CIB Marine Bancshares Inc. (CIBH)

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shareholder letter out

https://backend.otcmarkets.com/otcapi/company/dns/news/document/31679/content

Dear Shareholder:
On May 4, 2018, CIB Marine Bancshares, Inc. (the “Company”) invited holders of shares of its 7 Percent
Fixed Rate Noncumulative Nonconvertible Perpetual Preferred Stock, Series A (“Series A Preferred
Shares”) and 7 Percent Fixed Rate Noncumulative Convertible Perpetual Preferred Stock, Series B (“Series
B Preferred Shares” and, together with the Series A Preferred Shares, the “Preferred Shares”) to submit
offers to the Company for the repurchase of Preferred Shares (“Sale Offers”) by the Company upon the
terms and subject to the conditions described in the Reverse Tender Offer materials and the Company’s
Articles of Incorporation (the “Solicitation”).
Following the June 8, 2018, expiration of the Solicitation period, the Board of Directors, in consultation
with its external legal and financial advisors, engaged in a thorough process of evaluating the Sale Offers
submitted. Among other things, the Board considered (i) whether Sale Offers would be accretive or dilutive
if repurchases were made with available cash or required the sale of new common stock issued in a capital
raise; (ii) any Section 382 impairment to the Company’s deferred tax asset that would result from the
repurchases or the issuance of common stock; (iii) whether the acceptance of the Sale Offers would be in
the best interest of the Company’s shareholders; and (iv) other related relevant factors.
Some important points that the Board considered included:
1. 43,003 Preferred Shares were offered for repurchase in the Solicitation with a weighted average
Sale Offer price of $806.27 per share.
2. To eliminate the convertibility rights of the Series B Preferred Shares, the Company would need to
purchase all Preferred Shares offered in the Solicitation, which would require a capital raise. Based
on the advice of the Company’s financial advisors, the newly issued common shares would
represent between 48% and 53% of the issued and outstanding common shares on a pro forma
basis.
3. Based on the advice of the Company’s tax consultant, the repurchase of all Preferred Shares offered
and the issuance of the new common stock to fund the repurchases would result in an ownership
change under Section 382 of the Internal Revenue Code. This would cause an impairment in the
Company’s net deferred tax asset of more than $10 million.
4. The analysis of the Sale Offers showed that the repurchase of all Preferred Shares offered in the
Solicitation and the required capital raise was dilutive to ownership, book value, and earnings per
share.
The Company has notified those shareholders whose Sale Offers met the criteria established by the Board
and whose Preferred Shares will be repurchased for cash without requiring a capital raise. The accepted
Sale Offers represent fewer than 5% of the Preferred Shares offered in the Solicitation.
The rejected Sale Offers failed to meet the minimum criteria for repurchase. The combination of the high
offer prices creating the need for a substantial capital raise at a discount to book value, the significant loss
in value of the deferred tax asset, and the generally dilutive effect of the transaction, made the acceptance
of the remaining Sale Offers unacceptable. As proposed, to replace preferred stock that is perpetual, noncumulative,
and has limited conversion rights, with a significant issuance of common stock, as discussed above, is simply not in the best interest of the Company’s shareholders, by any reasonable and objective
standard.
While we are certain that many preferred shareholders are disappointed that their Sale Offers were rejected,
we were exceedingly clear in our messages prior to the Solicitation that the Board would evaluate Sale
Offers with a disciplined approach, and even provided examples of transactions that could be accretive and
ranges of historic TARP repurchase transactions as guidance.
The Second Amendment to the Amended and Restated Articles of Incorporation approved by common and
preferred shareholders allows the Company flexibility to pursue other avenues for the repurchase of
Preferred Shares. While the Company has agreed to, and will, conduct two more modified Dutch auctions
over the next two years, it will also be pursuing other possible repurchase opportunities. The Company
remains committed to a disciplined approach to repurchasing Preferred Shares, provided it can be done at
a reasonable price, in an accretive manner, and in the best interest of the Company and its shareholders.