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JUNIOR SUBORDINATED MANDATORY CONVERTIBLE DEFERRABLE INTEREST DEBENTURES DUE MARCH 15, 2040
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6 Months Ended | ||
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Jun. 30, 2011
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| JUNIOR SUBORDINATED MANDATORY CONVERTIBLE DEFERRABLE INTEREST DEBENTURES DUE MARCH 15, 2040 |
On
February 9, 2010 the Company established a new Delaware statutory
trust subsidiary, ServisFirst Capital Trust II (the “2010
Trust”), which issued 15,000 shares of its 6.0% Mandatory
Convertible Trust Preferred Securities (the “Preferred
Securities”) for $15,000,000, or $1,000 per Preferred
Security, on March 15, 2010. The 2010 Trust simultaneously issued
50,000 shares of its common securities to the Company for a
purchase price of $50,000, or $1.00 per share, which together with
the Preferred Securities, constitutes all of the issued and
outstanding securities of the 2010 Trust (collectively, the
“Trust Securities”). The 2010 Trust invested
all of the proceeds from the sale of the Trust Securities in the
Company’s 6.0% Junior Subordinated Mandatory Convertible
Deferrable Interest Debentures due March 15, 2040 in the principal
amount of $15,050,000 (the “Subordinated
Debentures”). The Preferred Securities were
offered and sold to accredited investors in a private
placement.
Holders
of the Preferred Securities are entitled to receive distributions
accruing from March 15, 2010, and payable quarterly in arrears on
March 15, June 15, September 15 and December 15 of each year,
commencing June 15, 2010 unless the Company defers interest
payments on the Subordinated Debentures. Distributions
accrue at an annual rate equal to 6.0% of the liquidation amount of
$1,000 per Preferred Security. The rate and the
distribution dates for the Preferred Securities correspond to the
interest rate and payment dates on the Subordinated Debentures,
which constitute substantially all the assets of the 2010
Trust. As a result, if principal or interest is not paid
on the Subordinated Debentures, no corresponding amounts will be
paid on the Preferred Securities. The 2010 Trust also
pays a distribution on the common securities at an annual rate of
6.0% of the purchase price of the common securities, but such
payments are financially immaterial since they simply represent a
return of funds to the Company.
The
Subordinated Debentures are subordinate and junior in right of
payment to all of the Company’s senior debt, as defined in
the Indenture (as defined below); provided, however, that, while
any of the Preferred Securities remain outstanding, the Company
shall not incur any additional senior debt in excess of 0.5% of the
Company’s average assets for the fiscal year immediately
preceding, unless approved by the holders of a majority of the
outstanding Preferred Securities. The Company has the
right to defer payments of interest on the Subordinated Debentures
from time to time, for up to 20 consecutive quarterly periods for
each deferral period. During any deferral period, the
Company may not (i) pay dividends on or redeem any of its capital
stock, (ii) pay principal of or interest on any debt securities
ranking pari
passu with or subordinate to the Subordinated Debentures or
(iii) make any guaranty payments with respect to any guaranty of
the debt securities of any of the Company’s subsidiaries if
such guaranty ranks pari passu with or
junior in right of payment to the Subordinated
Debentures.
If
not previously redeemed or converted into common stock of the
Company, the Preferred Securities will automatically and
mandatorily convert into common stock of the Company on March 15,
2013 at a conversion price of $25 per share of common
stock. In addition to such mandatory conversion, the
Preferred Securities may be converted into common stock of the
Company at the option of the holder at any time prior to the
earliest to occur of maturity, redemption or mandatory conversion
at the same conversion price.
The
Preferred Securities are subject to mandatory redemption upon
repayment of the Subordinated Debentures at their stated maturity
(as defined in the Indenture), or upon earlier redemption of the
Subordinated Debentures. The Subordinated Debentures are redeemable
by the Company at any time in whole, but not in part, upon the
occurrence of a special event, as defined in the
Indenture.
The
Company has the right at any time to terminate the 2010 Trust and
cause the Subordinated Debentures to be distributed to the holders
of the Preferred Securities in liquidation of the 2010 Trust. This
right is optional and wholly within the Company’s
discretion.
The
Company is required by the Federal Reserve Board to maintain
certain levels of capital for bank regulatory purposes. The Federal
Reserve Board has determined that certain cumulative preferred
securities having the characteristics of trust preferred securities
qualify as minority interests, which is included in Tier 1 capital
for bank and financial holding companies. In calculating
the amount of Tier 1 qualifying capital, the trust preferred
securities can only be included up to the amount constituting 25%
of total Tier 1 capital elements (including trust preferred
securities). Such Tier 1 capital treatment provides the Company
with a more cost-effective means of obtaining capital for bank
regulatory purposes than if the Company were to issue preferred
stock.
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