A class-action lawsuit filed on behalf of Cadence Bank shareholders alleges the bank’s managers struck a deal to sell the bank to a Texas investment company for personal gain.
Cadence and Community Bancorp (known as CBC) officials say the suit lacks merit.
The suit, filed Oct. 28 in New York County, N.Y., alleges the deal with CBC, which would allow Cadence to become a privately-owned bank when shareholders are bought out at $2.50 per share of common stock, “protects and advances the interests of the members of Cadence’s management team who are using this opportunity to benefit themselves.”
Specifically, the suit alleges known as CBC agreed to assume the obligations of Cadence Chairman and CEO Lewis F. Mallory Jr. and President and Chief Operating Officer Mark Abernathy under which “pursuant to which each of them will be entitled to payments equal to 2.99 times his base salary plus an amount equal to (12) times his monthly medical insurance premiums which amounts to $907,997 and $738,318 respectively.”
Also, the suit mentions Cadence’s participation in the Troubled Asset Relief Program, through which the U.S. Treasury bought $44 million in preferred Cadence stock. Cadence faced a number of restrictions on compensation as a TARP participant, the suit says.
“Burdened by the restrictions of TARP and unable to repay the United States’ government, the Company’s management therefore sought to rid themselves of these restrictions by effectuating a sale of the Company,” the lawsuit alleges.
The suit also alleges company officials “concealed certain material information which a reasonable shareholder would find material in determining whether to tender his or her shares” in their proxy statement issued Oct. 20 regarding the CBC-Cadence transaction.
The suit was filed on behalf of RSD Capital and all other Cadence shareholders except for the defendants, who include Cadence’s Board of Directors, and those affiliated with them. RSD Capital has owned Cadence common stock on a continuing basis since on or around Oct. 15, 2007.
On Thursday, bank officials responded in a statement to the suit on behalf of Cadence Bank as well as Abernathy and Mallory. It reads:
“The bank has reviewed the RSD Capital complaint and we feel it is without any merit. We will formally respond to this lawsuit in the ordinary course of business. Our shareholders will be receiving the company’s proxy within the next several days and we believe it will contain additional, useful information for them.”
CBC CEO Paul Murphy said: “We think the lawsuit is without merit. We will deal with it in the ordinary course of business. In fairness to both sides, we don’t discuss litigation in the press.”
The lawsuit was filed in New York because it is the plaintiff’s state of residence and Cadence’s stock is traded on the Nasdaq exchange, which is headquartered there.
The deal with CBC took place Oct. 6, weeks after Cadence officials first announced their intentions to merge with Jackson-based Trustmark. Cadence paid a $2 million termination fee to Trustmark to break their deal in favor of the one with CBC.
A message left for plaintiff attorney Richard Brualdi was not returned by press time Thursday. Cadence’s stock remained unchanged at $2.45 a share in Thursday trading.