: | /s/ | |||||
| Secretary | Name: | ||||||
| Title: | |||||||
|
| ||||||
| Chairman | |||||||
[Signature Page to Agreement and Plan of Merger]
Annex A
Defined Terms
Capitalized terms used herein are defined in the provisions of the Agreement set forth below:
Defined Term | Section | |
| Acquiror | First Paragraph | |
| Acquiror Bank | 1.11 | |
| Acquiror Benefit Plans | 3.11(a) | |
| Acquiror Capital Stock | 3.2 | |
| Acquiror Bylaws | 1.8 | |
| Acquiror Charter | ||
| Acquiror Common Stock | 1.4(a) | |
| Acquiror Data | 3.19 | |
| Acquiror Disclosure Schedule | Article III | |
| Acquiror ERISA Affiliate | 3.11(b) | |
| Acquiror Form 10-K | 3.15 | |
| Acquiror Incentive Plans | 6.6(a) | |
| Acquiror Preferred Stock | 3.2(a) | |
| Acquiror Reports | 3.12 | |
| Acquiror-Owned Software | 3.19 | |
| Acquiror Stock Option | 3.2(a) | |
| Acquiror Stock Plans | 3.2(a) | |
| Acquisition Proposal | 6.10(f) | |
| Adverse Recommendation Change | 6.10(d) | |
| Affected Executives | 7.3(d)(ii) | |
| Affiliate | 9.5 | |
| Agreement | First Paragraph | |
| Articles of Merger | 1.2 | |
| Anti-Money Laundering Laws | 3.13(b) | |
| Average Closing Price | 8.1(i) | |
| Bank Merger | 6.13 | |
| Bank Merger Agreement | 6.13 | |
| BHC Act | 3.1(b) | |
| Burdensome Conditions | 6.1(b) | |
| Business Day | 9.5 | |
| Cash Consideration | 1.4(a) | |
| Cash | ||
| Certificate | 1.4(c) | |
| Closing | 9.1 | |
| Closing Date | 9.1 | |
| Code | Recitals | |
| Confidentiality Agreement | 6.2(b) | |
| Continuing Employees | 6.6(b) | |
| Derivative Contracts | 4.17 | |
| Determination Date | 8.1(i) | |
| DPC Shares | 1.4(a) | |
| Effective Time | 1.2 | |
| ERISA | 3.11(b) | |
| Exchange Act | 3.12 |
| Exchange Agent | 2.1 | |
| Exchange Fund | 2.1 | |
| Exchange Ratio | 1.4(a) | |
| FDIA | ||
| FDIC | 3.4 | |
| Form S-4 | 3.4 | |
| FRB | ||
| GAAP | 3.6 | |
| Governmental Entity | 3.4 |
| HSR Act | 3.4 | |
| Indemnified Parties | 6.7(a) | |
| Index Availability Date | 8.1(i) | |
| Index Value | 8.1(i) | |
| Intellectual Property | 4.20(a) | |
| IRS | 3.11(b) | |
| Knowledge | 9.5 | |
| 4.16(a) | ||
| Leases | 4.16(a) | |
| Letter of Transmittal | 2.2(a) | |
| Liens | ||
| Loans | 4.23(a) | |
| Material Adverse Effect | 3.1(a) | |
| Merger | Recitals | |
| Merger Consideration | 1.4(a) | |
| 2.2(e) | ||
| OCC | 3.5 | |
| OREO | 4.23(b) | |
| Other Regulatory Approvals | 3.4 | |
| Person | 9.5 | |
| Premium Cap | 6.7(b) | |
| Protected Period | 6.6(b) | |
| Proxy Statement/Prospectus | 3.4 | |
| Public Proposal | 8.3(a)(ii) | |
| Real Estate | ||
| Regulatory Agencies | 3.5 | |
| Requisite Regulatory | ||
| Requisite Shareholder Approval | 7.1(a) | |
| Securities Act | 3.4 | |
| Starting Date | 8.1(i) | |
| State Regulator | 3.5 | |
| Stock Consideration | 1.4(a) | |
| Subsidiary | 3.1(c) | |
| Superior Proposal | 6.10(g) | |
| Surviving Corporation | Recitals | |
| Target | First Paragraph | |
| Target 2014 Form 10-K | 4.24 | |
| Target Benefit Plans | 4.12(a) | |
| Target Capital Stock | 4.2(a) | |
| Target Charter | 4.1(b) |
| Target Common Stock | 1.4(a) | |
| Target Data | 4.20(b) | |
| Target Disclosure Schedule | Article IV | |
| Target | ||
| 6.6(a) | ||
| Target ERISA Affiliate | 4.12(a) | |
| Target | ||
| Target Intellectual Property | 4.20(a) | |
| Target Loan | 4.23(c) | |
| Target Material Contract | 4.14(a) | |
| Target Preferred Stock | 4.2(a) | |
| Target Regulatory Agreement | 4.15 | |
| Target | ||
| Target | ||
| Target Shareholder Approval | 6.3(a) | |
| Target Shareholders’ Meeting | 6.3(a) | |
| Target-Owned Software | 4.20(b) | |
| Target Stock | 1.7(a) | |
| Target Stock Plans | 1.7(a) | |
| Target | 4.1(c) | |
| Tax | 3.10(b) | |
| Taxes | 3.10(b) | |
| TBCA | ||
| TDFI | 3.4 | |
| Termination Fee | 8.3(a) | |
| Trust Account Shares | 1.4(a) | |
| Uncertificated Share | 1.4(b) | |
| Voting Agreements | Recitals | |
| Voting Debt | 3.2(b) | |
TENNESSEE BUSINESS CORPORATION ACT – DISSENTERS’ RIGHTS
Part 1. Right to Dissent and Obtain Payment for Shares
§ 48-23-101. Chapter definitions.January 28, 2016
As used in this chapter, unless the context otherwise requires:
§ 48-23-102. Right to dissent.
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If shareholder approval is required for the merger by § 48-21-104 or the charter and the shareholder is entitled to vote on the merger if the merger is submitted to a vote at a shareholders’ meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the merger if the merger had been submitted to a vote at a shareholders’ meeting; or
(B) If the corporation is a subsidiary that is merged with its parent under § 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan if the plan is submitted to a vote at a shareholders’ meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the plan if the plan had been submitted to a vote at a shareholders’ meeting;
(3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange if the sale or exchange is submitted to a vote at a shareholders’ meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the sale or exchange if the sale or exchange had been submitted to a vote at a shareholders’ meeting, including a sale of
all, or substantially all, of the property of the corporation in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects rights in respect of a dissenter’s shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a fraction of a share, if the fractional share is to be acquired for cash under § 48-16-104;
(5) Any corporate action taken pursuant to a shareholder vote to the extent the charter, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares; or
(6) Consummation of a conversion of the corporation to another entity pursuant to chapter 21 of this title.
§ 48-23-103. Dissent by nominees and beneficial owners.
(1) Submits to the corporation the record shareholder’s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights; and
(2) Does so with respect to all shares of the same class of which the person is the beneficial shareholder or over which the person has power to direct the vote.
Part 2. Procedure for Exercise of Dissenters’ Rights
§ 48-23-201. Notice of dissenters’ rights.
(1) Written notice that dissenters’ rights are, are not, or may be available must be sent to each record shareholder from whom a consent is solicited at the time consent of such shareholder is first solicited and, if the corporation has concluded that dissenters’ rights are or may be available, must be accompanied by a copy of this chapter; and
(2) Written notice that dissenters’ rights are, are not, or may be available must be delivered together with the notice to nonconsenting and nonvoting shareholders required by § 48-17-104(e) and (f), may include the materials described in § 48-23-203 and, if the corporation has concluded that dissenters’ rights are or may be available, must be accompanied by a copy of this chapter.
§ 48-23-202. Notice of intent to demand payment.
(1) Must deliver to the corporation, before the vote is taken, written notice of the shareholder’s intent to demand payment if the proposed action is effectuated; and
(2) Must not vote, or cause or permit to be voted, any such shares in favor of the proposed action.
§ 48-23-203. Dissenters’ notice.
(1) Supply a form that:
(A) Specifies the first date of any announcement to shareholders made prior to the date the corporate action became effective of the principal terms of the proposed corporate action;
(B) If such announcement was made, requires the shareholder asserting dissenters’ rights to certify whether beneficial ownership of those shares for which dissenters’ rights are asserted was acquired before that date; and
(C) Requires the shareholder asserting dissenters’ rights to certify that such shareholder did not vote for or consent to the transaction;
(2) State:
(A) Where the form must be sent and where certificates for certificated shares must be deposited and the date by which those certificates must be deposited, which date may not be earlier than the date for receiving the required form under subdivision (b)(2)(B);
(B) A date by which the corporation must receive the form, which date may not be fewer than forty (40) nor more than sixty (60) days after the date the subsection (a) dissenters’ notice is sent, and state that the shareholder shall have waived the right to demand payment with respect to the shares unless the form is received by the corporation by such specified date;
(C) The corporation’s estimate of the fair value of shares;
(D) That, if requested in writing, the corporation will provide, to the shareholder so requesting, within ten (10) days after the date specified in subdivision (b)(2)(B) the number of shareholders who return the forms by the specified date and the total number of shares owned by them; and
(E) Deleted by 2015 Pub.Acts, c. 60, § 3, eff. April 6, 2015.
(3) Be accompanied by a copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201.
§ 48-23-204. Duty to demand payment.
§ 48-23-205. Share restrictions.
§ 48-23-206. Payment.
(1) The corporation’s balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation’s estimate of the fair value of the shares, which estimate shall equal or exceed the corporation’s estimate given pursuant to § 48-23-203(b)(2)(C);
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter’s right to demand payment under § 48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201 or § 48-23-203.
§ 48-23-207. Failure to take action.
§ 48-23-208. After-acquired shares.
§ 48-23-209. Procedure if shareholder dissatisfied with payment or offer.
(1) The dissenter believes that the amount paid under § 48-23-206 or offered under § 48-23-208 is less than the fair value of the dissenter’s shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under § 48-23-206 within two (2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within two (2) months after the date set for demanding payment.
Part 3. Judicial Appraisal of Shares
§ 48-23-301. Court action.
(1) For the amount, if any, by which the court finds the fair value of the dissenter’s shares, plus accrued interest, exceeds the amount paid by the corporation; or
(2) For the fair value, plus accrued interest, of the dissenter’s after-acquired shares for which the corporation elected to withhold payment under § 48-23-208.
§ 48-23-302. Court costs and counsel fees.
(1) The corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of part 2 of this chapter; or
(2) Either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter.
April 28, 2015
Board of Directors
Magna BankAvenue Financial Holdings, Inc.
6525 Quail Hollow Road, 111 10th Avenue South
Suite 513400
Memphis, TN 38120Nashville, Tennessee 37203
Members of the Board of Directors:
We understand that Magna Bank (the “Company”) proposes to enter into an Agreement and Plan of Merger (the “Agreement”) by and between the Company, Pinnacle Financial Partners, Inc. (“Parent”) and Pinnacle Bank (“Acquiror”), pursuant to which, among other things, the Company will be merged with and into the Acquiror (the “Transaction”) and that in connection with the Transaction each issued and outstanding share of common stock of the Company (including each share of Company Common Stock resulting from the conversion of shares of Non-Cumulative Perpetual Preferred Stock, Series D, of the Company (the “Company Preferred Stock”) immediately prior to the effective time of the Transaction) (the “Company Common Stock”) not held by (i) the Company, Parent or Acquiror, in each case other than on behalf of third parties or as a result of debts previously contracted, or (ii) holders who properly perfect their right to dissent under applicable law (the holders described in clauses (i) and (ii), together with holders of any other class or series of capital stock other than the Company Common Stock, are referred to herein as the “Excluded Holders”) will be converted into the right to receive, at the option of the holder thereof and subject to certain limitations and proration procedures contained in the Agreement (as to which we express no opinion), (a) 0.3369 shares of common stock of Parent (“Parent Common Stock”), together with cash in lieu of any fractional shares (the “Stock Consideration”), or (b) $14.32 in cash (the “Cash Consideration”). The aggregate Cash Consideration and Stock Consideration to be received by holders of Company Common Stock in the Transaction pursuant to the Agreement is referred to as the “Merger Consideration.” The Merger Consideration will consist of 75.0% Stock Consideration and 25.0% Cash Consideration.Board:
You have requested that SunTrust Robinson Humphrey,the opinion of Keefe, Bruyette & Woods, Inc. (“STRH”KBW” or “we”) render its opinion (this “Opinion”) to the Board of Directors of the Company (solely in its capacity as such) (the “Board of Directors”) with respectinvestment bankers as to the fairness, from a financial point of view, to the common shareholders of Avenue Financial Holdings, Inc. (“AVNU”) of the Merger Consideration (as defined below) to be received by such shareholders in the Transactionproposed merger (the “Merger”) of AVNU with and into Pinnacle Financial Holdings, Inc. (“PNFP”), pursuant to the Agreement and Plan of Merger (the “Agreement”) to be entered into by and between AVNU and PNFP. Pursuant to the Agreement and subject to the terms, conditions and limitations set forth therein, at the Effective Time (as defined in the Agreement), by virtue of the Merger and without any action on the part of AVNU, PNFP, the holders of shares of common stock, no par value, of AVNU (“AVNU Common Stock”) or the Companyholders of shares of common stock, par value $1.00 per share, of PNFP (“PNFP Common Stock”), each share of AVNU Common Stock (but excludingissued and outstanding immediately prior to the Excluded Holders)Effective Time shall be converted into the right to receive: (i) 0.36 of a share of PNFP Common Stock (the “Stock Consideration”) and (ii) $2.00 in cash (the “Cash Consideration”). The Cash Consideration and the Stock Consideration, taken together, are referred to herein as the “Merger Consideration.” The terms and conditions of the Merger are more fully set forth in the Agreement.
The Agreement also provides that, if requested by PNFP, AVNU shall cause Avenue Bank, a wholly owned subsidiary of AVNU, to enter into an agreement and plan of merger with Pinnacle Bank, a wholly owned subsidiary of PNFP, pursuant to which Avenue Bank shall merge with and into Pinnacle Bank at or following the Effective Time (such transaction, the “Bank Merger”).
KBW has acted as financial advisor to AVNU and not as an advisor to or agent of any other person. As part of our investment banking business, we are continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, we have experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of their broker-dealer business and further to certain existing sales and trading relationships, KBW and its affiliates may from time to time purchase securities from, and sell securities to, AVNU and PNFP and, as a market maker in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of AVNU or PNFP for their own accounts and for the accounts of their customers and clients. KBW employees may also maintain individual positions in AVNU Common Stock and PNFP Common Stock, which positions currently include an individual position in shares of AVNU Common Stock held by a senior member of the KBW advisory team providing services to AVNU in connection with the proposed Merger. We have acted exclusively for the board of directors of AVNU (the “Board”) in rendering this opinion and will receive a fee from
Keefe, Bruyette & Woods, a Stifel Company ● 1021 East Cary Street, Suite 1950
804-643-4250 ● www.kbw.com
B-1
The Board of Directors – Avenue Financial Holdings, Inc.
January 28, 2016
Page 2 of 5
AVNU for our services. A portion of our fee is payable upon the rendering of this opinion, and a significant portion is contingent upon the successful completion of the Merger. In addition, AVNU has agreed to indemnify us for certain liabilities arising out of our engagement.
In addition to this present engagement, in the past two years, KBW has provided investment banking and financial advisory services to AVNU and received compensation for such services. KBW served as sole bookrunner and an underwriter in connection with the initial public offering of AVNU in February 2015. In addition, KBW served as sole placement agent in connection with AVNU’s private placement of subordinated notes in December 2014. During the past two years, KBW has from time to time provided investment banking advice to PNFP in the ordinary course of business, for which KBW did not enter into an engagement agreement or receive compensation. We may in the future provide investment banking and financial advisory services to AVNU or PNFP and receive compensation for such services.
In connection with this Opinion,opinion, we have conductedreviewed, analyzed and relied upon material bearing upon the Merger and bearing upon the financial and operating condition of AVNU and PNFP, including among other things, the following: (i) a draft of the Agreement dated January 28, 2016 (the most recent draft made available to us); (ii) the audited financial statements for the three fiscal years ended December 31, 2014 of AVNU; (iii) the unaudited quarterly financial statements and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2015, June 30, 2015, and September 30, 2015 of AVNU; (iv) certain unaudited quarterly and fiscal year-end financial results for the period ended December 31, 2015 of AVNU (provided to us by representatives of AVNU); (v) the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2014 of PNFP; (vi) the unaudited quarterly financial statements and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2015, June 30, 2015 and September 30, 2015 of PNFP; (vii) the unaudited quarterly and fiscal year-end financial results for the period ended December 31, 2015 of PNFP (contained in the Current Report on Form 8-K filed by PNFP with the Securities and Exchange Commission on January 19, 2016) (viii) certain regulatory filings of AVNU, Avenue Bank, PNFP and Pinnacle Bank, including (as applicable) the quarterly reports on Form FRY-9C and the quarterly call reports filed with respect to each quarter during the three year period ended December 31, 2014 and the three quarters ended March 31, 2015, June 30, 2015 and September 30, 2015; (ix) certain other interim reports and other communications of AVNU and PNFP to their respective shareholders; and (x) other financial information concerning the businesses and operations of AVNU and PNFP that was furnished to us by AVNU and PNFP or which we were otherwise directed to use for purposes of our analyses. Our consideration of financial information and other factors that we deemed appropriate under the circumstances or relevant to our analyses included, among others, the following: (i) the historical and current financial position and results of operations of AVNU and PNFP; (ii) the assets and liabilities of AVNU and PNFP; (iii) the nature and terms of certain other merger transactions and business combinations in the banking industry; (iv) a comparison of certain financial and stock market information for AVNU and PNFP with similar information for certain other companies the securities of which are publicly traded; (v) financial and operating forecasts and projections of AVNU that were prepared by, and provided to us and discussed with us by, AVNU management and that were used and relied upon by us at the direction of such reviews,management with the consent of the Board;; (vi) publicly available consensus “street estimates” of PNFP for 2016 and 2017 (and adjustments thereto provided to us by PNFP management to give pro forma effect to PNFP’s minority investment in Bankers Healthcare Group and expected Durbin impact) which was discussed with us by such management and used and relied upon by us based on such discussions, at the direction of AVNU management and with the consent of the Board; and (vii) estimates regarding certain pro forma
Keefe, Bruyette & Woods, a Stifel Company ● 1021 East Cary Street, Suite 1950
804-643-4250 ● www.kbw.com
B-2
The Board of Directors – Avenue Financial Holdings, Inc.
January 28, 2016
Page 3 of 5
financial effects of the Merger on PNFP (including, without limitation, the cost savings and related expenses expected to result or be derived from the Merger) that were prepared by, and provided to and discussed with us by, PNFP management and used and relied upon by us based on such discussions, at the direction of AVNU management and with the consent of the Board. We have also performed such other studies and analyses as we considered appropriate and inquirieshave taken into account our assessment of general economic, market and financial conditions and our experience in other transactions, as well as our experience in securities valuation and knowledge of the banking industry generally. We have also held discussions with senior management of AVNU and PNFP regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as we have deemed necessary and appropriate under the circumstances. Among other things, werelevant to our inquiry. We have reviewed a draft, dated April 24, 2015, of the Agreement and Plan of Merger; certain business and financial information relatingnot been requested to, the Company, Parent and Acquiror; certain non-public internal and audited and unaudited financial statements of the Company, Parent and Acquiror, and certain financial other information relating to the historical, current and future business, financial condition, results of operations, asset quality, operating data and prospects of the Company and Parent made available to us by the Company and Parent, including certain financial projections prepared by the management of the Company relating to the Company (the “Projections”); the current financial and operating performance of the Company and Parent as compared to that of other companies with publicly traded equity securities that we deemed relevant; the publicly available financial terms of certain transactions that we deemed relevant; and current and historical market conditions and certain financial, stock market and other publicly available information relating to the business of other companies and banks whose operations we considered relevant. We also have had discussions with certain members of the management of the Company, Parent and Acquiror regarding the Transaction and the business, financial condition, assets, results of operations and prospects of the Company, Parent and Acquiror and have undertaken suchnot, assisted AVNU with soliciting indications of interest from third parties other studies, analysesthan PNFP regarding a potential transaction with AVNU.
In conducting our review and investigations asarriving at our opinion, we deemed appropriate.
Board of Directors
Magna Bank
April 28, 2015
Page 2
We have relied upon and assumed without independent verification, the accuracy and completeness of all data, materialof the financial and other information furnishedprovided to us or otherwise madethat was publicly available to, discussed withand we have not independently verified the accuracy or reviewed by us, and do not assumecompleteness of any such information or assumed any responsibility with respector liability for such verification, accuracy or completeness. We have relied upon the management of AVNU as to such data, materialthe reasonableness and other information. Our role in reviewing such data, materialachievability of the financial and other information was limited solelyoperating forecasts and projections of AVNU referred to performing such review as we deemed necessaryabove (and the assumptions and appropriate to support this Opinion. In addition,bases therefor) and we have assumed at the direction of the Companythat such forecasts and without independent verification or investigation, that the Projections have beenprojections were reasonably prepared in good faith on basesa basis reflecting the best currently available information, estimates and judgments of such management and that such forecasts and projections will be realized in the amounts and in the time periods currently estimated by such management. We have further relied, with the consent of the CompanyAVNU, upon PNFP management as to the future financial resultsreasonableness and conditionachievability of the Company.publicly available consensus “street estimates” of PNFP (as adjusted as described above), as well as the estimates regarding certain pro forma financial effects of the Merger on PNFP (and the assumptions and bases therefor, including, without limitation, the cost savings and related expenses expected to result or be derived from the Merger) referred to above. We have assumed that all such information was reasonably prepared on a basis reflecting, or in the case of the publicly available consensus “street estimates” of PNFP referred to above were consistent (as adjusted) with, the best currently available estimates and judgments of PNFP management and that the forecasts, projections and estimates reflected in such information will be realized in the amounts and in the time periods currently estimated.
It is understood that the portion of the foregoing financial information that was provided to us was not prepared with the expectation of public disclosure, that all of the foregoing financial information, including the publicly available consensus “street estimates” of PNFP referred to above that we were directed to use, are based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. We have assumed, based on discussions with the respective managements of AVNU and PNFP and with the consent of the Board, that such information provides a reasonable basis upon which we could form our opinion and we express no opinion with respectview as to the Projectionsany such information or the assumptions on which they are based, or any other assumptions discussed herein.bases therefor. We have relied upon and assumed,on all such information without independent verification or analysis and do not in any respect assume any responsibility or liability for the accuracy or completeness thereof.
We also assumed that there has beenwere no changematerial changes in the business, assets, liabilities, financial condition, results of operations, cash flowsbusiness or prospects of the Company, Parenteither AVNU or AcquirorPNFP since the respective datesdate of their most recentthe last financial statements and other information, financial or otherwise, providedof each such entity that were made available to us and that there is no information, facts or circumstances that would make anyus. We are not experts in the independent verification of the data, material or other information discussed with or reviewed by us inaccurate, incomplete or misleading.
We alsoadequacy of allowances for loan and lease losses and we have relied upon and assumed, without independent verification and with your
Keefe, Bruyette & Woods, a Stifel Company ● 1021 East Cary Street, Suite 1950
804-643-4250 ● www.kbw.com
B-3
The Board of Directors – Avenue Financial Holdings, Inc.
January 28, 2016
Page 4 of 5
consent, that the aggregate allowances for loan and lease losses for AVNU and PNFP are adequate to cover such losses. In rendering our opinion, we have not made or obtained any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of AVNU or PNFP, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor have we examined any individual loan or credit files, nor did we evaluate the solvency, financial capability or fair value of AVNU or PNFP under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, we assume no responsibility or liability for their accuracy.
We have assumed, in all respects material to our analyses, the following: (i) that the Merger and any related transaction (including the Bank Merger) will be completed substantially in accordance with the terms set forth in the Agreement (the final terms of which we have assumed will not differ in any respect material to our analyses from the draft reviewed and referred to above) with no adjustments to the Merger Consideration; (ii) that the representations and warranties of each party in the Agreement and in all partiesrelated documents and instruments referred to in the Agreement are true and correct; (ii)(iii) that each party to the Agreement will fully and timelyall related documents will perform all of the covenants and agreements required to be performed by such party under such documents; (iv) that there are no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the Agreement; (iii)Merger or any related transaction and that all conditions to the consummationcompletion of the TransactionMerger and any related transaction will be satisfied without waiver thereof; (iv)any waivers or modifications to the Transaction will be consummated in accordance with the terms of the Agreement without waiver, modification or amendment of any term, condition or agreement therein;Agreement; and (v) that in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the Merger and any regulatoryrelated transaction, no restrictions, including any divestiture requirements, termination or third party consents, approvalsother payments or agreements in connection with the Transaction, no delay, limitation, restrictionamendments or conditionmodifications, will be imposed that wouldwill have ana material adverse effect on the Company, Parent, Acquirorfuture results of operations or financial condition of AVNU, PNFP, the combined entity, or the expectedcontemplated benefits of the Transaction.Merger, including the cost savings and related expenses expected to result or be derived from the Merger. We also have assumed, that the Transaction will be treated as a tax-free reorganization for federal income tax purposes. In addition, we have assumed that the Agreement, when executed by the parties thereto, will conform to the draft reviewed by us in all respects material to our analysis and this Opinion.
Furthermore,analyses, that the Merger will be consummated in connectiona manner that complies with this Opinion, we have not been requested to review, and have not reviewed, individual credit files, nor have we been requested to make, and have not made, any physical inspection or independent appraisal or evaluation of anythe applicable provisions of the assets, properties, facilitiesSecurities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. We have further been advised by representatives of AVNU that AVNU has relied upon advice from its advisors (other than KBW) or liabilities (including any fixed, contingent, derivative or off-balance-sheet assets or liabilities or any portfolio securities or any collateral securing assets or securities) of the Company, Parent, Acquiror or any other person or entity, nor were we provided with any such appraisal or evaluation. In addition, we are not experts in the evaluation of loan or lease portfolios for purposes of assessing the adequacy of the allowances for lossesappropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to such portfolios or forAVNU, PNFP, the Merger, any other purposerelated transaction (including the Bank Merger), and accordingly, we have assumed, without independent investigation or verification, that the Company’s, Parent’s and Acquiror’s allowances for such losses are in the aggregate adequate to cover any such losses. We have undertaken no independent analysis of any potential or actual litigation, regulatory action, governmental investigation, possible unasserted claims or other contingent liabilities to which the Company, Parent, Acquiror or any other person or entity is or may be a party or is or may be subject. As you are aware, we haveAgreement. KBW has not been requested to, and we did not, undertake any independent financial analysis of Parent or Acquiror, and with your consent we have assumed that the value per share of Parent Common Stock comprising the Stock Consideration is equal to the market price of Parent’s common stock on April 27, 2015. As you are also aware, we have not been requested to, and we did not, participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the Transaction or the securities, assets, businesses or operations of the Company or any other party, or any alternatives to the Transaction, or advise the Board of Directors or any other partyprovided advice with respect to any alternatives to the Transaction.
Board of Directors
Magna Bank
April 28, 2015
Page 3
such matters.
This Opinion is necessarily based on financial, economic, monetary, market and other conditions as in effect on, and the data, material and other information made available to us as of, the date hereof. We have no obligation to update, revise, reaffirm or withdraw this Opinion or otherwise comment upon events occurring or information that becomes available after the date hereof.
This Opinionopinion addresses only addresses the fairness, from a financial point of view, as of the date hereof, to the holders of AVNU Common Stock of the Merger Consideration to be received by such holders in the Transaction pursuantMerger. We express no view or opinion as to the Agreement by the holdersany other terms or aspects of the Company Common Stock (but excludingMerger or any term or aspect of any related transaction (including the Excluded Holders) and does not address any other term, aspectBank Merger), including without limitation, the form or implicationstructure of the TransactionMerger (including the form of Merger Consideration or the allocation thereof between cash and stock) or any agreement, arrangementrelated transaction, any consequences of the Merger or understandingany related transaction to AVNU, its shareholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, consulting, voting, support, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection therewithwith the Merger or otherwise. We have not been requestedOur opinion is necessarily based upon conditions as they exist and can be evaluated on the date hereof and the information made available to opine as to,us through the date hereof. It is understood that subsequent developments may affect the conclusion reached in this opinion and this Opinionthat KBW does not have an obligation to update, revise or reaffirm this opinion. Our opinion does not address, and we express anno view or opinion aswith respect to, or otherwise address, among other things: (i) the
Keefe, Bruyette & Woods, a Stifel Company ● 1021 East Cary Street, Suite 1950
804-643-4250 ● www.kbw.com
B-4
The Board of Directors – Avenue Financial Holdings, Inc.
January 28, 2016
Page 5 of 5
underlying business decision of the Company, its security holders or any other person or entityAVNU to proceed with or effect the Transaction; (ii) the form, structure or any other portion or aspect of the Transaction; (iii) the fairness of any portion, term, aspect or implication of the Transaction to the holders of debt of the Company, or any particular holder of securities, creditors or other constituencies of the Company, or to any other person or entity, except as expressly set forthengage in the last paragraph of this Opinion; (iv)Merger or enter into the Agreement, (ii) the relative merits of the TransactionMerger as compared to any alternative business strategiesstrategic alternatives that might exist for the Companyare, have been or any other personmay be available to or entitycontemplated by AVNU or the effect of any other transaction in whichBoard, (iii) the Company or any other person or entity might engage; (v) whether or not Parent, the Company, their respective security holders or any other person or entity is receiving or paying reasonably equivalent value in the Transaction; (vi) the solvency, creditworthiness, viability, ability to pay debts when due or fair value of the Company, Parent, Acquiror or any other participant in the Transaction, or any of their respective assets, including under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or the impact of the Transaction on such matters; (vii) the fairness financial or otherwise, of the amount nature or any other aspectnature of any compensation to or consideration payable to or received by any of AVNU’s officers, directors or employees, of any party to the Transaction or any class of such persons; (viii) the fairness of any term or aspect of the Transaction to any one class of the Company’s security holderspersons, relative to any other class of the Company’s security holders, including the allocation of any consideration among or within such classes; (ix) the fairness of the Merger Consideration to be received in the Transactioncompensation to the holders of AVNU Common Stock, (iv) the Company Preferred Stock,effect of the Merger or any related transaction on, or the fairness of the conversionconsideration to be received by, holders of any class of securities of AVNU (other than the Company Preferredholders of AVNU Common Stock into Company Common Stock; or (x) the fairness of the Cash Consideration and Stock Consideration relative to one another.
Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained from appropriate professional sources. Furthermore, we have relied, with your consent, on the assessments by the Company and the Board of Directors and their respective advisors as to all legal, regulatory, accounting, insurance and tax matters with respect to the Company, Parent, Acquiror and the Transaction. We have not been asked to, nor do we, offer any opinion as to any terms or conditions of the Agreement or the form of the Transaction, other than as expressly set forth in the last paragraph of this Opinion(solely with respect to the Merger Consideration. We areConsideration, as described herein and not expressingrelative to the consideration to be received by holders of any opinion asother class of securities)) or holders of any class of securities of PNFP or any other party to whatany transaction contemplated by the Agreement, (v) whether PNFP has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate amount of the Cash Consideration to the holders of AVNU Common Stock at the closing of the Merger, (vi) the actual value of the ParentPNFP Common Stock willto be when issued pursuant toin the Agreement orMerger, (vii) the price orprices, trading range of prices or volume at which shares of ParentAVNU Common Stock mayor PNFP Common Stock will trade at any time, including following the public announcement or consummation of the Transaction.
We have acted as financial advisor toMerger or the Board of Directors in connection with the Transaction andprices, trading range or volume at which PNFP Common Stock will receive a fee for our services, a portion of which is payable upon delivery of this Opinion and a portion of which is contingent upontrade following the consummation of the Transaction. In addition,Merger, (viii) any advice or opinions provided by any other advisor to any of the Company has agreedparties to reimburse certain of our expenses andthe Merger or any other transaction contemplated by the Agreement, or (ix) any legal, regulatory, accounting, tax or similar matters relating to indemnify us and certain related parties for certain liabilitiesAVNU, PNFP, their respective shareholders, or relating to or arising out of our engagement. Weor as a consequence of the Merger or any related transaction (including the Bank Merger), including whether or not the Merger would qualify as a tax-free reorganization for United States federal income tax purposes.
This opinion is for the information of, and our affiliates (including SunTrust Bank) may have in the past provided, and may in the future provide, investment banking and other financial servicesis directed to, the Company, Parent and certain of their
Board of Directors
Magna Bank
April 28, 2015
Page 4
affiliates for which we and our affiliates have received and would expect to receive compensation. We are a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, we and our affiliates (including SunTrust Bank) may acquire, hold or sell, for our and our affiliates’ own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of the Company, Parent, their respective affiliates and any other party that may be involved in the Transaction, as well as provide investment banking and other financial services to such persons or entities, including for which we and our affiliates would expect to receive compensation. In addition, we and our affiliates (including SunTrust Bank) may have other financing and business relationships with the Company, Parent, their respective affiliates and any other person or entity that may be involved with the Transaction.
This Opinion is furnished solely for the use of the Board of Directors (solely in(in its capacity as such) in connection with its evaluationconsideration of the Transaction, and may not be used byfinancial terms of the Board of Directors for any other purpose (or by any other person or entity for any purpose) without our prior written consent.Merger. This Opinion may not be quoted or referred to, in whole or in part, in any registration statement, prospectus, proxy statement or other similar document, or in any document used in connection with the offering or sale of securities, nor shall this Opinion be disclosed to any other person or entity without our prior written consent, except that we consent to a copy of this Opinion being reproduced in full and otherwise referred to in the proxy statement/prospectus prepared with respect to the Transaction, provided that all references to us or this Opinion in any such documents and the description of this Opinion therein shall be subject to our prior approval. This Opinion should not be construed as creating any fiduciary duty on the part of STRH to any person or entity. This Opinion is not intended to be, andopinion does not constitute a recommendation to the Board of Directors,as to how it should vote on the Company,Merger, or to any security holder of the CompanyAVNU Common Stock or any shareholder of any other person or entity as to how to actvote in connection with the Merger or voteany other matter, nor does it constitute a recommendation regarding whether or not any such shareholder should enter into a voting, shareholders’, or affiliates’ agreement with respect to the Merger or exercise any matter relatingdissenters’ or appraisal rights that may be available to the Transaction or otherwise, including, without limitation, whether a holder of Company Common Stock should elect to receive the Cash Consideration or the Stock Consideration. The issuance of this Opinionsuch shareholder.
This opinion has been reviewed and approved by an internal committeeour Fairness Opinion Committee in conformity with our policies and procedures established under the requirements of STRH authorized to approve opinionsRule 5150 of this nature.the Financial Industry Regulatory Authority.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Merger Consideration to be received in the Transaction pursuant to the Agreement by the holders of the CompanyAVNU Common Stock in the Merger is fair, from a financial point of view, to the holders of thesuch holders.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
Keefe, Bruyette & Woods, a Stifel Company Common Stock (but excluding the Excluded Holders).● 1021 East Cary Street, Suite 1950
SUNTRUST ROBINSON HUMPHREY, INC.804-643-4250 ● www.kbw.com
/s/ SunTrust Robinson Humphrey, Inc.B-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 20. | Indemnification of Directors and Officers. |
The Tennessee Business Corporation Act (“TCBA”) provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if: (a) such person acted in good faith; (b) in the case of conduct in an official capacity with the corporation, the person reasonably believed such conduct was in the corporation’s best interests; (c) in all other cases, the person reasonably believed that the person’s conduct was at least not opposed to the best interests of the corporation; and (d) in connection with any criminal proceeding, such person had no reasonable cause to believe the person’s conduct was unlawful. In actions brought by or in the right of the corporation, however, the TBCA provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation. The TBCA also provides that in connection with any proceeding charging improper personal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that such personal benefit was improperly received. In cases where the director or officer is wholly successful, on the merits or otherwise, in the defense of any proceeding instigated because of his or her status as a director or officer of a corporation, the TBCA mandates that the corporation indemnify the director or officer against reasonable expenses incurred in the proceeding. The TBCA provides that a court of competent jurisdiction, unless the corporation’s charter provides otherwise, upon application, may order that an officer or director be indemnified for reasonable expenses if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, notwithstanding the fact that (a) such officer or director was adjudged liable to the corporation in a proceeding by or in the right of the corporation; (b) such officer or director was adjudged liable on the basis that personal benefit was improperly received by the officer or director; or (c) such officer or director breached the officer’s or director’s duty of care to the corporation.
Pinnacle’s amended and restated charter, as amended, provides that it will indemnify its directors and officers to the maximum extent permitted by the TBCA. Pinnacle’s bylaws provide that its directors and officers shall be indemnified against expenses that they actually and reasonably incur if they are successful on the merits of a claim or proceeding. In addition, the bylaws provide that Pinnacle will advance to its directors and officers reasonable expenses of any claim or proceeding so long as the director or officer furnishes Pinnacle with (1) a written affirmation of his or her good faith belief that he or she has met the applicable standard of conduct and (2) a written statement that he or she will repay any advances if it is ultimately determined that he or she is not entitled to indemnification.
When a case or dispute is settled or otherwise not ultimately determined on its merits, the indemnification provisions provide that Pinnacle will indemnify its directors and officers when they meet the applicable standard of conduct. The applicable standard of conduct is met if the directors or officer acted in a manner he or she in good faith believed to be in or not opposed to Pinnacle’s best interests and, in the case of a criminal action or proceeding, if the individual had no reasonable cause to believe his or her conduct was unlawful. Pinnacle’s board of directors, shareholders or independent legal counsel determines whether the director or officer has met the applicable standard of conduct in each specific case.
Pinnacle’s amended and restated charter, as amended, and bylaws, as amended, also provide that the indemnification rights contained therein do not exclude other indemnification rights to which a director or officer may be entitled under any bylaw, resolution or agreement, either specifically or in general terms approved by the affirmative vote of the holders of a majority of the shares entitled to vote. Pinnacle can also provide for greater indemnification than is provided for in the bylaws if Pinnacle chooses to do so, subject to approval by its shareholders and the limitations provided in its amended and restated charter, as amended, as discussed in the subsequent paragraph.
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Pinnacle’s amended and restated charter, as amended, eliminates, with exceptions, the potential personal liability of a director for monetary damages to Pinnacle and its shareholders for breach of a duty as a director. There is, however, no elimination of liability for:
Pinnacle’s amended and restated charter, as amended, does not eliminate or limit Pinnacle’s right or the right of its shareholders to seek injunctive or other equitable relief not involving monetary damages.
The indemnification provisions of Pinnacle’s bylaws specifically provide that Pinnacle may purchase and maintain insurance on behalf of any director or officer against any liability asserted against and incurred by him or her in his or her capacity as a director, officer, employee or agent whether or not Pinnacle would have had the power to indemnify against such liability.
| Item 21. | Exhibits and Financial Statement Schedules. |
(a) Exhibits. See the “Exhibit Index” which follows the signature pages to this proxy statement/prospectus and is herein incorporated by reference.
| Item 22. | Undertakings. |
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
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(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual
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report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (c)(1) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first-class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Nashville, State of Tennessee, on June 9, 2015.May 6, 2016.
| PINNACLE FINANCIAL PARTNERS, INC. | ||
By: | /s/ M. Terry Turner | |
| M. Terry Turner | ||
| President and Chief Executive Officer | ||
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints M. Terry Turner or Harold R. Carpenter, and either of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his or her name, place and stead, in any and all capacities, to sign any or all further amendments (including post-effective amendments) to this Registration Statement on Form S-4, and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated below:
Signature | Title | Date | ||
| Chairman and Director | |||
| Robert A. McCabe, Jr. | ||||
/s/ M. Terry Turner | President, Chief Executive Officer and Director (Principal Executive Officer) | |||
| M. Terry Turner | ||||
| Chief Financial Officer (Principal Financial and Accounting Officer) | |||
| Harold R. Carpenter | ||||
* | Director | |||
| ||||
| H. Gordon Bone | ||||
| Director | |||
| Charles E. Brock | ||||
* | Director | May 6, 2016 | ||
| Renda Burkhart | ||||
* | Director | May 6, 2016 | ||
| Gregory L. Burns | ||||
* | Director | May 6, 2016 | ||
| Colleen Conway-Welch | ||||
* | Director | May 6, 2016 | ||
| Thomas C. Farnsworth, III | ||||
* | Director | May 6, 2016 | ||
| Glenda Baskin Glover | ||||
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Signature | Title | Date | ||
| Director | |||
| Director | |||
| ||||
| ||||
| William Huddleston, IV | ||||
| Director | |||
| Ed C. Loughry, Jr. | ||||
| Director | |||
| Gary L. Scott | ||||
| Director | |||
| Reese L. Smith III | ||||
* By: | /s/ M. Terry Turner | |
| Attorney-in-fact | ||
| May 6, 2016 |
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EXHIBIT INDEX
EXHIBIT NUMBER | DESCRIPTION | |
| 2.1† | Agreement and Plan of | |
| 3.1 | Amended and Restated Charter of Pinnacle Financial Partners, Inc., as amended (incorporated herein by reference to Exhibit 3.1 to Pinnacle Financial Partner’s Current Report on Form 8-K, as filed with the Commission on April 27, 2015 (File No. 000-31225)). | |
| 3.2 | Bylaws of Pinnacle Financial Partners, Inc., as amended (incorporated herein by reference to Exhibit 3.2 to Pinnacle Financial Partner’s Current Report on Form 8-K, as filed with the Commission on April 27, 2015 (File No. 000-31225)). | |
| 5.1* | Opinion of Bass, Berry & Sims PLC regarding the legality of the securities being registered. | |
| 8.1** | Opinion of Bass, Berry & Sims PLC regarding certain tax matters. | |
| 8.2** | Opinion of | |
| 10.1** | Employment Agreement by and among Pinnacle Financial Partners, Inc., Pinnacle Bank and Ronald L. Samuels. | |
| 10.2** | Employment Agreement by and among Pinnacle Financial Partners, Inc., Pinnacle Bank and G. Kent Cleaver. | |
| 10.3** | Employment Agreement by and among Pinnacle Financial Partners, Inc., Pinnacle Bank and E. Andrew Moats. | |
| 10.4** | Form of Voting Agreement executed by directors and executive officers of Avenue Financial Holdings, Inc. | |
| 21.1* | Subsidiaries of Pinnacle Financial Partners, Inc. | |
| 23.1* | Consent of KPMG LLP, independent registered public accounting firm to Pinnacle Financial Partners, Inc. | |
| 23.2* | Consent of KPMG LLP, independent registered public accounting firm to Avenue Financial Holdings, Inc. | |
| 23.3* | Consent of BKD, LLP, independent registered public accounting firm to Avenue Financial Holdings, Inc. | |
| 23.4* | Consent of Bass, Berry and Sims PLC (included in Exhibit 5.1 above). | |
| Consent of Bass, Berry and Sims PLC (included in Exhibit 8.1 above). | ||
| Consent of | ||
| 24.1* | Power of attorney (included on the signature page to this registration statement). | |
| 99.1** | Form of Proxy Card for | |
| 99.2* | Consent of | |
| 99.3* | Consent of | |
| 99.4* | Consent of David Ingram | |
| 99.5* | Consent of Joseph Galante | |
| 99.6* | Consent of Keefe, Bruyette & Woods, Inc. | |
| * |
| ** |
| † | Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrants hereby undertake to furnish supplementally copies of any of the omitted schedules and other similar attachments upon request by the Securities and Exchange Commission. |
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