Cloudy outlook for Cape Fear CEO
Board shakeup leaves Coburn out

By Josh Spilker

Cape Fear Bank has reconstituted their board with members of the dissident shareholder group – and Cameron Coburn is not part of it.

The new board contains four members of the shareholder group that was led by Maurice Koury, and four members of the current board. The board will also include a ninth member, which has not yet been chosen.

“Noticeably absent from this agreement is Coburn’s participation on the reconstituted board, and there’s entirely no mention in the agreement regarding his status as CEO of the bank. These omissions alone speak volumes about who won – and who lost -- the proxy fight,” said Tony Plath, a professor of banking and finance at the University of North Carolina Charlotte.

Former board member Jerry Sellers is not included on the new board, along with Coburn. Walter Lee Crouch, a real estate agent with Intracoastal, will be named chairman until after the annual meeting. The settlement agreement was dated August 18, a day before the scheduled annual meeting, and was filed with the Securities and Exchange Committee (SEC) on Aug. 22. A new date for the annual meeting has not yet been decided.

Even though a new board has been formed, a sale of the bank still looms. In late June, Cape Fear Bank enlisted the help of financial management firm McKinnon & Co. to look at a sale and the settlement agreement says that McKinnon is “currently reviewing” an “acquisition transaction.”

“Looks like the new board has no intention of operating the bank as a going-concern company. They’re gaining control of the board in order to sell the bank, and it looks like they’re already found a willing acquirer. In this market, that would be quite surprising, although not outside the realm of possibilities facing the bank,” Plath said.

According to the settlement agreement from Cape Fear Bank, members of the board will include Scott C. Sulllivan, Mort Neblett, James S. Mahan III and David Lucht, who were four of the nominees from the dissident shareholder group led by Maurice Koury, and are referred to in the agreement as the “Shareholder Group.” The other four spots are held by the “Incumbent Nominees,” or current board members Crouch, Becky Parker O’Daniell, Craig S. Relan and Walter O. Winter.

Coburn formed Bank of Wilmington in 1998 with Jesse Thomas, who had worked at United Carolina Bank. After its merger with BB&T, the two struck out on their own. Coburn became President and Chief Executive Officer of the bank in January 2000 after Thomas’ retirement. The Bank of Wilmington changed its name to Cape Fear Bank in October 2006.

Though Coburn was not listed as part of the new board, no management or executive will be fired for at least ninety days, according to the agreement.

The settlement agreement also says that the agreement does “not constitute a ‘change of control’ under any employment agreements or arrangements with any directors, officers or employees” of Cape Fear Bank. A “change in control” would give Coburn approximately $2 million as part of a lump-sum cash payment, continued insurance coverage and additional payments to cover taxes as outlined in the bank’s 2007 definitive proxy statement.

Increased payouts to Coburn for a possible change in control were submitted as part of the 2008 preliminary proxy statement that was to be submitted at the delayed annual meeting.

The agreement does say that it does not violate any previous agreements with company interests, except for the Amended Employment Agreement that was signed by Coburn on November 22, 2006. The document outlines the reasons why Coburn could be terminated from employment. Clauses contain payouts for Coburn if he resigns for “good reason” such as for a reduction in responsibilities.

Crouch has been named as the Chairman for the time being, but will not keep the title after the ninth director is chosen. No timeframe was given for the selection of the ninth member, but preference will be given to a North Carolina resident.

Two large institutional holders, River Oaks Capital and Banc Funds Company will also be consulted in the selection of the ninth member. River Oaks Capital of Wayzata, Minnesota has 234,500 of Cape Fear Bank shares according to a second quarter 13F filing and Banc Funds Company of Chicago, IL has 198,533 according to their second quarter filing with the SEC.

After the annual meeting, the new board will be led by Mahan. Mahan is an executive with Live Oak Bank, a lending bank with an emphasis on veterinary care. Mahan founded Security First Network Bank, considered one of the first Internet-based banks. It was sold to Royal Bank of Canada in 1998. Lucht is also an executive with Live Oak. The split board, between “Incumbent Directors” and “Shareholder Group Directors” will be continued for at least three years, with each side getting to pick their own nominee if one of them resigns.

Maurice Koury, the shareholder who provoked the shareholder fight, will probably not be involved however. The agreement notes that Koury cannot “acquire, agree to acquire, propose, seek or offer to acquire, enter into a swap or other arrangement to acquire or facilitate the acquisition of ownership” of any Cape Fear Bank securities for a year after the settlement agreement or a year after the bank is sold. But Koury can still hold up to 200,000 shares of the bank and will be reimbursed up to $500,000 for his legal expenses in the proxy fight, according to the agreement.

“These standstill provisions would prevent Mr. Koury and his affiliates from nominating or participating in any group that nominates directors or solicits proxies for the election of directors of the Company,” an 8-K filing stated on Aug. 22, and signed by chief financial officer of Cape Fear Bank, Betty Norris.