On 2 March 2010, the Bank issued 144.8 million common shares of par value $1 per share, for a consideration of $175.0 million and 281,770 Mandatorily Convertible Preference Shares of par value $0.01 per share and 93,230 Contingent Convertible Preference Shares of par value $0.01 per share, for a consideration of $281.8 million and $93.2 million respectively.
Following the Bank’s Annual General Meeting held on 8 April 2010, The Bank of N.T. Butterfield & Son Limited’s shareholders approved an increase in the authorised share capital to 26,000,000,000 common shares of par value BD$0.01. Subsequent to the increase, conversion of 281,770 Mandatorily Convertible Preference Shares into 233,157,035 common shares and 93,230 Contingent Convertible Preference Shares into 77,144,993 common shares took place.
At the Special General Meeting of Shareholders held on 14 April 2009, the Board of Directors were granted the authority to issue, allot or grant options, warrants or similar rights over or otherwise dispose of all the authorised but unissued share capital of the Bank.
RIGHTS OFFERING
In March 2010, the Bank offered up to 99.3 million common shares and 8.3 million contingent value convertible preference shares (“CVCP shares”) in the form of up to 107.6 million Rights Units, each Unit consisting of 0.92038 common shares and 0.07692 CVCP shares, for each common share held at a price of BD$1.21 per Rights Unit. Each qualifying shareholder received 1.113 transferable rights to purchase one Rights Unit. Unallocated Rights Shares were available to qualifying shareholders who exercised all the rights issued to them. Any unallocated Rights Units remaining thereafter were available to qualifying holders of 8.0% preference shares.
Following the closing of the Rights Offering on 11 May 2010, the gross proceeds of $130 million were used to repurchase 107,571,361 shares from the 2 March 2010 investors at the same price at which the investors originally subscribed for the shares.
CONTINGENT VALUE CONVERTIBLE PREFERENCE SHARES
A holder of CVCP shares has the option to convert any such shares to common shares at any time. All CVCP shares outstanding will automatically convert into common shares at the earlier of 31 March 2015 or a sale of the Bank. On such conversion, the CVCP shares will convert into common shares at the Conversion Price. The initial Conversion Price shall be US $1.21 subject to any customary anti-dilution adjustments and certain downward notional adjustment based on certain loan recoveries.
A holder of CVCP shares will be entitled to certain distributions in connection with certain sales or public offerings of the Bank’s equity interest in BFG. On 9 February 2011, the Bank announced that it has agreed to sell its minority ownership position in BFG to a new company founded by fund industry executives Tim Calveley and Glenn Henderson and private equity firm, BV Investment Partners. BFG will operate as a subsidiary of the new company. The Bank will continue to provide BFG and its clients with commercial banking, foreign exchange and custody services. BFG was established in 2008 through the merger of Butterfield Fund Services and the Fulcrum Group. Through this transaction, the Bank will fully divest itself of its minority ownership stake in BFG. The transaction is expected to close during the first quarter of 2011, subject to regulatory approvals.
Proceeds from the sale will result in a distribution to holders of the Bank’s CVCP shares, estimated at $0.39 to $0.41 per share. See 2010 Annual Report “Note 27: Subsequent events” of the 31 December 2010 audited financial statements for details of distributions attributable to the sale of the Bank’s 36% diluted interest in BFG.
When, as and if declared by the Board, holders of the outstanding CVCP shares will be entitled to receive dividends, when, as and if declared by the Board, based on the number of common shares into which the CVCP shares would be convertible as of the dividend record date.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Bank, the holders of the CVCP shares will be entitled to receive from its assets legally available for distribution to shareholders as a liquidation preference before any distribution of assets is made to or set aside for the holders of any junior shares, such as the common shares, the greater of (i) US$1.21 per CVCP share plus any declared but unpaid dividends with respect to the then-current dividend period and (ii) the amount per CVCP share that would be received if such CVCP share had converted into common shares immediately prior to such liquidation, dissolution or winding up.
The CVCP shares are issued as perpetual securities subject to conversion to common shares and shall not be redeemable by any holders at any time.
The holders of the CVCP shares will vote together with the holders of the common shares on all matters upon which the holders of the common shares are entitled to vote. The CVCP shares shall be entitled to such number of votes based on the number of common shares into which the CVCP shares are convertible as of the applicable record date.
The class vote of the holders of at least 66.6% of the CVCP shares shall be required for (i) the creation or issuance of shares that are senior to liquidation, (ii) an amendment of rights of the CVCP shares or (iii) a reclassification, merger, amalgamation or consolidation where the holders of CVCP shares would not receive the consideration that would be received if such CVCP shares had converted into common shares immediately prior to such event.
The CVCP shares shall be privately transferable (subject to applicable securities laws and any required regulatory consents) but shall not be listed on the Bermuda Stock Exchange or any other stock exchange. The CVCP shares will not be registered under the securities laws of any jurisdiction.
This will result in a limited market for the CVCP shares.
With respect to the 8.0% preference shares, the CVCP shares rank pari passu as to liquidation and pari passu as to dividends and, with respect to common shares, the CVCP shares rank senior as to liquidation and pari passu as to dividends (other than dividends relating to BFG, as to which the CVCP shares rank senior).
As at 31 December 2010, there were 7.8 million CVCP shares outstanding with 0.5 million shares converted to common shares at the holders’ optionduring the year. As at 31 December 2010 there were no loan recoveries attributable to the CVCP shares as defined in the certificate of designation.
Consequently, the conversion factor to common shares at 31 December 2010 remained 1 to 1. Loan recoveries mean the amount by which the cumulative amount of collections actually received by the Bank with respect to “Covered Loans” from and after 1 January 2010 and through (and including) the Measurement Date exceeds US$102.3 million but in no event shall the loan recoveries exceed US$42 million. As at 31 December 2010, the carrying value of the Covered Loans was $58.5 million reflecting charge-offs during the year as approved by the Audit Committee and reviewed by an independent committee of the Board of Directors.
