Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. FIRST MARINER BANCORP (946090) 10-K published on Mar 31, 2014 at 9:56 am
Reporting Period: Dec 30, 2013
On February 7, 2014, the Company entered into a Merger and Acquisition Agreement ("M&A Agreement") with RKJS Bank ("RKJS"), a Maryland chartered trust company. Pursuant to the terms and subject to the conditions set forth in the M&A Agreement, RKJS has agreed to purchase all of the issued and outstanding shares of common stock of the Bank ("Acquired Stock") and certain other assets held in the name of the Company, but used in the business of the Bank (together with Acquired Stock, "Acquired Assets") for a cash purchase price of $4.775 million ("Purchase Price"). If the Bank’s Tier I Capital, calculated in accordance with FDIC regulations, but reduced for the cost of directors’ and officers’ liability insurance tail coverage, is less than $29.0 million, the Purchase Price will be reduced on a dollar-for-dollar basis for each dollar that such Tier 1 Capital is less than $29.0 million. The acquisition of the Acquired Stock will be accomplished by the merger of RKJS with and into the Bank, with the Bank being the surviving entity (the "Merger"). Upon completion of the Merger, RKJS has agreed to recapitalize the Bank with additional capital of between $85.0 million and $100.0 million, less the Purchase Price. RKJS will purchase the Acquired Assets free and clear of all liens, claims, and encumbrances and will assume no liabilities of the Company.
Upon expiration of the applicable 30-day grace period on February 6, 2014, with respect to Mariner Capital Trust ("MCT") III and VI and February 7 with respect to MCT V, these payment failures became defaults under the Indentures entered into by Trusts and certain financial institutions as trustees (the "Trustees") and the related Guarantee Agreements between the Company and the Trustees. Neither of MCT III or MCT VI nor the Company paid the delinquent interest amounts prior to or upon the expiration of the 30-day grace period on February 6, 2014, and neither MCT V nor the Company paid the delinquent interest amounts prior to or upon the expiration of the 30-day grace period on February 7, 2014. As a result, the Trustees and holders of the outstanding trust preferred securities of the applicable Trusts have the right to accelerate all principal, accrued interest, and other obligations of the Trusts under the applicable Debentures and to demand payment of all such amounts from the Company under the related Guarantee Agreements. The Company has learned that on February 7, 2014, certain holders of $5.0 million of trust preferred securities issued by MCT III filed suit in the U.S. District Court for the Southern District of New York seeking payment of the $5.0 million principal amount due on their outstanding trust preferred securities plus costs and interest. The total principal and accrued interest owed under the Debentures issued to the Trusts was approximately $60.6 million as of February 7, 2014. In addition, the Trusts and the Company are obligated to reimburse the trustees for all reasonable expenses, disbursements, and advances in connection with the exercise of rights under the Indentures.
Following the filing of the Chapter 11 Proceeding, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be settled for amounts recorded. The Company has not finalized any plans of reorganization, restructuring, or liquidation, although it is anticipated that any such plans would change the amounts reported in the accompanying consolidated financial statements and cause a material change in the carrying amount of assets and liabilities. Future financial statements will be prepared in accordance with the accounting guidance which requires, under certain circumstances, that entities adopt fresh-start reporting upon emergence from Chapter 11 reorganization. Fresh-start reporting involves allocating the reorganization value of the entity (which generally approximates fair value) to the entity’s assets and liabilities. The guidance also requires the debtor to segregate pre-petition liabilities that are subject to compromise and identify all transactions and events that are directly associated with the reorganization of the debtor. A portion of the liabilities recorded at December 31, 2013 are expected to be subject to compromise. Also in accordance with the guidance, after the filing date, interest will no longer be accrued on any secured or unsecured debt that will not be paid during the proceeding or for which it is probable that it will not be an allowed priority. The Company expects to sell the Bank through the Chapter 11 Proceeding (see Note 26) and, if the Company does so, it will have no significant remaining assets to continue in business. The Company expects all proceeds from the sale of such business to be used to pay creditors and the expenses of the Chapter 11 Proceeding.
On February 7, 2014, the Company entered into the M&A Agreement with RKJS Bank ("RKJS"), a Maryland chartered trust company. Pursuant to the terms and subject to the conditions set forth in the M&A Agreement, RKJS has agreed to purchase all of the issued and outstanding shares of common stock of the Bank ("Acquired Stock") and certain other assets held in the name of the Company, but used in the business of the Bank (together with Acquired Stock, "Acquired Assets") for a cash purchase price of $4.775 million ("Purchase Price"). If the Bank’s Tier I Capital, calculated in accordance with FDIC regulations, but reduced for the cost of directors’ and officers’ liability insurance tail coverage, is less than $29.0 million, the Purchase Price will be reduced on a dollar-for-dollar basis for each dollar that such Tier 1 Capital is less than $29.0 million. The acquisition of the Acquired Stock will be accomplished by the merger of RKJS with and into the Bank, with the Bank being the surviving entity (the "Merger"). Upon completion of the Merger, RKJS has agreed to recapitalize the Bank with additional capital of between $85.0 million and $100.0 million, less the Purchase Price. RKJS will purchase the Acquired Assets free and clear of all liens, claims, and encumbrances and will assume no liabilities of the Company.
The M&A Agreement requires that the Company file the Chapter 11 Proceeding (which occurred on February 10, 2014). The M&A Agreement also contains covenants of the Company and RKJS, including, among others, an agreement by the Company and RKJS to use their commercially reasonable best efforts to obtain the entry of an order of the Bankruptcy Court approving certain auction and sale procedures with respect to the Acquired Assets ("Bidding Procedures Order").
Potential Payments Upon Termination
The Company has entered into a Change in Control Agreement with Mr. Keidel. The agreement provides for severance payments to him should a change in control occur and he experiences an involuntary loss of employment or a voluntary termination for "good reason" in connection with the change in control under the agreements. Mr. Keidel has grounds to terminate his employment for "good reason" following a material reduction in the authority, responsibilities, duties, or scope of the executive’s position from those that existed before the change in control, a reduction in Mr. Keidel's salary from the rate that existed before the change in control, or a requirement that Mr. Keidel relocate to an office that is more than 35 miles distant from the City of Baltimore. Under the agreement, Mr. Keidel would be entitled to benefits equal to 2 times his base compensation. Base compensation means the sum of (i) the greater of (a) Mr. Keidel's annual salary computed at the annual rate in effect immediately before the change in control or (b) the amount paid to Mr. Keidel during the 12-month period preceding the change in control plus (ii) the average bonus paid over the past three years under the Company’s short-term incentive program. Due to the fact that we’re under the September Order and the FRB Agreements (see "Capital Resources" in Item 7 of Part II of this Annual Report on Form 10-K), the Company and the Bank must apply for and receive the approval of the FRB and the FDIC in order to make payments under these agreements.