UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Temecula Valley Bancorp Inc.
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(Name of Registrant as Specified in its Charter)
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Temecula Valley Bancorp Inc.
December 17, 2008
Dear Shareholder:
Our board of directors has approved an amendment to the Articles of
Incorporation of Temecula Valley Bancorp Inc. to authorize the issuance of
preferred shares by Temecula Valley Bancorp Inc. This action by our board of
directors to amend the Articles of Incorporation is subject to the approval of
our shareholders. If approved, the amendment to our Articles of Incorporation
provides us the opportunity to issue shares of preferred stock to investors and
participate in the United States Treasury Department Capital Purchase Program
wherein the Treasury Department buys preferred stock from selected financial
institutions. Although we have applied to participate in this program and have
been requested to amend our submission, we do not know whether we will be
selected to participate in the program or, if selected, how many shares the
Treasury Department would be willing to purchase from us. If it does not appear
that chances for selection to participate in the program are favorable, we may
choose to withdraw our application and possibly seek to raise capital elsewhere.
For a more detailed description of the Capital Purchase Program, please refer to
"APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO AUTHORIZE PREFERRED
STOCK" of the enclosed Consent Solicitation Statement.
We consider the authorization of preferred shares desirable to
provide maximum flexibility with respect to our ability to augment our capital
from time to time. We urge you to read the accompanying written consent
solicitation carefully, as it contains a detailed explanation of the proposed
amendment and the reasons for the proposed amendment. We believe the proposed
amendment is in the best interests of Temecula Valley Bancorp Inc. and our
shareholders.
Please complete, date and sign the enclosed written consent card
and return it promptly in the enclosed envelope so that we receive your response
on or before December 31, 2008 (unless extended by us).
Your continued support and interest in Temecula Valley Bancorp are
sincerely appreciated.
Sincerely,
Luther J. Mohr
Vice Chairman of the Board
TEMECULA VALLEY BANCORP INC.
27710 JEFFERSON AVENUE, SUITE A-100
TEMECULA, CALIFORNIA 92590
NOTICE OF SOLICITATION OF CONSENTS
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To the Shareholders of Temecula Valley Bancorp Inc.:
This Notice of Solicitation of Consents and accompanying Consent
Solicitation Statement are furnished to you by Temecula Valley Bancorp Inc. (the
"Company") in connection with the solicitation on behalf of our board of
directors of written consents from the holders of the Company's common stock to
take action without a shareholders meeting.
Our board of directors is requesting the holders of Company common
stock to consent to an amendment of the Company's Articles of Incorporation to
authorize 5,000,000 shares of preferred stock.
We request that you indicate your written consent to the proposed
amendment by marking, signing and dating the enclosed written consent card and
promptly mailing it in the enclosed envelope (which needs no postage if mailed
in the United States) so that it will be received by the Company on or before
December 31, 2008. Please see the instructions on the enclosed written consent
card.
We have established the close of business on November 14, 2008 as
the record date for determining shareholders entitled to submit written
consents. The proposed corporate action may be taken only if holders of record
on such date representing at least a majority of our outstanding shares of
common stock submit to the Company a written consent to such action on or before
December 31, 2008, subject to extension by our board. Please make sure we
receive your written consent on or before December 31, 2008. We retain the right
to extend such date.
If your shares are held in the name of a brokerage firm, bank
nominee or other institution, only that entity can execute a consent with
respect to your shares of common stock. Accordingly, please contact the person
responsible for your account and give instructions for a consent for your shares
to be signed, dated and delivered to us.
The Board unanimously recommends that you CONSENT to the amendment
to the Articles of Incorporation to authorize 5,000,000 shares of preferred
stock.
Our mailing address is 27710 Jefferson Avenue, Suite A-100,
Temecula, California 92590. If you need additional materials, please contact
Donald A. Pitcher, our Chief Financial Officer and Secretary, at (951) 694-9940.
By Order of the Board of Directors:
Donald A. Pitcher
Secretary
Temecula, California
December 17, 2008
TEMECULA VALLEY BANCORP INC.
27710 JEFFERSON AVENUE, SUITE A-100
TEMECULA, CALIFORNIA 92590
CONSENT SOLICITATION STATEMENT
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INTRODUCTION
This consent solicitation statement is being furnished in connection with the
solicitation of written consents of the shareholders of Temecula Valley Bancorp
Inc. (the "Company") to amend our Articles of Incorporation. The proposed
amendment to our Articles of Incorporation would create an additional class of
5,000,000 shares of authorized preferred stock. This consent solicitation
statement contains important information for you to consider when deciding how
to vote on this matter. Please read it carefully.
Our board of directors set the close of business on November 14, 2008 as the
record date. Shareholders who were the record holders of Temecula Valley Bancorp
Inc. common stock as of that date are entitled to act with respect to the
consent. There were 10,040,267 shares of our common stock outstanding on
November 14, 2008 held of record by approximately 383 registered shareholders.
Voting materials, which include this consent solicitation statement and a
written consent card, are being mailed to shareholders on or about December 17,
2008.
QUESTIONS AND ANSWERS ABOUT THE CONSENT SOLICITATION STATEMENT
Why am I receiving this consent solicitation statement and written consent card?
You are receiving this consent solicitation statement and written consent card
because you owned shares of our common stock as of the close of business on
November 14, 2008. This consent solicitation statement describes the issue on
which we would like you to vote by written consent.
Our board of directors has elected to obtain shareholder approval of the
amendment to our Articles of Incorporation by written consent, rather than by
calling a special meeting of shareholders. Written consents are being solicited
from all of our shareholders pursuant to Section 603 of the California
Corporations Code and Section 2.11 of Article II of our Bylaws.
When must we receive the consents?
Please return your written consent by 5:00 p.m., Pacific Standard Time, on
December 31, 2008 (unless extended by us).
Who is soliciting my consent and who is paying the cost of solicitation?
Our board of directors is sending you this consent solicitation statement in
connection with its solicitation of consents to approve the amendment to our
Articles of Incorporation. Certain directors, officers and employees of our
company may solicit consents by mail, facsimile or in person. Our company will
pay for the costs of solicitation. We expect to pay any compensation for the
solicitation of consents and in connection with the reasonable expenses of
brokers, nominees and similar record holders in mailing consent materials to
beneficial owners of our common stock.
What am I voting on?
1
We are asking you to consent to an amendment to our Articles of Incorporation to
provide for the authorization of 5,000,000 shares of preferred stock. If
approved, the amendment to our Articles of Incorporation provides us the
opportunity to participate in the United States Treasury Department Capital
Purchase Program wherein the Treasury Department buys preferred stock from
selected financial institutions. We have applied to participate in this program
but we do not know whether we will be selected to participate in the program or,
if selected, how many shares the Treasury Department would be willing to
purchase from us. If it does not appear that chances for selection to
participate in the program are favorable, we may choose to withdraw our
application and possibly seek to raise capital elsewhere. For a more detailed
description of the Capital Purchase Program, please refer to "APPROVAL OF
AMENDMENT TO ARTICLES OF INCORPORATION TO AUTHORIZE PREFERRED STOCK."
Who is entitled to vote?
Only shareholders who were owners of record of our common stock as of the close
of business on November 14, 2008 are entitled to receive notice of the
solicitation of consents and to vote their shares as "consent," "consent
withheld" or "abstain." A "consent withheld" or an "abstain" will be counted as
a vote against the proposal.
How many votes do I have?
Each share of common stock entitles the holder of record to one vote on the
matter set forth in the written consent card.
How do I vote on the consent?
You may vote as follows:
By Mail. Be sure to complete, sign and date the written consent card and return
it in the prepaid envelope. If you are a shareholder of record and you return
your signed written consent card but do not indicate your voting preferences,
you will be deemed to have consented to the amendment.
If your shares are held in street name, voting will depend on the voting
processes of your broker, bank or other holder of record. Therefore, we
recommend that you follow the voting instructions in the materials you receive
directly from the holder of record.
Can I change my vote after I return my written consent card?
Yes. You may revoke your written consent and change your vote at any time before
we receive enough CONSENTS in favor of the proposal for the proposal to be
approved by filing with our Secretary at our main office either a notice of
revocation or another signed written consent card bearing a later date.
What is the recommendation of the board of directors?
Our board of directors recommends that you CONSENT to the amendment to our
Articles of Incorporation.
Will my shares be voted if I do not sign and return my written consent card?
If your shares are registered in your name and you do not return your written
consent card, your shares will not be voted. If your shares are held in street
name and you do not submit voting instructions to your broker, your broker may
or may not be able to vote your shares, depending on your brokerage agreement.
How will broker non-votes be treated?
Broker non-votes will not be entitled to vote. They will have no effect on the
outcome of the proposed amendment.
How will abstentions be treated?
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Abstentions will be treated as votes against a proposal.
What vote by consent is required to approve the amendment to our Articles of
Incorporation?
The favorable vote by consent of the holders of a majority of the shares of our
common stock outstanding and entitled to vote is required to approve the
amendment to our Articles of Incorporation. If you do not consent to the
amendment or if you do not vote at all (abstain), and we do not otherwise obtain
enough consents to approve the changes to our Articles of Incorporation, the
amendment will not be approved.
When are shareholder proposals due?
Pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended
("Exchange Act"), proposals by our shareholders that are intended for inclusion
in our proxy statement and proxy and to be presented at our 2009 annual meeting
must be delivered to our Secretary at our principal offices no later than
December 22, 2008. In addition to these advance notice requirements, there are
other requirements that a shareholder must meet in order to have a proposal
included in our proxy statement under the rules of the Securities and Exchange
Commission ("SEC").
For nominations and all other proposals by our shareholders to be timely and
proper, a shareholder's notice must be delivered to, or mailed and received at,
our principal executive offices in accordance with the advance notice provisions
and other requirements of our bylaws and applicable law. Our bylaws provide that
proposals may be made by any shareholder who timely and completely complies with
the notice procedures contained in our bylaws and was a shareholder of record at
the time of giving notice and is otherwise entitled to vote at the meeting, so
long as the proposal is a proper matter for shareholder action and the
shareholder otherwise complies with the provisions of our bylaws and applicable
law. However, shareholder nominations of persons for election to our board of
directors at a special meeting may only be made if our board of directors has
determined that directors are to be elected at the special meeting.
To be timely, a shareholder's notice regarding a proposal not intended for
inclusion in our proxy materials must be delivered to our Secretary at our
principal executive offices not later than, in the case of an annual meeting,
the close of business on the 45th day before the first anniversary of the date
on which we first mailed our proxy materials for the prior year's annual meeting
of shareholders, which mailing date was April 16, 2008. However, if the date of
the current year's meeting has changed more than 30 days from the date of the
prior year's meeting, then in order for the shareholder's notice to be timely it
must be delivered to our Secretary a reasonable time before we mail our proxy
materials for the current year's meeting. For purposes of the preceding
sentence, a "reasonable time" coincides with any adjusted deadline we publicly
announce and in the case of a special meeting, the close of business on the
seventh day following the day on which we first publicly announce the date of
the special meeting.
Except as otherwise provided by law, if the chairperson of the meeting
determines that a nomination or any business proposed to be brought before a
meeting was not made or proposed in accordance with the procedures set forth in
our bylaws and summarized above, the chairperson may prohibit the nomination or
proposal from being presented at the meeting.
How can I find the results of the consent?
Final results will be published in a Form 8-K after the time period providing
consents expires (the earlier of December 31, 2008, unless extended, or the time
at which enough consents have been received to approve the proposal). Final
results will also be published in our annual report on Form 10-K for 2008, which
we will file with the SEC. You may view and print the Form 10-K through the
SEC's electronic data system called EDGAR at www.sec.gov.
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4
BENEFICIAL OWNERSHIP
To our knowledge, one shareholder beneficially owned more than 5% of the
outstanding shares of our common stock as of the record date. He is listed in
the table below.
The following table shows, as of December 1, 2008, the amount of our common
stock beneficially owned (unless otherwise indicated) by (a) each director; (b)
each of the named executive officers (as defined in Item 402(a)(3) of Regulation
S-K) of our company and our bank in the table below; (c) the one person known to
us to be the beneficial owner of more than 5% of our common stock; and (d) all
of our bank's directors and executive officers as a group. Except as otherwise
noted, we believe that the beneficial owners of the shares listed in the
following table, based on information furnished by such owners, have or share
with a spouse voting and investment power with respect to the shares.
Percentages are based on 10,040,267 shares of common stock outstanding as of
December 1, 2008.
The business or mailing address for each listed person is 27710 Jefferson
Avenue, Suite A-100, Temecula, California 92590. For purposes of the table
below, a person is deemed to be the "beneficial owner" of any shares that such
person has the right to acquire within 60 days. Also, for purposes of computing
the percentage of outstanding shares held by each person named above on a given
date, any security that such person has the right to acquire within 60 days is
deemed to be outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
Common Shares Percent
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Name & Position Owned Beneficially of Class
--------------- ------------------ --------
Dr. Steven W. Aichle, Director, Company/Bank 322,894 (1) 3.22%
Frank Basirico, Jr., SEVP/Chief Administrative Officer 22,607 (2) 0.23%
Dr. Robert P. Beck, Director, Company/Bank 217,241 (3) 2.16%
Neil M. Cleveland, Director, Company/Bank 161,402 (4) 1.61%
George Cossolias, Director, Company/Bank 41,000 (5) 0.41%
William H. McGaughey, Former SEVP/Dir. Cap. Mrkts/Treas., Bank -- (6) --
Luther J. Mohr, Director, Company/Bank 358,550 (7) 3.57%
Donald A. Pitcher, EVP/CFO, Bank: CFO, Company 86,886 (8) 0.87%
Thomas M. Shepherd, Former SEVP/Chief Credit Officer, Bank -- (9) --
Stephen H. Wacknitz, Director Company/Bank; Former Pres/CEO/COB, 861,969 (10) 8.59%
Bank/Company/5% Shareholder of Company
Richard W. Wright, Director, Company/Bank 207,366 (11) 2.07%
ALL DIRECTORS AND EXECUTIVE OFFICERS (14 in number) 2,393,921 23.84%
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(1) Includes 123,762 shares of common stock underlying stock options
(2) Includes 16,665 shares of common stock underlying stock options and 130
allocated ESOP shares.
(3) Includes 7,229 shares of common stock underlying stock options
(4) Includes 109,000 shares of common stock underlying stock options
(5) Includes 8,000 shares of common stock underlying stock options
(6) Employment with bank terminated April 7, 2008. We do not know how many
shares, if any, are beneficially owned by Mr. McGaughey.
(7) Includes 105,000 shares of common stock underlying stock options
(8) Includes 31,666 shares of common stock underlying stock options and 220
allocated ESOP shares
(9) Employment with bank terminated January 14, 2008. We do not know how many
shares, if any, are beneficially owned by Mr. Shepherd.
(10) Employment with bank terminated December 3, 2008. Includes 194,671 shares
of common stock underlying stock options and 220 allocated ESOP shares
(11) Includes 80,000 shares of common stock underlying stock options
5
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO AUTHORIZE PREFERRED STOCK
General
On November 4, 2008, our board of directors unanimously approved an amendment to
Article III of our Articles of Incorporation to authorize 5,000,000 shares of
preferred stock in such wholly unissued series and containing such preferences,
limitations and relative rights as may be determined by the board of directors
from time to time. We currently have 40,000,000 shares of authorized common
stock, but we are not authorized to issue preferred stock. Of the 40,000,000
shares of common stock authorized, as of December 1, 2008, 10,040,267 shares are
outstanding, 448,214 shares are reserved for issuance under our 2004 Stock
Incentive Plan, 70,431 shares are subject to outstanding options under our 1996
Incentive and Nonqualified Stock Option Plan (Employees) (expired), 494,876
shares under our 1997 Nonqualified Stock Option Plan (Directors) (expired) and
698,915 shares under our 2004 Stock Incentive Plan.
In addition to reading this proposal, you should review and consider the text of
the proposed amendment, which is set forth in Appendix A attached to this
consent solicitation statement. The amendment will become effective when a
Certificate of Amendment to our Articles of Incorporation is filed with the
Secretary of State of the State of California. We intend to file the Certificate
of Amendment promptly after (and if) our shareholders consent to the amendment.
The text may be amended to include any changes required by the Secretary of
State of the State of California.
Purpose of the Proposal
Our board of directors believes that the proposed authorization of preferred
stock would provide us with flexibility to issue shares of preferred stock for a
variety of purposes, including without limitation, funding general working
capital needs and internal growth. We have no specific agreements, commitments
or plans at this time for the issuance, sale or other use of series or classes
of preferred stock, except that we may participate in the Troubled Assets Relief
Program Capital Purchase Program ("Program") sponsored by the United States
Treasury Department ("Treasury"). We have submitted an application to
participate in the Program, as more fully described below. We have requested
that Treasury purchase $45 million of securities under the Program but we do not
know what amount of this request, if any, will be approved. Our application to
participate is currently under review by our bank regulators (the Federal
Deposit Insurance Corporation and the Federal Reserve Board) and Treasury.
Treasury is not obligated to accept our application or purchase any securities
from us.
The terms of the senior trust preferred securities ("Senior Preferred") under
the Program currently published by Treasury are set forth at Appendix B attached
to this consent solicitation statement. Generally, Treasury will purchase for
cash from selected financial institutions Senior Preferred of not less than 1%
of its risk weighted assets and not more than the lesser of (i) 3% of specified
assets and (ii) $25 billion long with warrants. The Senior Preferred would be
senior to our common stock, pay 5% per annum cumulative dividends for five years
and, thereafter, 9% per annum cumulative dividends, and could not be redeemed
for three years except with proceeds from a qualified offering of not less than
25% of the aggregate proceeds from the sale of Senior Preferred. The redemption
price would equal the purchase price plus accrued and unpaid dividends. Because
we do not currently pay a dividend and dividend increases require the consent of
the Treasury, dividends could not be paid on common stock for three years
without such consent. In addition, the Senior Preferred would be nonvoting
except in specific instances that adversely affect such shares. If dividends on
the Senior Preferred are not paid for six quarterly periods, the Senior
Preferred holders would have the right to elect two directors to our board of
directors. We would be required to file a shelf registration covering the resale
of the Senior Preferred after issuance, and the Senior Preferred holders would
have piggyback registration rights. Listing of the Senior Preferred on a
national exchange could be requested by the holders of the Senior Preferred.
There would be certain restrictions and requirements relative to management
compensation so long as Senior Preferred are outstanding including restrictions
on compensation paid to named officers that might encourage such officers to
take unnecessary and excessive risks, requirements for recovery (clawback) of
payments if compensation were based upon materially inaccurate financial
statements or any other materially inaccurate criteria, restrictions on golden
parachute payments, generally in excess of three times base salary, and a
$500,000 per year cap on deductibility of compensation for tax purposes.
6
Treasury would also receive a warrant to acquire 15% of the Senior Preferred
purchase amount in our common stock. The exercise price of the warrant would be
the market price of our common stock (calculated over 20 days) at the time of
the sale of the Senior Preferred. The holders of the warrant would agree that
they would not exercise voting rights upon acquisition of the common shares
under the warrant. Assuming we issue $6,750,000 worth of warrants as above
described and the 20 trading day trailing average closing price of our common
stock is $1.61 at the time of issuance of such warrants, an exercise of all
warrants would result in the issuance of approximately 4,193,000 shares of our
common stock.
As indicated above, it is uncertain whether and to what extent we might be
permitted to participate in the Program. Our board of directors does not intend
to issue any preferred stock except on terms that our board deems to be in the
best interests of our company and its shareholders. If this proposal is
approved, future issuances of series or classes of preferred stock (up to the
5,000,000 shares being authorized) will not require prior notice to shareholders
or shareholder approval, unless required under the terms of any then existing
class or series of preferred stock or required by the rules of any exchange on
which our securities are then traded.
Use of Proceeds
Assuming we participate in the Program or obtain capital from a different
source, the proceeds to us resulting from the sale of preferred shares (and
warrants, if under the Program) would be utilized for any legitimate corporate
purpose. The expected use of such proceeds is unknown at this time; however,
proceeds may be used to facilitate any or none of the following purposes: to
reduce short term borrowings with a higher cost of funds, to extend financing to
new and existing loan customers, invest in growth markets, and pursue any other
strategic objectives for purposes of enhancing shareholder value.
Shelf Registration Statement; Listing of Securities on NASDAQ
Pursuant to the terms of the Securities Purchase Agreement released by Treasury
in connection with the Program (the "Securities Purchase Agreement"), we will be
required to file a shelf registration statement with the Securities and Exchange
Commission for purpose of registering the Senior Preferred shares, the warrants
and the common shares issuable under the warrants as promptly as practicable
after the date of Treasury's investment, and maintain the effectiveness of such
registration statement. The Securities Purchase Agreement further requires that
we use our reasonable best efforts to cause the Senior Preferred shares (if
requested by Treasury) and the shares of common stock issuable upon exercise of
the warrant to be listed on the national securities exchange on which our common
stock is listed, or on another national securities exchange designated by
Treasury.
Possible Adverse Effects of the Proposal
The issuance of preferred stock, including shares to Treasury under the Program,
may have adverse effects upon the holders of common stock. It is not possible to
determine the actual effect of the authorization and issuance of the preferred
stock on the rights of the shareholders of our company until our board of
directors determines the rights of the holders of a series or class of preferred
stock and, with respect to the Senior Preferred, until the issuance is
finalized. Such effects under the Program and otherwise may include:
1. Restrictions on the payment of dividends to holders of common stock. Any
preferred shares we may issue may restrict or prohibit, in certain
instances, the payment of dividends to holders of our common stock. If we
issue Senior Preferred shares to Treasury, for as long as any such shares
are outstanding, no dividends may be declared or paid on common shares, nor
may we repurchase or redeem any common shares, unless all accrued and
unpaid dividends for all past dividend periods on such shares are fully
paid. In addition, the consent of Treasury will be required for any payment
of dividends on common shares until the third anniversary after the sale to
Treasury unless, prior to such third anniversary, we redeem all of the
shares in whole or Treasury has transferred all of the shares to third
parties.
7
2. Dilutive effects of issuing preferred securities and warrants. If we issue
preferred shares that are not part of the Program, it is possible that such
shares could have dilutive effects upon the shares held by our common
holders. As of December 1, 2008, there were 10,040,267 shares of our common
stock issued and outstanding. Assuming Treasury approves our application to
participate in the Program and we sell $45 million worth of shares of the
Senior Preferred shares to Treasury, and further assuming we would be
required to issue warrants to purchase common stock valued at $6,750,000,
which would equate to warrants for approximately 4,193,000 shares of common
stock assuming (for illustrative purposes only) a $1.61 exercise price,
representing approximately 30% of the currently issued and outstanding
shares, assuming the warrant is fully exercised.
The effect of the issuance of the Senior Preferred shares to Treasury on
earnings is indeterminable at this time because we have not yet determined
specifically how we will use the proceeds of such issuance. However, an
exercise of all of the warrants at a $1.61 exercise price could dilute the
earnings per share of each of the existing common shareholders by as much
as 30%. An exercise price exceeding the illustrative $1.61 would result in
fewer shares being issued, and less dilution, while an exercise price of
less than $1.61 would result in more shares being issued, and greater
dilution.
With respect to book value per share, an exercise of all of the warrants
could dilute the book value per share, but only in the event that the
exercise price does not exceed the then-existing book value per share. As
of September 30, 2008, the book value per share was approximately $10.11,
while the closing price of our common stock over the past 52 weeks ranged
from a low of $1.02 to a high of $13.75.
3. Effect on your voting rights. Preferred stock we may issue could have
voting rights which would have the effect of diluting the voting rights of
our holders of common stock. The Senior Preferred shares will be
non-voting, other than class voting rights on (i) any authorization or
issuance of shares ranking senior to the Senior Preferred shares, (ii) any
amendment to the rights of Senior Preferred, or (iii) any merger, exchange
or similar transaction which would adversely affect the rights of the
Senior Preferred. If dividends on the Senior Preferred shares are not paid
in full for six dividend periods, whether or not consecutive, the Senior
Preferred shares will have the right to elect two directors. The right to
elect directors will end when full dividends have been paid for four
consecutive dividend periods. With respect to the warrants, the Securities
Purchase Agreement provides that Treasury will agree not to exercise any
voting rights with respect to shares of common stock issued upon exercise
of such warrants.
4. Restrictions on repurchases. Under the Program, Treasury's consent will be
required for any share repurchases (other than (i) repurchases of the
Senior Preferred shares and (ii) repurchases of common shares in connection
with any benefit plan in the ordinary course of business consistent with
past practice) until the third anniversary after Treasury's investment
unless prior to such third anniversary the Senior Preferred shares are
redeemed in whole or Treasury has transferred all of the Senior Preferred
shares to third parties. In addition, there may be no share repurchases of
common shares if prohibited as described under "Restrictions on the payment
of dividends to holders of common stock" above.
5. Require an expansion of our Board. Under the terms of the Program, if we
fail to pay dividends for six quarterly periods, we could be required to
increase the size of our Board by two members to accommodate members that
can be appointed by Treasury.
6. Other adverse effects. The Senior Preferred shares or other preferred
shares, when issued, may have rights and preferences in addition to the
foregoing that materially impact the holders of our common stock, but which
are indeterminable at this time.
Effect of Denial of Application to Participate in the Program
In the event our shareholders approve the Amendment but our application to
participate in the Program is denied, management believes that such denial may
have a material effect on our liquidity, capital resources and/or results of
operations; however, such a denial does not preclude us from seeking and
securing other sources of capital.
8
As discussed in detail in our quarterly report on Form 10-Q for the period
ending September 30, 2008, we reported, net, year-to-date charge-offs in our
loan portfolio of $11,003,000 and recorded a provision for loan losses of
$15,050,000. The capital that we could raise as a result of our participation in
the Program or otherwise through a separate offering would provide capital
insulation in the event additional loan losses are incurred, or if local
economic conditions worsen and we begin to experience higher levels of loan
losses than we have experienced in the first nine months of 2008. For example,
assuming we are approved to issue Senior Preferred in an amount equal to 3% of
risk-weighted assets, we would receive approximately $45 million pursuant to the
Program. If we are approved at the minimum level of 1% of risk-weighted assets,
we would receive approximately $15 million.
Liquidity. Liquidity is the ability to quickly raise cash at a reasonable cost.
An adequate liquidity position permits us to pay creditors, compensate for
unforeseen deposit fluctuations and fund unexpected loan demand. While
management believes that we currently have in place adequate resources to permit
us to continue to meet our short-term and long-term obligations, funds raised
under the Program could be deployed for such purposes at a lower cost than
traditional sources of liquidity.
Capital Resources. We, on a consolidated basis, and our subsidiary bank are
subject to various regulatory capital requirements. Failure to meet minimum
capital requirements can subject us and/or our subsidiary bank to regulatory
action that could have a direct material effect on our financial statements.
While management expects that we and our subsidiary bank will continue to
maintain for the foreseeable future capital levels that exceed the regulatory
standards to be deemed "well-capitalized," the incurrence of additional losses,
if significant, could result in the deterioration of our capital position to the
point that we are no longer considered well-capitalized. The ability to raise
additional capital at relatively low cost through the Program is attractive for
purposes of maintaining our well-capitalized status, if necessary.
Results of operations. Our earnings decreased for the first nine months of 2008,
due to the losses incurred in our loan portfolio described above. Because our
earnings are significantly impacted by the performance of our loan portfolio,
additional losses could adversely affect future earnings. Our access to funds
pursuant to the Program would provide us an additional capital cushion for such
losses, and could permit us to improve our profitability through offering
traditional lending products (shifting away from SBA lending) and a lower cost
of funds.
Amendments of Certain Executive Agreements; Waivers from Certain Senior
Executive Officers
If our application to participate in the Program is approved and we decide to
participate, we will adopt the Executive Compensation Standards necessary for
participation in the Program. These standards, which generally would apply to
our chief executive officer, chief financial officer, plus the next three most
highly compensated executive officers (collectively referred to as "senior
executives"), include the following: (1) ensuring that incentive compensation
for senior executives does not encourage unnecessary and excessive risks that
threaten the value of our company; (2) requiring a clawback of any bonus or
incentive compensation paid to a senior executive based on statements of
earnings, gains or other criteria that are later proven to be materially
inaccurate; (3) prohibiting certain severance payments to a senior executive,
generally referred to as "golden parachute" payments, above specified limits set
forth in the U.S. Internal Revenue Code; and (4) agreeing not to deduct for
federal income tax purposes executive compensation in excess of $500,000 for
each senior executive - for this purpose, all compensation paid to the senior
executive for the applicable tax year is taken into account, including certain
qualified performance-based compensation normally deductible under Section
162(m) of the U.S. Internal Revenue Code. Any amendments that we may make are
not expected to materially affect the existing compensation arrangements with
our senior executives nor are such amendments expected to have a material affect
on our Company.
Additionally, the terms of the Securities Purchase Agreement and waiver form
released by Treasury require that our chief executive officer, chief financial
officer and next three most highly compensated executive officers execute a
waiver releasing Treasury and us from any claims that they might have against
Treasury and us as a result of the issuance of any federal regulations that
require the modification of the terms of their agreements with respect to
compliance with the implementation of the Executive Compensation Standards
described above.
9
LIQUIDITY AND FINANCIAL STATEMENT IMPACT
OF THE PROGRAM
Overview
We have always placed great emphasis on maintaining a strong capital base and
continue to exceed regulatory capital requirements for well-capitalized
financial institutions. Management is committed to maintaining a capital level
sufficient to assure shareholders, customers, and regulators that we are
financially sound, and to enable us to provide a desirable level of
profitability. Accordingly, our board of directors believes that we should take
all necessary steps to achieve higher capital levels that will position us to
remain strong through this national economic crisis, including participating in
the Program.
Our capital ratios remain strong and we believe that we have sufficient
liquidity to meet our anticipated funding needs. However, to the extent that
shareholders do not approve by consent the proposed amendment to our Articles of
Incorporation described in this Consent Solicitation Statement, we could be
precluded from participating in the Program, which is one of the most cost
effective methods for any financial institution to further strengthen its
capital base.
In managing our consolidated balance sheet, we depend on access to a variety of
sources of funding to provide us with sufficient capital resources and liquidity
to meet our commitments and business needs, and to accommodate the transaction
and cash management needs of our customers. Sources of funding available to us,
and upon which we rely as regular components of our liquidity and funding
management strategy, include inter-bank borrowings and brokered deposits. We
have also historically enjoyed a solid reputation in the capital markets and
historically have been able to raise funds from either short or long-term
borrowings or equity issuances. Recently, the volatility and disruption in the
capital and credit markets has reached unprecedented levels. In some cases, the
markets have produced downward pressure on stock prices and credit availability
for certain issuers without regard to those issuers' underlying financial
strength. If current levels of market disruption and volatility continue or
worsen, our ability to access certain of our sources of funding on satisfactory
terms may be disrupted, which may adversely affect our capital costs and, in
turn, our liquidity.
Pro Forma Financial Information
The unaudited pro forma condensed consolidated financial data set forth below
has been derived by the application of pro forma adjustments to our historical
financial statements for the year ended December 31, 2007 and the nine months
ended September 30, 2008. The unaudited pro forma consolidated financial data
gives effect to the events discussed below as if they had occurred on January 1,
2007 in the case of the statement of income data and September 30, 2008 in the
case of the balance sheet data.
o The issuance of either $45 million or $15 million of Senior Preferred
stock to Treasury under the Program.
o Assuming the issuance of $45 million of Senior Preferred stock to
Treasury under the Program, the issuance of warrants to purchase
approximately 4,193,000 shares of our common stock assuming a purchase
price of $1.61 per share (trailing 20-day average closing share price
as of December 9, 2008).
o Assuming the issuance of $15 million of Senior Preferred stock to
Treasury under the Program, the issuance of warrants to purchase
approximately 1,398,000 shares of our common stock assuming a purchase
price of $1.61 per share (trailing 20-day average closing share price
as of December 9, 2008).
o The reduction in short-term borrowings (consisting primarily of
brokered deposits) from the proceeds of the Program.
10
We present unaudited pro forma consolidated balance sheet data, including
selected line items from our balance sheet and selected capital ratios, as of
September 30, 2008. We also present unaudited pro forma condensed consolidated
income statements for the year ended December 31, 2007 and the nine months ended
September 30, 2008. The pro forma financial data may change materially based on
the timing and utilization of the proceeds as well as certain other factors
including the strike price of the warrants, any subsequent changes in our common
stock price, and the discount rate used to determine the fair value of the
Senior Preferred.
The information should be read in conjunction with our audited financial
statements and the related notes as filed as part of our Annual Report on Form
10-K for the year ended December 31, 2007, and our unaudited consolidated
financial statements and the related notes filed as part of our Quarterly Report
on Form 10Q for the quarter ended September 30, 2008.
The following unaudited pro forma consolidated financial data is not necessarily
indicative of our financial position or results of operations that actually
would have been attained had proceeds from the Program been received, or the
issuance of the warrants pursuant to the Program been made, at the dates
indicated, and is not necessarily indicative of our financial position or
results of operations that will be achieved in the future. In addition, as noted
above, our participation in the Program is subject to our shareholders approving
by consent the proposed amendment to our Articles of Incorporation described in
this Consent Solicitation Statement.
We have included the following unaudited pro forma consolidated financial data
solely for the purpose of providing shareholders with information that may be
useful for purposes of considering and evaluating the proposal to amend our
Articles of Incorporation. Our future results are subject to prevailing economic
and industry specific conditions and financial, business and other known and
unknown risks and uncertainties, certain of which are beyond our control. These
factors include, without limitation, those described in this Consent
Solicitation Statement and Item 1A of our Annual Report on Form 10-K for the
year ended December 31, 2007, in Item 1A of our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2008 and in our other reports filed with the
SEC, which are specifically incorporated by reference in this Consent
Solicitation Statement.
Pro Forma Financial Information assuming Minimum of $15.0 Million and Maximum of
$45.0 Million Investments
Temecula Valley Bancorp Inc.
Pro Forma Consolidated Balance Sheet Data and Capital Ratios
(in thousands)
(unaudited) Pro forma
Historical September 30, 2008
September 30,
2008 Minimum Maximum
-----------------------------------------------
Balance Sheet:
Total liabilities (1) $ 1,412,517 $ 1,397,517 $ 1,367,517
Shareholders' Equity:
Preferred stock $ - $ 15,000 $ 45,000
Discount on preferred - (1,239) (3,716)
Warrants - 1,239 3,716
Common stock 36,097 36,097 36,097
Retained Earnings 65,415 65,415 65,415
Accumulated other comprehensive loss (57) (57) (57)
---------------------------------------------------
Total shareholders' equity $ 101,455 $ 116,455 $ 146,455
===================================================
Capital Ratios:
Total risk-based capital to risk-weighted
assets ratio 11.46% 12.44% 14.41%
Tier 1 capital ratio 8.81% 10.12% 12.73%
Leverage ratio 9.09% 10.44% 13.14%
Equity to assets ratio 6.70% 7.69% 9.67%
Tangible equity to tangible assets ratio 6.70% 7.69% 9.67%
- -----------------
(1) Assumes that proceeds are initially used to reduce short-term borrowings
(consisting primarily of brokered deposits).
11
Temecula Valley Bancorp Inc.
Pro Forma Condensed Consolidated Statements of Income
(In thousands, except per share data)
Historical 12 Pro forma 12
Months Ended Adjustment Adjustment Months Ended
12/31/07 Minimum Maximum 12/31/07
Minimum Maximum
----------------------------------------------------------------------------
Net interest income (1) $ 65,632 $ 779 $ 2,336 $ 66,411 $ 67,968
Provision for losses on loans 4,600 4,600 4,600
Net interest income after provision for
losses on loans 61,032 779 2,336 61,811 63,368
Non-interest income 16,388 16,388 16,388
Non-interest expense 51,905 51,905 51,905
Income from continuing operations before
income taxes 25,515 779 2,336 26,294 27,851
Income Tax Expense (2) 10,377 328 982 10,705 11,359
Income from continuing operations 15,138 451 1,354 15,589 16,492
Less: Preferred dividends (3) - 998 2,993 998 2,993
Income from continuing operations available to
common stockholders 15,138 (547) (1,639) 14,591 13,499
Basic earnings per share available to common
stockholders 1.45 (0.05) (0.15) 1.40 1.30
Diluted earnings per share available to common
stockholders 1.41 (0.20) (0.48) 1.21 0.93
Income from continuing operations $ 15,138 $ (547) $ (1,639) $ 14,591 $ 13,499
============================================================================
Weighted average shares outstanding
Basic 10,411 10,411 10,411
Diluted (4) 10,767 1,273 3,819 12,040 14,586
(1) Assumes that the $15 million (minimum) and $45 million (maximum) in
Program proceeds are used to reduce short-term borrowings (primarily brokered
deposits) at a rate of 5.19%, which represents the weighted average rate paid
on brokered deposits as of January 1, 2007. For the purpose of this pro
forma, we have assumed an immediate impact on income equating to the decrease
in cost of funds related to the brokered deposits. The actual impact to net
interest income would be different as we will manage the decrease as funds
are received and do not prepay any brokered certificates before contractual
maturity. However, such impact cannot be estimated at this time as the timing
of receipt of funds is unknown.
(2) Additional income tax expense is attributable to additional net interest
income as described in Note 1.
(3) Consists of dividends on Senior Preferred at a 5% annual rate as well as
accretion on discount on preferred stock upon issuance. The discount is
determined based on the value that is allocated to the warrants upon
issuance. The discount is accreted back to par value on a constant effective
yield method (approximately 7%) over a five-year term, which is the expected
life of the Senior Preferred upon issuance. The estimated accretion is based
on a number of assumptions, which are subject to change. These assumptions
include the discount (market rate at issuance) rate on the Senior Preferred,
and assumptions underlying the value of the warrants. The proceeds are
allocated based on the relative fair value of the warrants as compared to the
fair value of the Senior Preferred. The fair value of the warrants is
determined under a Black-Scholes model. The model includes assumptions
regarding our common stock price, dividend yield, stock price volatility, as
well as assumptions regarding the risk-free interest rate. The lower the
value of the warrants, the less negative impact on net income and earnings
per share available to common shareholders. The fair value of the Senior
Preferred is determined based on assumptions regarding the discount rate
(market rate) on the Senior Preferred (currently estimated at 12%).
The lower the discount rate, the less negative impact on net income and
earnings per share available to common shareholders.
(4) As described in the Section titled "Additional Terms of the Capital
Purchase Program," Treasury would receive warrants to purchase a number of
shares of our common stock having an aggregate market price equal to 15% of
the proceeds on the date of issuance with a strike price equal to the
trailing twenty day trading average leading up to the closing date. This pro
forma assumes that the warrants would give Treasury the option to purchase
1,398,000 (minimum) and 4,193,000 (maximum) shares of our common stock. The
pro forma adjustment shows the increase in diluted shares outstanding
assuming that the warrants had been issued on January 1, 2007 at a strike
price of $1.61 (based on our trailing 20 day average share price as of
December 9, 2008) and remained outstanding for the entire period presented.
The treasury stock method was utilized to determine dilution of the warrants
for the period presented. The strike price of $1.61 was compared to our
quarterly average stock price.
12
Temecula Valley Bancorp Inc.
Pro Forma Condensed Consolidated Statements of Income
(In thousands, except per share data)
Historical 9 Pro forma 9
Months Ended Adjustment Adjustment Months Ended
9/30/08 Minimum Maximum 9/30/08
Minimum Maximum
----------------------------------------------------------------------------
Net interest income (1) $ 37,044 $ 584 $ 1,752 $ 37,628 $ 38,796
Provision for losses on loans 15,050 15,050 15,050
Net interest income after provision for
losses on loans 21,994 584 1,752 22,578 23,746
Non-interest income 7,773 7,773 7,773
Non-interest expense 36,785 36,785 36,785
Income from continuing operations before
income taxes (7,018) 584 1,752 (6,434) (5,266)
Income Tax Expense (2) (2,857) 240 721 (2,617) (2,136)
Income from continuing operations (4,161) 344 1,031 (3,817) (3,130)
Less: Preferred dividends (3) - 749 2,245 749 2,245
Income from continuing operations available to
common stockholders (4,161) (405) (1,214) (4,566) (5,375)
Basic earnings per share available to common
stockholders (0.42) (0.03) (0.11) (0.45) (0.53)
Diluted earnings per share available to common
stockholders (0.42) (0.03) (0.11) (0.45) (0.53)
Income from continuing operations $ (4,161) $ (405) $ (1,214) $ (4,566) $ (5,375)
============================================================================
Weighted average shares outstanding
Basic 10,059 10,059 10,059
Diluted (4) 10,059 - - 10,059 10,059
(1) Assumes that the $15 million (minimum) and $45 million (maximum) in
Program proceeds are used to reduce short-term borrowings (primarily brokered
deposits) at a rate of 5.19%, which represents the weighted average rate paid
on brokered deposits as of January 1, 2007. For the purpose of this pro
forma, we have assumed an immediate impact on income equating to the decrease
in cost of funds related to the brokered deposits. The actual impact to net
interest income would be different as we will manage the decrease as funds
are received and do not prepay any brokered certificates before contractual
maturity. However, such impact cannot be estimated at this time as the timing
of receipt of funds is unknown.
(2) Additional income tax expense is attributable to additional net interest
income as described in Note 1.
(3) Consists of dividends on Senior Preferred at a 5% annual rate as well as
accretion on discount on preferred stock upon issuance. The discount is
determined based on the value that is allocated to the warrants upon
issuance. The discount is accreted back to par value on a constant effective
yield method (approximately 7%) over a five-year term, which is the expected
life of the Senior Preferred upon issuance. The estimated accretion is based
on a number of assumptions, which are subject to change. These assumptions
include the discount (market rate at issuance) rate on the Senior Preferred,
and assumptions underlying the value of the warrants. The proceeds are
allocated based on the relative fair value of the warrants as compared to the
fair value of the Senior Preferred. The fair value of the warrants is
determined under a Black-Scholes model. The model includes assumptions
regarding our common stock price, dividend yield, stock price volatility, as
well as assumptions regarding the risk-free interest rate. The lower the
value of the warrants, the less negative impact on net income and earnings
per share available to common shareholders. The fair value of the Senior
Preferred is determined based on assumptions regarding the discount rate
(market rate) on the Senior Preferred (currently estimated at 12%).
The lower the discount rate, the less negative impact on net income and
earnings per share available to common shareholders.
(4) As described in the Section titled "Additional Terms of the Capital
Purchase Program," Treasury would receive warrants to purchase a number of
shares of our common stock having an aggregate market price equal to 15% of
the proceeds on the date of issuance with a strike price equal to the
trailing twenty day trading average leading up to the closing date. This pro
forma assumes that the warrants would give Treasury the option to purchase
1,398,000 (minimum) and 4,193,000 (maximum) shares of our common stock. The
pro forma adjustment shows the increase in diluted shares outstanding
assuming that the warrants had been issued on January 1, 2007 at a strike
price of $1.61 (based on our trailing 20 day average share price as of
December 9, 2008) and remained outstanding for the entire period presented.
The treasury stock method was utilized to determine dilution of the warrants
for the period presented. The strike price of $1.61 was compared to our
quarterly average stock price.
13
Potential Anti-Takeover Effects
The preferred stock that would be authorized if this proposal is approved by our
shareholders and filed with the California Secretary of State may be issued from
time to time as our board of directors may determine, without prior notice to or
further action of our shareholders. The issuance of any or all of these shares
of preferred stock from time to time could cause dilution to the voting rights
and earnings per share of our outstanding shares of common stock. However, we
believe that approval of this proposal is in the best interests of our company
and our shareholders because the increase would make shares of preferred stock
available for issuance in acquisitions or financings that could be used to
enhance our business and results of operations.
Although we have no definitive plans to utilize preferred stock to entrench
present management, we may, in the future, be able to use the available shares
of preferred stock as a defensive tactic against hostile takeover attempts by
issuing shares under a shareholder rights plan, in a private placement or in
another transaction that causes substantial dilution to a person or group that
attempts to acquire control of our company through a merger or tender offer on
terms or in a manner not approved by our board of directors, whether or not our
shareholders favorably view the change in control, merger or tender offer. The
availability of shares of preferred stock will have no current anti-takeover
effect, because no hostile takeover attempts are, to our management's knowledge,
currently threatened.
We generally do not have provisions in our charter documents that operate as
anti-takeover defenses except that, under our bylaws, special meetings of
shareholders may be called only by our board of directors, by certain of our
officers, or by holders of shares entitled to cast not less than 10% of the
votes at the meeting. We also have advance notice provisions in our bylaws,
which restrict shareholders' rights to present director nominations or
shareholder proposals at our shareholders' meetings.
Our shareholders do not possess preemptive rights that would entitle such
persons, as a matter of right, to subscribe for the purchase of any shares,
rights, warrants or other securities or obligations convertible into, or
exchangeable for, securities of our company. We do not presently have plans to
propose the adoption of other anti-takeover measures in future proxy
solicitations.
Consent Required
The affirmative CONSENT of a majority of the outstanding shares of common stock
entitled to vote is required to approve and adopt this proposal.
Board Recommendation
Our board of directors unanimously recommends that shareholders vote for CONSENT
to the adoption of the amendment to Article III of the Articles of Incorporation
to authorize 5,000,000 shares of preferred stock.
ADDITIONAL INFORMATION
The rules of the SEC permit us to "incorporate by reference" certain information
we file with the SEC into this consent solicitation statement. This means that
we can disclose important information to shareholders by referring our
shareholders to another document. Any information incorporated by reference into
this consent solicitation statement is considered to be part of this consent
solicitation statement from the date we file that information with the SEC. Any
reports filed by us with the SEC after the date of this consent solicitation
statement will automatically update and, where applicable, supersede any
information contained in this consent solicitation statement or incorporated by
reference into this consent solicitation statement.
We incorporate herein by reference the following documents and other information
filed with the SEC (other than, in each case, any and all documents and/or
information deemed to have been furnished to but not "filed" with the SEC in
accordance with applicable SEC rules):
o our Annual Report on Form 10-K for the fiscal year ended December 31,
2007;
14
o our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2008 and June 30, 2008 and September 30, 2008;
o our Current Reports on Form 8-K filed on April 4, 2008, May 29, 2008,
November 21, 2008 and December 5, 2008;
o The description of our common stock contained in our Registration
Statement on Form 8-A12G, filed with the SEC on June 3, 2002; and
o All documents filed by us subsequent to the date hereof pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, and prior to December 31, 2008 (unless the time to
obtain the consent is extended).
A copy of any of the documents referred to above will be furnished, without
charge, by writing to the Secretary, Temecula Valley Bancorp Inc., 27710
Jefferson Avenue, Suite A-100, Temecula, CA 92590. In addition, the public may
read and copy any materials we file with the SEC at the SEC's Public Reference
Room at 100 F Street, N.E., Washington D.C. 20549 and may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site, www.sec.gov, through which all forms filed
electronically may be accessed.
By Order of the Board of Directors:
Donald A. Pitcher
Secretary
Temecula, California
December 17, 2008
15
TEMECULA VALLEY BANCORP INC.
27710 JEFFERSON AVENUE, SUITE A-100
TEMECULA, CALIFORNIA 92590
CONSENT
-------
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) acknowledges receipt of the notice dated December 17,
2008 of the solicitation of consents from the shareholders of Temecula Valley
Bancorp Inc., a California corporation (the "Company"), and the Consent
Solicitation Statement related thereto and (ii) votes all shares of the common
stock of the Company held of record by the undersigned on November 14, 2008, in
the manner designated herein.
THIS CONSENT, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATION MADE HEREIN. IF NO SPECIFICATION IS MADE, THIS CONSENT WILL BE
COUNTED AS A "CONSENT" IN FAVOR OF THE PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS PROVIDE THEIR CONSENT TO
THE PROPOSAL. PLEASE REVIEW CAREFULLY THE CONSENT SOLICITATION STATEMENT
DELIVERED WITH THIS CONSENT.
1. To authorize the amendment to the Articles of Incorporation to authorize
5,000,000 shares of preferred stock.
CONSENT CONSENT WITHHELD ABSTAIN
|_| |_| |_|
Name:
------------------------------------
Date:
------------------------------------
Name:
------------------------------------
Date:
------------------------------------
NOTE: PLEASE DATE THIS CONSENT AND SIGN YOUR NAME OR NAMES EXACTLY AS SET FORTH
HEREON. FOR JOINTLY OWNED SHARES, EACH OWNER SHOULD SIGN. IF SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE INDICATE THE
CAPACITY IN WHICH YOU ARE ACTING. CONSENTS EXECUTED BY CORPORATIONS SHOULD BE
SIGNED BY A DULY AUTHORIZED OFFICER AND SHOULD BEAR THE CORPORATE SEAL.
PLEASE DATE AND SIGN THIS CONSENT AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
16
APPENDIX A
----------
TEMECULA VALLEY BANCORP INC.
AMENDMENT TO ARTICLES OF INCORPORATION
Subject to shareholder approval and acceptance by the Secretary of State of the
State of California, Article III of the Articles of Incorporation of the Company
shall be amended to read as follows:
"Section 1. The total number of shares of all classes of capital
which the Corporation has authority to issue is 45,000,000 as follows: (a)
40,000,000 of common stock and (b) 5,000,000 of preferred stock ("Preferred
Stock").
Section 2. The shares may be issued by the Corporation without the
approval of shareholders.
The Board of Directors is authorized, by resolution or resolutions
from time to time adopted, to provide for the issuance of Preferred Stock in one
or more wholly unissued series and to fix and state the powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of such wholly unissued series, and the qualifications, limitations,
or restrictions thereof, including but not limited to:
(i) The distinctive serial designation, the number of shares
constituting such series and the stated or par value thereof;
(ii) The dividend rates or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative
and, if so, from which date or dates, the payment date or dates for
dividends, and the participating or other special rights, if any,
with respect to dividends;
(iii) The voting powers, full or limited, if any, of the shares of
such series;
(iv) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions
upon which such shares may be redeemed;
(v) The amount or amounts payable upon the shares of such series
in the event of voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation;
(vi) Whether the shares of such series shall be entitled to the
benefits of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and, if so entitled, the
amount of such fund and the manner of its application, including
the price or prices at which such shares may be redeemed or
purchased through the application of such funds;
(vii) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of
the Corporation and, if so convertible or exchangeable, the
conversion price or prices, or the rate or rates of exchange, and
the adjustments thereof, if any, at which such conversion or
exchange may be made, and any other terms and conditions of such
conversion or exchange;
(viii) The subscription or purchase price and form of consideration
for which the shares of such series shall be issued;
17
(ix) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares
of Preferred Stock and whether such shares may be reissued as
shares of the same or any other series of Preferred Stock;
(x) The ranking (be it pari passu, junior or senior) of each
class or series vis-a-vis any other class, or series of any class
of Preferred Stock, as to the payment of dividends, the
distribution of assets and all other matters; and
(xi) Any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications,
limitations and restrictions thereof, insofar as they are not
inconsistent with the provisions of these Articles of
Incorporation, to the full extent permitted in accordance with the
laws of the State of California.
Each share of each series of Preferred Stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series.
The powers, preferences and relative, participating, optional and
other special rights of each class of stock and of each series of Preferred
Stock, and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other classes or series at any time
outstanding."
18
APPENDIX B
----------
TARP Capital Purchase Program
Senior Preferred Stock and Warrants
Summary of Senior Preferred Terms
Issuer: Qualifying Financial Institution ("QFI") means (i) any U.S. bank or U.S
savings association not controlled by a Bank Holding Company ("BHC") or Savings
and Loan Company ("SLHC"); (ii) any top-tier U.S. BHC, (iii) any top-tier U.S.
SLHC which engages solely or predominately in activities that are permitted for
financial holding companies under relevant law; and (iv) any U.S. bank or U.S.
savings association controlled by a U.S. SLHC that does not engage solely or
predominately in activities that are permitted for financial holding companies
under relevant law. QFI shall not mean any BHC, SLHC, bank or savings
association controlled by a foreign bank or company. For purposes of this
program, "U.S. bank," "U.S. savings association," "U.S. BHC" and "U.S. SLHC"
means a bank, savings association, BHC or SLHC organized under the laws of the
United States or any State of the United States, the District of Columbia, any
territory or possession of the United States, Puerto Rico, Northern Mariana
Islands, Guam, American Samoa, or the Virgin Islands. The United States
Department of the Treasury will determine eligibility and allocation for QFIs
after consultation with the appropriate Federal banking agency.
Initial Holder: United States Department of the Treasury (the "Treasury").
Size: QFIs may sell preferred to Treasury subject to the limits and terms
described below.
Each QFI may issue an amount of Senior Preferred equal to not less than 1% of
its risk-weighted assets and not more than the lesser of (i) $25 billion and
(ii) 3% of its risk-weighted assets.
Security: Senior Preferred, liquidation preference $1,000 per share. (Depending
upon the QFI's available authorized preferred shares, Treasury may agree to
purchase Senior Preferred with a higher liquidation preference per share, in
which case Treasury may require the QFI to appoint a depositary to hold the
Senior Preferred and issue depositary receipts.)
Ranking: Senior to common stock and pari passu with existing preferred shares
other than preferred shares which by their terms rank junior to any existing
preferred shares.
Regulatory Capital Status: Tier 1
Term: Perpetual life
Dividend: The Senior Preferred will pay cumulative dividends at a rate of 5% per
annum until the fifth anniversary of the date of this investment and thereafter
at a rate of 9% per annum. For Senior Preferred issued by banks which are not
subsidiaries of holding companies, the Senior Preferred will pay non-cumulative
dividends at a rate of 5% per annum until the fifth anniversary of the date of
this investment and thereafter at a rate of 9% per annum. Dividends will be
payable quarterly in arrears on February 15, May 15, August 15 and November 15
of each year.
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Redemption: Senior Preferred may not be redeemed for a period of three years
from the date of this investment, except with the proceeds from a Qualified
Equity Offering (as defined below) which results in aggregate gross proceeds to
the QFI of not less than 25% of the issue price of the Senior Preferred. After
the third anniversary of the date of this investment, the Senior Preferred may
be redeemed, in whole or in part, at any time and from time to time, at the
option of the QFI. All redemptions of the Senior Preferred shall be at 100% of
its issue price, plus (i) in the case of cumulative Senior Preferred, any
accrued and unpaid dividends and (ii) in the case of non-cumulative Senior
Preferred, accrued and unpaid dividends for the then current dividend period
(regardless of whether any dividends are actually declared for such dividend
period), and shall be subject to the approval of the QFI's primary federal bank
regulator.
"Qualified Equity Offering" shall mean the sale by the QFI after the date of
this investment of Tier 1 qualifying perpetual preferred stock or common stock
for cash.
Following the redemption in whole of the Senior Preferred held by Treasury, the
QFI shall have the right to repurchase any other equity security of the QFI held
by Treasury at fair market value.
Restrictions on Dividends: For as long as any Senior Preferred is outstanding,
no dividends may be declared or paid on junior preferred shares, preferred
shares ranking pari passu with the Senior Preferred, or common shares (other
than in the case of pari passu preferred shares, dividends on a pro rata basis
with the Senior Preferred), nor may the QFI repurchase or redeem any junior
preferred shares, preferred shares ranking pari passu with the Senior Preferred
or common shares, unless (i) in the case of cumulative Senior Preferred all
accrued and unpaid dividends for all past dividend periods on the Senior
Preferred are fully paid or (ii) in the case of non-cumulative Senior Preferred
the full dividend for the latest completed dividend period has been declared and
paid in full.
Common dividends: Treasury's consent shall be required for any increase in
common dividends per share until the third anniversary of the date of this
investment unless prior to such third anniversary the Senior Preferred is
redeemed in whole or Treasury has transferred all of the Senior Preferred to
third parties.
Repurchases: Treasury's consent shall be required for any share repurchases
(other than (i) repurchases of the Senior Preferred and (ii) repurchases of
junior preferred shares or common shares in connection with any benefit plan in
the ordinary course of business consistent with past practice) until the third
anniversary of the date of this investment unless prior to such third
anniversary the Senior Preferred is redeemed in whole or Treasury has
transferred all of the Senior Preferred to third parties. In addition, there
shall be no share repurchases of junior preferred shares, preferred shares
ranking pari passu with the Senior Preferred, or common shares if prohibited as
described above under "Restrictions on Dividends."
Voting rights: The Senior Preferred shall be non-voting, other than class voting
rights on (i) any authorization or issuance of shares ranking senior to the
Senior Preferred, (ii) any amendment to the rights of Senior Preferred, or (iii)
any merger, exchange or similar transaction which would adversely affect the
rights of the Senior Preferred.
If dividends on the Senior Preferred are not paid in full for six dividend
periods, whether or not consecutive, the Senior Preferred will have the right to
elect two directors. The right to elect directors will end when full dividends
have been paid for four consecutive dividend periods.
Transferability: The Senior Preferred will not be subject to any contractual
restrictions on transfer. The QFI will file a shelf registration statement
covering the Senior Preferred as promptly as practicable after the date of this
investment and, if necessary, shall take all action required to cause such shelf
registration statement to be declared effective as soon as possible. The QFI
will also grant to Treasury piggyback registration rights for the Senior
Preferred and will take such other steps as may be reasonably requested to
facilitate the transfer of the Senior Preferred including, if requested by
Treasury, using reasonable efforts to list the Senior Preferred on a national
securities exchange. If requested by Treasury, the QFI will appoint a depositary
to hold the Senior Preferred and issue depositary receipts.
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Executive Compensation: As a condition to the closing of this investment, the
QFI and its senior executive officers covered by the EESA shall modify or
terminate all benefit plans, arrangements and agreements (including golden
parachute agreements) to the extent necessary to be in compliance with, and
following the closing and for so long as Treasury holds any equity or debt
securities of the QFI, the QFI shall agree to be bound by, the executive
compensation and corporate governance requirements of Section 111 of the EESA
and any guidance or regulations issued by the Secretary of Treasury on or prior
to the date of this investment to carry out the provisions of such subsection.
As an additional condition to closing, the QFI and its senior executive officers
covered by the EESA shall grant to Treasury a waiver releasing Treasury from any
claims that the QFI and such senior executive officers may otherwise have as a
result of the issuance of any regulations which modify the terms of benefits
plans, arrangements and agreements to eliminate any provisions that would not be
in compliance with the executive compensation and corporate governance
requirements of Section 111 of the EESA and any guidance or regulations issued
by the Secretary of Treasury on or prior to the date of this investment to carry
out the provisions of such subsection.
Summary of Warrant Terms
Warrant: Treasury will receive warrants to purchase a number of shares of common
stock of the QFI having an aggregate market price equal to 15% of the Senior
Preferred amount on the date of investment, subject to reduction as set forth
below under "Reduction." The initial exercise price for the warrants, and the
market price for determining the number of shares of common stock subject to the
warrants, shall be the market price for the common stock on the date of the
Senior Preferred investment (calculated on a 20-trading day trailing average),
subject to customary anti-dilution adjustments. The exercise price shall be
reduced by 15% of the original exercise price on each six-month anniversary of
the issue date of the warrants if the consent of the QFI shareholders described
below has not been received, subject to a maximum reduction of 45% of the
original exercise price.
Term: 10 years
Exercisability: Immediately exercisable, in whole or in part
Transferability: The warrants will not be subject to any contractual
restrictions on transfer; provided that the UST may only transfer or exercise an
aggregate of one-half of the warrants prior to the earlier of (i) the date on
which the QFI has received aggregate gross proceeds of not less than 100% of the
issue price of the Senior Preferred from one or more Qualified Equity Offerings
and (ii) December 31, 2009. The QFI will file a shelf registration statement
covering the warrants and the common stock underlying the warrants as promptly
as practicable after the date of this investment and, if necessary, shall take
all action required to cause such shelf registration statement to be declared
effective as soon as possible. The QFI will also grant to Treasury piggyback
registration rights for the warrants and the common stock underlying the
warrants and will take such other steps as may be reasonably requested to
facilitate the transfer of the warrants and the common stock underlying the
warrants. The QFI will apply for the listing on the national exchange on which
the QFI's common stock is traded of the common stock underlying the warrants and
will take such other steps as may be reasonably requested to facilitate the
transfer of the warrants or the common stock.
Voting: Treasury will agree not to exercise voting power with respect to any
shares of common stock of the QFI issued to it upon exercise of the warrants.
Reduction: In the event that the QFI has received aggregate gross proceeds of
not less than 100% of the issue price of the Senior Preferred from one or more
Qualified Equity Offerings on or prior to December 31, 2009, the number of
shares of common stock underlying the warrants then held by Treasury shall be
reduced by a number of shares equal to the product of (i) the number of shares
originally underlying the warrants (taking into account all adjustments) and
(ii) 0.5.
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Consent: In the event that the QFI does not have sufficient available authorized
shares of common stock to reserve for issuance upon exercise of the warrants
and/or shareholder approval is required for such issuance under applicable stock
exchange rules, the QFI will call a meeting of its shareholders as soon as
practicable after the date of this investment to increase the number of
authorized shares of common stock and/or comply with such exchange rules, and to
take any other measures deemed by Treasury to be necessary to allow the exercise
of warrants into common stock.
Substitution: In the event the QFI is no longer listed or traded on a national
securities exchange or securities association, or the consent of the QFI
shareholders described above has not been received within 18 months after the
issuance date of the warrants, the warrants will be exchangeable, at the option
of Treasury, for senior term debt or another economic instrument or security of
the QFI such that Treasury is appropriately compensated for the value of the
warrant, as determined by Treasury.
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