| o |
Preliminary
Proxy Statement
|
| o |
Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|
| o |
Definitive
Proxy Statement
|
| x |
Definitive
Additional Materials
|
| o |
Soliciting
Material Under Rule 14a-12
|
| x |
No
fee required.
|
| o |
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|
|
(1)
|
Title
of each class of securities to which transaction
applies:
|
|
|
(2)
|
Aggregate
number of securities to which transaction applies:
|
|
|
(3)
|
Per
unit price or other underlying computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and state how
it was determined):
|
|
|
(4)
|
Proposed
maximum aggregated value of transaction:
|
|
|
(5)
|
Total
fee paid:
|
|
| o |
Fee
paid previously with preliminary materials.
|
|
| o |
Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its
filing.
|
|
|
(1)
|
Amount
Previously Paid:
|
|
|
(2)
|
Form,
Schedule or Registration Statement No.:
|
|
|
(3)
|
Filing
Party:
|
|
|
(4)
|
Date
Filed:
|
|
|
Very
truly yours,
|
|
|
BICKNELL
FAMILY HOLDING COMPANY, LLC
|
|
|
By:
|
/s/
Martin C. Bicknell,
|
|
Name:
|
Martin
C. Bicknell
|
|
Title:
|
Manager
|
|
A.
|
Performance
Failures
|
|
|
1.
|
Loss
of Approximately $34 Million of Stockholder Value or Approximately 55% of
Stockholder Value.
|
|
|
a.
|
June
2007 to Present: Price per share has declined approximately 58% from a 52
week high of $17.20 to the closing trading price per share on June 3, 2008
of $7.76.
|
|
|
b.
|
The
Company incurred a net loss of $6.4 million, or $1.79 basic and $1.77
diluted loss per share, resulting a negative return on assets of 3.09%.
This loss was driven by a $6 million impairment charge for the write off
of all of the goodwill associated with the Colorado National Bank. This
loss and related write-off have further reduced the equity value of
outstanding shares as well as regulatory capital. The goodwill write off
also demonstrates that the Company dramatically overpaid for the Colorado
National Bank and that it has not been properly
managed.
|
|
|
c.
|
As
a result of the liquidity and capital inadequacies of the Company, loans
are being curtailed and investments are not being made by the Company in
the securities markets which will further reduce the return on assets. In
addition, the Company will cease its dividend and stock repurchase program
and will not make acquisitions which will further destroy stockholder
value.
|
|
|
2.
|
Continuing
Acceptance of and Further Deterioration of Below Market Operating
Performance.
|
|
|
a.
|
December
2005 to December 2007: Experienced a return on average assets for the
fiscal years ending December 31, 2005, 2006 and 2007 of .59%, 0.55% and
0.53%, respectively, which compare poorly to peer group averages (i) of
1.05%, 1.17% and 1.08% for similar periods. To us this suggests that
management is significantly behind its peer group as it relates to the
effective management of corporate assets.
|
|
|
b.
|
December
2005 to December 2007: Experienced a return on average equity for the
fiscal years ending December 31, 2005, 2006 and 2007 of 7.46%, 7.98% and
7.48%, respectively, which compare poorly to peer group averages (i) of
12.00%, 13.32%, and 11.69% for similar periods. To us this suggests that
management is ineffective when it comes to the profitable deployment of
shareholders’ equity.
|
|
|
c.
|
December
2005 to December 2007: Experienced an efficiency ratio for the fiscal
years ending December 31, 2005, 2006 and 2007 of 79.91%, 80.86% and
81.89%, respectively, which compare poorly to peer group averages (i) of
64.58%, 62.61% and 63.16% for similar periods. In addition, only once in
three years has any
|
|
| member of the Company’s peer group exceeded an 80.00% efficiency ratio (which was subsequently reduced to 74.95%). To us this suggests that management has created an inefficient cost structure contributing to the Company’s “troubled condition.” | ||
|
d.
|
December
2007: Agreed to $1.4 million settlement regarding the sale of the
Company's former insurance agency subsidiary. The Company's portion of the
settlement is approximately $630,000, with the Company's corporate
insurance policy paying approximately $856,500, for a total settlement of
approximately $1,486,500.
|
|
|
e.
|
December
2007: Experienced quarterly income declines for the quarters ending March
2007, June 2007, September 2007 and December 2007 of $1.2 million, $1.4
million, $0.9 million and $0.6 million, respectively.
|
|
|
f.
|
May
2008: Announcement that the Company is in technical default of its
revolving credit agreement due to its status as being in “troubled
condition.”
|
|
|
3.
|
Excessive
Concentration in Real Estate Backed Loans and Related Write
Offs.
|
|
|
a.
|
As
of March 31, 2008, the Banks had 85.6% of their outstanding loans
secured by real estate. Item 1A of the Company's Quarterly Report on Form
10-Q for the first quarter of 2008 ("First Quarter 10-Q") describes
numerous risks to the Company that have been created by this excessive
loan concentration in real estate.
|
|
|
b.
|
Non-performing
assets, made up largely of non-performing loans, have grown by $6.8
million, or 86.1%, from December 31, 2007 to March 31,
2008.
|
|
|
c.
|
The
First Quarter 10-Q states that the Banks are experiencing a trend of
increasing non-performing loans and classified loans that are not yet
considered non-performing. In view of current economic conditions and the
depressed real estate market, the amount of non-performing loans can be
expected to grow significantly. In this regard, during the period from
March 31, 2008 through May 12, 2008, non-accrual loans increased
by an additional $12.6 million, or 6.8%.
|
|
|
d.
|
In
addition, substandard loans (i.e. the ability of borrowers to meet
existing repayment terms is doubtful) totaled $31.9 million as of
March 31, 2008, an increase of 20.3% since December 31,
2007.
|
|
|
e.
|
Due
to pressure from the OCC, the allowance for loan losses was increased by
$2.6 million by charging the provision for loan losses which decreased
earnings by this amount. The allowance for loan losses can be expected to
increase significantly, further depressing earnings, as a result of the
misguided concentration in real-estate backed loans, the growing level of
classified assets, inadequate loan loss allowance methodologies, and
deficiencies in credit administration practices and loan risk rating
systems – which have culminated in
|
|
| the Banks' "troubled condition", as reflected in the OCC's letters to the Banks on April 24, 2008 (the "OCC Letters"). | ||
|
4.
|
Inadequate Liquidity .
As a result of the OCC Letters and the resulting restrictions on the
Banks, the Company is in default on its $6 million credit line. While a
waiver of this default was granted through the renewal date of the line of
credit on June 30, 2008, there is serious doubt that U.S. Bank will
grant this renewal. Even if U.S. Bank does grant the renewal, only $2
million of additional funds remain to be borrowed under that line of
credit. The amount of remaining borrowing capacity will not be adequate to
supply the capital that will be necessary to meet further loan
write-offs.
|
|
|
5.
|
Difficult to Raise
Capital . The reputational risk, liquidity risk and credit risk
that have been created by the deficiencies noted in the OCC Letter, as
well as the other instances of mismanagement noted herein, will make it
difficult to raise the necessary capital. Raising capital at the holding
Company level will be more problematic because the OCC can be expected to
restrict dividend payments from the Banks to the Company in order to
preserve their capital. If the capital can be raised, it will be
expensive.
|
|
|
B.
|
Compliance Failures | |
|
1.
|
Troubled Condition. The OCC Letter states that the Banks are in "troubled condition" for purposes of Section 914 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The OCC Letters are based on the OCC staff's determination that the Banks had deficiencies in credit administration practices, loan risk rating systems, loan loss allowance methodologies, and levels of classified assets. As a result of this determination by the OCC, the Banks are subject to the following restrictions: (a) the Banks must notify the OCC 90 days before adding or replacing a member of the respective Banks' board of directors or employing any, or promoting any existing employee, as a senior executive officer, and (b) the Banks may not, except under certain circumstances, enter into any agreements to make severance or indemnification payments or make any such payments to institution–affiliated parties. | |
|
2.
|
Increase Loan Loss
Reserve. The First Quarter 10-A states that the Company expects
that the OCC's examination report will advise the Banks to continue to
increase their loan loss reserves, increase their regulatory capital
ratios, and closely monitor classified and non-performing
assets.
|
|
|
3.
|
Restrictions of
Dividend. As a result of the Bank’s troubled condition, and further
fallout from the OCC's examination report, it can be expected that further
adverse actions may be pursued by the OCC – which may include suspension
of, or restrictions on, dividends from the Banks to the Company. In
apparent anticipation of this restriction and its capital shortfall, the
Company communicated, on May 6, 2008, that it is considering
suspending the annual dividend of 32 cents a share.
|
|
|
4.
|
Dilution of Stockholder
Value. In order to provide additional capital, the Company also
communicated on May 6, 2008 that it expects to consider several
alternatives, including
|
|
| seeking additional equity. We expect that action will be necessary and will further dilute stockholder value. | ||
|
C.
|
Governance
Failures
|
|
|
1.
|
Continuing Loss or Termination
of Key Employees and Directors .
|
|
|
a.
|
May
2007: Terminated the employment agreement with the Company's President of
Corporate Development.
|
|
|
b.
|
June
2007: Accepted the resignation of the Chairman of the Audit Committee of
the Board of Directors and the Company's Nomination Committee and
Executive Committee.
|
|
|
c.
|
April
22, 2008: Accepted the resignation of the Company's chief financial
officer, Rick Tremblay. Stock trades at $12.35.
|
|
|
2.
|
Entrenchment
of Management Teams and Board Positions.
|
|
|
a.
|
November
2007: The Company held a special meeting and stockholders voted to
eliminate cumulative voting for directors in the Company's Articles of
Incorporation, making it more difficult for large stockholders to elect a
director to the Company's board of directors.
|
|
|
3.
|
Enrichment of Compensation
Packages and Extensions of Golden Parachutes Which Have Been Deemed
Unacceptable by the OCC .
|
|
|
a.
|
January
2007: Amended employment agreement between the Company and Robert J.
Weatherbie increasing his salary, bonus and "golden
parachute".
|
|
|
b.
|
March
2007: Amended employment agreement between the Company and Carolyn S.
Jacobs increasing her salary, bonus and "golden
parachute".
|
|
|
c.
|
March
2007: Amended employment agreement between the Company and Sandra J. Moll
increasing her salary, bonus and "golden
parachute".
|
|