DISTRICT OF CONNECTICUT MASTER FUND, LTD., : · PDF fileSponsor, and George Thompson and Jeff Jernigan, as Administrators, is an individual who upon information and belief resides

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UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

HILDENE OPPORTUNITIES : Civil Action MASTER FUND, LTD., : : No. ____________ Plaintiff, :

: -vs.- : :

ARVEST BANK, BANNISTER BANCSHARES, : INC., AND JEFFREY JERNIGAN, : :

Defendants. : September 26, 2014

COMPLAINT

Plaintiff Hildene Opportunities Master Fund, Ltd., as agent for The Bank of

New York Mellon (f/k/a The Bank of New York), pursuant to a certain Indenture

dated as of December 17, 2003 among Preferred Term Securities, XII, Ltd.,

Preferred Term Securities XII, Inc. and The Bank of New York Mellon (f/k/a The

Bank of New York), as Indenture Trustee, for its Complaint against Defendants

Arvest Bank, Bannister Bancshares, Inc., and Jeffrey Jernigan, in his capacity as

Administrator under the Amended and Restated Declaration of Trust by and

among U.S. Bank Association as Institutional Trustee, Bannister Bancshares,

Inc. as Sponsor, and George Thompson and Jeff Jernigan, as Administrators,

dated as of December 17, 2003, states as follows:

Case 3:14-cv-01417 Document 1 Filed 09/26/14 Page 1 of 23

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INTRODUCTION

1. The Plaintiff seeks actual damages of approximately $25 million for

the breach of a successor obligor provision of an indenture pursuant to which a

bank holding company issued debentures to support the operation of its

subsidiary bank. The debentures were part of a hybrid security, with

characteristics of debt and equity, known as trust preferred securities (“TruPS”).

2. More specifically, this case involves primarily the tortious conduct of

Arvest Bank (“Arvest”), an Arkansas-chartered bank owned by the Walton family

(the family that owns Wal-Mart), in procuring the breach of an indenture, which

resulted in substantial losses to creditors of a Missouri bank holding company,

Bannister Bancshares, Inc. (“Bannister” or the “Company”).

3. The indenture that Arvest interfered with was part of TruPS issued

by Bannister. Using the TruPS, Bannister borrowed $20 million through the

issuance of debentures to support the operations of its only substantial asset, a

bank called Union Bank, Kansas City, Missouri (“Union Bank”). The debentures

were issued under the indenture at issue in this case.

4. Based on the way the TruPS are structured, Bannister formed a

wholly-owned trust subsidiary that issued preferred equity securities (known as

capital securities) to investors. The trust subsidiary purchased as its sole asset

the debentures issued pursuant to the indenture. The terms of the capital

securities and debentures mirror each other and Bannister was required to make

payments of principal and interest on the debentures, and the trust uses those

payments to redeem or pay dividends on the capital securities.


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5. In 2012 Arvest sought to and did acquire Union Bank. Under the

successor obligor provision of the TruPS indenture, Arvest was required to

assume Bannister’s obligations under the TruPS. Arvest, however, persuaded

and/or conspired with Bannister to breach the successor obligor provision so that

it would not have to assume Bannister’s $25 million obligation to its creditors

under the TruPS (counting principal and interest). As part of that scheme, Arvest

hired Bannister’s President and Union Bank’s CEO, Jeff Jernigan, who also

served as an administrator under the trust that issued the afore-mentioned

capital securities.

6. This breach occurred despite the fact that the trustee who oversaw

the TruPS advised Bannister before Arvest acquired Union Bank that it would

breach the terms of the indenture unless Arvest acquired Bannister’s TruPS

obligations. After the transaction closed the trustee declared Bannister in default

under the indenture, which meant that all principal and interest was due

immediately.

7. Arvest was fully aware of the successor obligor provision before

acquiring Union Bank, and was even asked about it by Arkansas banking

regulators in advance of the transaction, but minimized it, claiming that neither it,

nor Bannister, nor Union Bank would owe anything on the TruPS. It took this

position despite the fact that the Delaware Supreme Court had just months

earlier issued a ruling (that the trustee overseeing the indenture cited to

Bannister) that established that a nearly identical transaction violated an identical

successor obligor clause. The Arkansas banking regulators asked Arvest about


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this court decision, but Arvest’s counsel dismissed its applicability, preferring to

ignore its implications. In declaring Bannister in default, the trustee again

specifically cited this Delaware court decision.

PARTIES

8. Plaintiff Hildene Opportunities Master Fund, Ltd. (“Hildene”) is a

Cayman Islands company that is a holder of Senior Notes issued by an

unmanaged structured financial product known as a collateralized debt obligation

(“CDO”), which is governed by an indenture dated as of December 17, 2003 (the

“CDO Indenture”) among Preferred Term Securities XII, Ltd. (an exempted

company with limited liability under the laws of the Cayman Islands), Preferred

Term Securities XII, Inc. (a corporation organized under the laws of Delaware)

(collectively the “PreTSL XII Issuers”) and The Bank of New York Mellon (“BNY”)

(a New York banking corporation) (f/k/a The Bank of New York), as CDO

Trustee.

9. In August 2014, pursuant to the provisions of the CDO Indenture

and a vote of the majority of the holders of the Senior Notes issued under the

CDO Indenture, Hildene was appointed as BNY’s agent for the purposes of

pursuing this action on behalf of all holders of securities issued by the PreTSL XII

Issuers, which are entitled to all principal and interest due under the debentures

issued by Bannister.


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10. Defendant Arvest is an Arkansas-chartered bank with its

headquarters located at 75 North East Street, Fayetteville, Arkansas, 72702-

1327. Arvest’s agent for service is Ken Calhoon, Hilburn, Calhoon, Harper, One

Riverfront Place, Suite 800, North Little Rock, Arkansas 72114.

11. Arvest derives substantial business from interstate commerce. It is

a privately-held, $13.8 billion bank providing a broad range of financial services

to customers in over 90 communities in Arkansas, Kansas, Missouri and

Oklahoma. Arvest operates a network of 250 branches in communities both large

and small throughout its trade territory.

12. Defendant Bannister was a Missouri bank holding corporation

formed in 2001 and dissolved in July 2013. Until July 2013 Jeff Jernigan was

Bannister’s President. Thomas W. Raupp, 8701 Prospect Avenue, Kansas City,

Missouri 64132, was and apparently continues to be Bannister’s President, post-

dissolution.

13. Defendant Jeff Jernigan (“Jernigan”), in his capacity as

Administrator of an Amended and Restated Declaration of Trust dated as of

December 17, 2003 (the “Declaration of Trust”), by and among the Trustee, as

Sponsor, and George Thompson and Jeff Jernigan, as Administrators, is an

individual who upon information and belief resides in or around Kansas City,

Missouri.


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JURISDICTION AND VENUE

14. Jurisdiction in this case is based on diversity of citizenship of all the

parties under 28 U.SC. § 1332 and the amount in controversy exceeds $75,000,

exclusive of interest and costs. Venue in this Court is proper pursuant to 28

U.SC. § 1391(b)(2), because a substantial part of the events giving rise to the

claims occurred in this District and because a substantial part of the property that

is subject to this action is situated in this District.

FACTUAL BACKGROUND

A. THE TruPS

15. Similar to many other bank holding companies, Bannister believed

that TruPS were an attractive way to raise capital because they combined the

best qualities of debt and equity. Bannister could deduct payments to investors

as an interest expense, but also treat the security as equity capital under the

then-governing banking regulations. Bannister used the proceeds from the

TruPS to support Union Bank’s operations.

16. In order to accomplish this duality, Bannister formed a wholly

owned trust subsidiary (the “Trust”) that issued 20,000 Floating Rate Capital

Securities of Bannister Statutory Trust I with an aggregate stated liquidation

amount of $20,000,000 (the “Capital Securities”).

17. U.S. Bank National Association (“U.S. Bank”) acted as Institutional

Trustee (the “Institutional Trustee”) under an Amended and Restated Declaration

of Trust dated as of December 17, 2003 (the “Declaration of Trust”), by and


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among the Trustee, as Sponsor, and George Thompson and Jeff Jernigan, as

Administrators, pursuant to which the Capital Securities were issued.

18. The Declaration of Trust provides that the Trust is named

“Bannister Statutory Trust I,” and that its principal office is located c/o U.S. Bank

in Hartford, Connecticut.

19. Connecticut law governed the Trust. Pursuant to Section 13.2 of

the Declaration of Trust, “[t]his Declaration and the rights of the parties hereunder

shall be governed by and interpreted in accordance with the law of the State of

Connecticut and all rights and remedies shall be governed by such laws without

regard to the principles of conflict of laws of the State of Connecticut or any other

jurisdiction that would call for the application of the law of any jurisdiction other

than the State of Connecticut….”

20. The Trust purchased as its sole asset Floating Rate Junior

Subordinated Deferrable Interest Debentures due 2033 (the “Debentures”) that

Bannister issued pursuant to an indenture.

21. U.S. Bank also served as indenture trustee (the “Debenture

Trustee” and together with the Institutional Trustee, the “Trustee”) under an

Indenture dated as of December 17, 2003 (the “Indenture”), between Bannister

and the Debenture Trustee, pursuant to which Bannister’s Debentures were

issued.


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22. The PreTSL XII Issuers own all the Capital Securities issued by the

Trust Bannister formed, and are the direct beneficiaries of all principal and

interest payments due pursuant to the terms of the Trust, the Indenture and the

Debentures. Hildene is the direct holder of notes issued by the PreTSL XII

Issuers, and thus it also has a direct economic interest in the principal and

interest payments due pursuant to the terms of the Trust, the Indenture and the

Debentures.

23. New York law governed the Indenture and the Debentures.

Pursuant to Section 14.5 of the Indenture, the Indenture and each Debenture

“shall be deemed to be a contract made under the law of the State of New York,

and for all purposes shall be governed by and construed in accordance with the

law of said State, with regard to conflict of laws principles thereof.”

24. Upon information and belief, the Trustee in its Hartford, Connecticut

principal office holds physical possession of the Debentures.

25. Bannister was obligated under the Indenture to make payments of

principal and interest on the Debentures, and the Trust would use the payments

to redeem or pay dividends on the Capital Securities. Bannister was also entitled

under Section 2.11 of the Indenture to defer making interest payments for 20

consecutive quarters.

26. Section 3.7 of the Indenture prohibited Bannister from selling or

conveying all or substantially all of its property without compliance with Article XI

of the Indenture.


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27. Article XI of the Indenture, its so-called “Successor Obligor

Provision,” provides in Section 11.1 that:

Nothing contained in this Indenture or in the Debentures shall prevent any consolidation or merger of the Company with or into any other Person (whether or not affiliated with the Company) or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property or capital stock of the Company or its successor or successors as an entirety, or substantially as an entirety, to any other Person (whether or not affiliated with the Company, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and agrees that, upon any such consolidation, merger (where the Company is not the surviving corporation), sale, conveyance, transfer or other disposition, the due and punctual payment of the principal of (and premium, if any) and interest on all of the Debentures in accordance with their terms, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company, shall be expressly assumed by supplemental indenture satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company shall have been merged, or by the entity which shall have acquired such property or capital stock.

B. Transactions Involving the Trust, the Indenture, the Debentures, and the CDOs 28. Under the Indenture’s successor obligor provision (which was

included in the indenture as part of “market-facilitating boilerplate language”

intended to “protect lenders by assuring a degree of continuity of assets”), upon a

sale of substantially all of Bannister’s assets any purchaser of the assets was

required to assume Bannister’s obligations under the Debentures and Indenture

as a condition of the purchase.


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29. Arvest procured the breach of the when it acquired Union Bank’s

assets and certain liabilities in or around June 2012. Arvest did not want to

assume the $25 million of Bannister’s outstanding TruPS obligations (i.e.,

principal and accrued interest), knew that the obligations existed and that

Bannister was subject to the provisions, and persuaded or conspired with

Bannister to disregard the Indenture’s successor obligor provision in connection

with the sale of Union Bank’s assets to Arvest.

30. On April 19, 2012, in seeking regulatory approval for the

transaction, Arvest advised the Arkansas State Bank Department through

counsel that, although it was aware of the $25 million of Bannister’s TruPS

obligations, neither Bannister, nor Union Bank, nor Arvest, were responsible for

paying the TruPS creditors anything under the proposed structure for the

transaction. Despite Bannister’s counsel being warned on April 6, 2012 to the

contrary by Hildene Capital Management, LLC (“HCM”)(Hildene’s asset

manager), through its counsel at the nationally recognized litigation firm of Quinn

Emanuel Urquhart & Sullivan, LLP (“Quinn Emanuel”), Arvest’s counsel Ken

Calhoon told the Arkansas State Banking Board (according to the official minutes

of the April 19 meeting) that: “all lawyers in the firm and other lawyers for Arvest

are confident there is no real risk of anyone prevailing on the 25 million worth of

debentures against Union Bank or the holding company or Arvest.”


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31. Arvest’s counsel made this representation despite also having

spoken before April 19 with U.S. Bank, the Trustee administering the Indenture,

who had taken the position with Union Bank that the sale of Union Bank’s assets

to Arvest would trigger the Indenture’s successor obligor provision.

32. The Trustee also had advised Jeff Jernigan, Bannister’s President

and Union Bank’s CEO and President, in writing on March 2, 2012 that the

structure for the deal between Arvest and Union bank would trigger the

successor obligor provision of the Indenture. Several other creditors had also

expressed a similar view to Bannister, Arvest and the Arkansas State Bank

Department. Arvest’s counsel advised the Arkansas State Bank Department on

April 19 that he had spoken to the U.S. Bank Trustee, but the minutes of the

meeting do not reflect the substance of that discussion, leaving open the

question of whether Arvest had properly notified or concealed from the regulator

the Trustee’s position.

33. Arvest’s position was questioned by a member of the Arkansas

State Banking Board on April 19, who inquired as to the applicability of the

Delaware Supreme Court’s decision in In Re BankAtlantic Bancorp, Inc.

Litigation, 39 A.3d 824 (Supreme Court of Delaware, February 27, 2012), where

Quinn Emanuel had recently represented Hildene.

34. In BankAtlantic, the Court held that, where a holder of TruPS

brought an action against a bank holding company that issued the TruPS seeking

to enjoin the sale of the company’s assets, the sale of the bank holding

company’s assets (a bank) constituted a transfer of substantially all of the


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company’s assets and would breach the successor obligor provisions of the

governing TruPS indenture unless the successor entity assumed responsibility

for them. The Court entered a permanent injunction preventing the sale, which

did not contemplate the successor assuming the TruPS. The legal rationale

supporting the BankAtlantic case addressed a successor obligor provision in an

indenture identical or nearly identical to the one at issue in this case.

35. Arvest’s counsel, in response, dismissed the BankAtlantic case as

inapplicable.

36. In July 2012 after the transaction closed without any provision in

the closing agreement or Arvest assuming Bannister’s TruPS obligations, the

U.S. Bank, the Trustee overseeing the Indenture, declared Bannister in default

under the successor obligor provision of the Indenture, on grounds that the sale

of Union Bank to Arvest constituted a sale of substantially all of Bannister’s

assets. The Trustee specifically relied on the BankAtlantic case in reaching its

conclusion.

37. The fact that Arvest sought to avoid paying nearly $25 million of

Bannister’s TruPS obligations is bolstered by the fact that it advised the Arkansas

State Banking Board that, as precondition of the transaction, it would require a

waiver by the FDIC of a $116.6 million cross-guarantee that the FDIC had on

Union Bank’s assets. (That cross-guarantee existed because Union Bank had a

sister bank, First National Bank of Olathe, which had been placed in receivership

and its assets were sold and liabilities assumed by another institution sold by the

FDIC. This resulted in the FDIC having a lien of approximately $116.6 million on


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Union Bank’s assets. According to the Arkansas State Banking Board’s minutes

of the April 19 meeting, Arvest’s Executive Vice President and Chief Risk Officer

advised the Arkansas State Banking Board that “Arvest could not consummate

the deal with FDIC having a claim on a fourth of [Union Bank’s] assets.”)

38. On June 19, 2012, the FDIC issued an order accepting a partial

satisfaction of Union Bank’s cross-guarantee liability and granting a conditional

waiver of the remaining cross-guarantee liability, which was a condition of the

transaction.

39. Jernigan was in a position to ensure that Bannister adhered to the

successor obligor provision in his capacity as President of Bannister and CEO

and President of Union Bank, but he did not do so, in favor of securing a job for

himself at Arvest. In fact, in order to clinch Bannister’s agreement to disregard

the successor obligor provision of the indenture, Arvest hired Jernigan as an

Executive Vice President/Business Development in June 2012. Jernigan’s

actions were egregious, as he served as an administrator of the Trust that owned

the Debentures (the Trust was one of the instruments that formed the TruPS),

and he disregarded the Trustee of the Trust’s position that the successor obligor

provision required Bannister to ensure that Arvest assume the TruPS obligation.

Instead, he sought on Bannister’s behalf an opinion from outside counsel to

reach the opposite conclusion.

40. Bannister was dissolved in July 2013, and its TruPS creditors were

left holding $25 million of debt that was effectively uncollectible.


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41. Upon information and belief, the material terms of the transaction

between Union Bank and Arvest included Arvest paying $1 to Union Bank, Arvest

assuming Union Bank’s assets and certain liabilities, and Union Bank securing a

contingent right to receive additional cash consideration at the end of a 5-year

period following the closing of the transaction. As part of the FDIC’s partial

waiver of the cross-guarantee, before Union Bank is allowed to distribute

anything to its shareholders, including Bannister (which in 2012 owned 97.5% of

Union Bank’s issued and outstanding stock), it is required to pay to the FDIC

85% of any proceeds from the sale and 85% of the additional cash consideration

from the sale to the FDIC.

42. Arvest was at all relevant times aware of the Debentures and

Indenture, as well as Bannister’s obligations under the Debentures and

Indenture, but nonetheless succeeded in prevailing on Bannister to disregard the

successor obligor provision of the Indenture so as to avoid assuming Bannister’s

TruPS liability. That decision resulted in a breach of the Indenture.

C. Facts Surrounding the Arvest’s Tortious Interference

43. In January 2012, Arvest, which is the largest bank in Arkansas in

terms of deposits, announced that it had agreed to purchase substantially all of

Union Bank’s assets and certain liabilities.

44. As part of the proposed transaction, Arvest planned to acquire all

ten of Union Bank’s branches in the Kansas City, Missouri area, which had $441

million in assets, $345 million in loans, and assume $415 million in deposits.

Arvest was also going to infuse $20 million in capital into Union Bank.


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45. Despite knowing about the Indenture’s “Successor Obligor

Provision,” Arvest induced Bannister to disregard that provision in connection

with the sale of Union Bank’s assets to Arvest by taking the position that it was

not bound by it.

46. By letter dated March 2, 2012, U.S. Bank in its capacity as Trustee

for the Debentures issued under the Indenture, wrote to Jernigan of Bannister

indicating that it was aware of the proposed transaction between Arvest and

Union Bank, and advised Bannister of its obligations under Article XI of the

Indenture. U.S. Bank indicated that Article XI applied to the transaction and that

the Court’s decision in BankAtlantic was relevant, but asked for Bannister’s

position.

47. By letter dated March 21, 2012, Bannister, though counsel at the

Kansas City, Missouri law firm Husch Blackwell, responded to U.S. Bank. The

Husch Blackwell attorney rejected the fact that Article XI applied, stating instead

that, because Bannister owned 97.5% of Union Bank’s issued and outstanding

stock and that after the transaction Bannister would still own that stock, Article XI

of the Indenture was not implicated.

48. The gist of Bannister’s counsel’s letter was that, because it was

only Union Bank’s assets that were being sold to Arvest, nothing of Bannister’s

was being conveyed. The letter stated in relevant part, “Specifically, [Bannister]

is not selling or conveying any assets. The critical issue in the BankAtlantic case

was whether the sale of the stock of the subsidiary bank by the holding company

rose to the level of “substantially all” of the assets of the holding company. It is


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our view that the conveyance of assets by Union, and the conveyance of

[Bannister] of nothing, will not give rise to a legal conclusion that substantially all

of the assets of [Bannister] are being conveyed pursuant to the Agreement.”

49. On April 6, 2012, HCM’s counsel from Quinn Emanuel wrote to the

Husch Blackwell attorney, rebutting the position Bannister had taken with U.S.

Bank, stating in relevant part:

“There is no meaningful distinction between the present situation and the facts in BankAtlantic. As you noted in your March 21 letter, apart from Bannister's 97.5% interest in Union Bank, Bannister owns ‘only a small handful of immaterial assets.’ That Union Bank's business constitutes substantially all of Bannister's assets is confirmed by Bannister's filings with the Federal Reserve, which show that over 90% of Bannister's total assets is its equity investment in Union Bank. Gutting the assets and liabilities of this operating subsidiary, including approximately $459 million in assets, all of Union Bank's branch locations and its core deposit base, will no doubt have a transformative impact on Bannister and is not an ordinary course transaction. In your March 21 letter, you assert that the proposed sale to Arvest Bank is different from BankAtlantic merely because, post-transaction, Bannister will keep its shares in the empty shell of Union Bank while, in BankAtlantic, the defendant sought to sell the stock of its bank subsidiary. Not so. The Chancery Court made no such distinction in its ruling; rather in finding that the transaction there would ‘transform completely the nature of [the defendant's] business,’ the court specifically considered the operations of the subsidiary. According to the Chancery Court, ‘[t]he guiding inquiry when evaluating a transaction qualitatively is whether the debtor would cease to operate the business to which in practical effect, the debenture holders have looked for payment of the debentures.’ Id at 34 (omitting internal citation and quotation marks). Indeed, central to the court's decision, was the fact that, as here, the parent would no longer indirectly own a banking franchise, bank branches or a stable deposit base, the absence of which would radically alter the risk profile of the TruPS. In deciding substantially-all cases, courts, such as the Chancery Court, will consider both quantitative and qualitative factors. Under your interpretation—in which debtors can avoid their successor obligor covenants merely through creative deal structuring—the latter set of factors, which must be considered absent exceptional circumstances, would be entirely superfluous.”


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50. On April 19, 2012, the Arkansas State Banking Board met and

approved Arvest’s acquisition of Union Bank. During that meeting Arvest’s

counsel stated that it was aware of Bannister’s $25 million of obligations under

the Debentures, but that it did not believe that Bannister, Union Bank or Arvest

were liable for them.

51. By letter dated May 9, 2012, Bannister’s Jernigan provided the

following notice to U.S. Bank:

“Section 2.11 of the Indenture provides that the Company may elect to defer payments of interest on the Debentures by extending the interest payment period on the Debentures at any time and from time to time during the term of the Debenture, for up to 20 consecutive quarterly periods (each such extended interest payment period, an “Extension Period”). This letter serves as notice that the Company is electing to defer the interest payable on the June 17, 2012 Interest Payment Date.”

52. Shortly after June 19, 2012, when the FDIC approved the partial

satisfaction of Union Bank’s cross-guarantee liability and granted a conditional

waiver of the remaining cross-guarantee liability, which was a precondition of the

transaction, Arvest’s acquisition of Union Bank closed and Arvest hired Jernigan

as an Executive Vice President/Business Development.

53. By letter dated July 16, 2012, titled “NOTICE OF DEFAULT AND

DEMAND FOR CURE,” the U.S. Bank Trustee notified Bannister that, pursuant

to Section 5.1(c) of the Indenture, Bannister was in Default under Section 5.1(c)

of the Indenture.


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54. Specifically, the Trustee’s July 16 letter stated:

“the Company’s sale of substantially all of the assets of its operating subsidiary, Union Bank (the “Asset Sale”), without compliance with Article XI of the Indenture (which we assume to be the case), constitutes a breach of Section 3.7 of the Indenture, which is a Default under Section 5.1(c). The Trustee hereby demands that the Company remedy such Default as soon as possible, but in any event no later than 60 days from the date hereof. Failure of the Company to remedy such default within 60 days of the date hereof will result in the Default ripening into an Event of Default under the Indenture.”

55. The Default identified in the Trustee’s July 16 letter to Bannister

was never remedied or cured.

56. In a Notice of Default dated July 17, 2012 directed to the beneficial

holders of the Debentures (including the CDO Trustee), the Trustee explained as

follows:

“In a letter to the Trustee dated March 21, 2012 (the “March 21, 2012 Letter”), counsel to the Company asserted that the Asset Sale was not a violation of Section 3.7 of the Indenture, which prohibits the Company from selling or conveying all or substantially all of its property without compliance with Article XI of the Indenture. Article XI of the Indenture requires that any purchaser of all or substantially all of the Company’s property assume the Company’s obligations under the Debentures and the Indentures a condition of such purchase. To the best of the Trustee’s knowledge, the buyer has not assumed the Company’s obligations under the Debenture and the Indenture, consistent with Article XI, and according to the March 21, 2102 Letter, it is the position of the Company that such assumption is not required. The Trustee believes, however, in good faith and in reliance on decided caselaw, (i) that the Asset Sale constitutes the sale of substantially all of the assets of the Company and that compliance with Article XI was required; and (ii) therefore, that failure of the Company to comply with Section 3.7 of the Indenture constitutes a Default under 5.1(c) of the Indenture.”

57. Upon a default under the terms of the Indenture all principal and

accrued interest were immediately payable.


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58. Bannister never paid any of the outstanding deferred interest due

under the Indenture and the last deferral period for doing so expired in June

2014, meaning that Bannister was in default pursuant to Section 5.1(a) of the

Indenture, which provides that “the Company defaults in the payment of any

interest upon any Debenture when it becomes due and payable, and fails to cure

such default for a period of 30 days….”

59. Under a default under Section 5.1(a), holders of the Debentures are

allowed to declare the entire principal amount of the Debentures and interest due

thereon to be payable immediately.

CLAIMS FOR RELIEF

COUNT ONE - TORTIOUS INTERFERENCE AGAINST ARVEST

1-59. Plaintiff repeats and realleges the allegations of Paragraphs 1

through 59 as and for Paragraphs 1 through 59 of Count One as if fully set forth

herein.

60. Arvest was aware of the provisions of the contractual relationships

between Plaintiff and Bannister, and specifically, those concerning the Indenture,

the Debentures, the Trust and the Successor Obligor Provision (Article XI) of the

Indenture, and, as set forth above, Arvest intentionally and knowingly procured

its breach by inducing and/or prevailing on Bannister to dishonor it in connection

with the sale of Union Bank’s assets to Arvest.

61. As a result of Arvest’s actions as set forth above, Plaintiff has

sustained substantial economic losses.


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62. Arvest’s conduct constitutes tortious interference with contract and

it is liable for all principal and interest due under the Trust, the Debentures and

Indenture, which totals $24,700,197 as of August 2014, in addition to punitive

damages for its outrageous conduct in knowingly and wilfully procuring a breach

of the Indenture despite being on notice from the Trustee overseeing the

Indenture that failure to adhere to the Successor Obligor Provision of the

Indenture under the deal as structured would result in a breach of that provision.

COUNT TWO - BREACH OF INDENTURE AGAINST BANNISTER 1-62. Plaintiff repeats and realleges the allegations of Paragraphs 1

through 62 of Count One as and for Paragraphs 1 through 62 of Count Two as if

fully set forth herein.

63. Based on the forgoing conduct, Bannister breached the Successor

Obligor Provision of the Indenture (Article XI of the Indenture), and thereby is in

default under Section 5.1(c) of the Indenture.

64. Plaintiff has performed all conditions required of it under the terms

of the Successor Obligor Provision of the Indenture (Article XI of the Indenture).

65. Bannister’s failure and refusal to comply with its obligations

pursuant to the Successor Obligor Provision of the Indenture (Article XI of the

Indenture) is without justification and has caused Plaintiff to incur substantial

monetary loss.


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66. As a result of Bannister's breach of its obligations as set forth

above, Bannister is liable for all outstanding principal and accrued interest owing

under the Trust, Indenture and Debentures, totaling $24,700,197 as of August

2014.

COUNT THREE - BREACH OF INDENTURE AGAINST BANNISTER


through 66 of Count Two as and for Paragraphs 1 through 66 of Count Three as

if fully set forth herein.

67. As set forth above, Bannister is in default under Section 5.1(a) of

the Indenture for failing to pay interest when due, and is liable to pay all

outstanding principal and accrued interest, totaling $24,700,197 as of August

2014.

COUNT FOUR - WILLFUL MISCONDUCT/BREACH OF FIDUCIARY DUTY AGAINST JERNIGAN


through 67 of Count Three as and for Paragraphs 1 through 67 of Count Four as

if fully set forth herein.

68. Based on Jernigan’s actions, which included rejecting the Trustee’s

position that the sale of Union Bank to Bannister triggered the Successor Obligor

Provision of the Indenture and accepting a job with Arvest, Jernigan engaged in

willful misconduct and/or breach of fiduciary duty in violation of his duties under

the Trust by failing to safeguard the Trust’s property, i.e., the Debentures.

Jernigan’s actions contributed directly to Bannister’s breach of its obligations


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under the Indenture, and he is liable for all resulting damages, including all

outstanding and accrued interest due on the Debentures, totaling $24,700,197 as

of August 2014.

COUNT FIVE—DECLARATORY JUDGMENT THAT ARVEST IS LIABLE FOR THE TRUPS OBLIGATIONS UNDER THE SUCCESSOR OBLIGOR PROVISION 1-68. Plaintiff repeats and realleges the allegations of Paragraphs 1

through 68 of Count Four as and for Paragraphs 1 through 68 of Count Four as if

fully set forth herein.

69. Based on the operative language of the Successor Obligor

Provision of the Indenture and as a matter of law, Plaintiff seeks a declaratory

judgment pursuant to 28 U.S.C. § 2201 that Arvest be deemed liable for all of

Bannister’s TruPS obligations under the Indenture, Debentures and Trust, and/or

the Court direct the reformation of the sale agreement by which Union Bank was

sold to Arvest so as to include a provision that Arvest be deemed to be liable for

all of Bannister’s TruPS obligations under the Indenture, Debentures and Trust.


WHEREFORE, Plaintiff demands judgment against Defendants, jointly

and severally, as follows:

1. Compensatory damages in the amount of $24,700,197;

2. A declaratory judgment as set forth in Count Five;

3. Punitive damages;

4. Prejudgment interest;

5. Costs of this action; and

6. Such other and further relief as the Court deems, fair, just, and equitable.

Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff

hereby demands a trial by jury on all issues so triable.

PLAINTIFF HILDENE OPPORTUNITIES MASTER FUND LTD.

Lu I\S BAGNELL VARGA LLC 2425 Post Road, Suite 200 Southport, CT 06890 Tel: (203) 227-8400 Fax: (203) 227-8402 E-Mail: [email protected]

and Ethan A. Brecher (pro hac vice pending) LAw OFFICE OF ETHAN A. BRECHER, LLC 600 Third Avenue, 2nd Floor New York, NY 10016 Phone: (646) 571-2440 Fax: (888) 821-0246 Email: [email protected]

Its Attorneys

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Documents

DISTRICT OF CONNECTICUT MASTER FUND, LTD., : · PDF fileSponsor, and George Thompson and Jeff Jernigan, as Administrators, is an individual who upon information and belief resides