exhibit10-2.htm


    Exhibit 10.2

    
      

    

    
      November
        12, 2008

      


      


      FIRST
        TENNESSEE BANK NATIONAL ASSOCIATION

      David
        Work

      Executive
        Vice President

      Correspondent
        Services

      845
        Crossover Lane, Suite 150

      Memphis,
        TN  38117

      


      


      Dear
        Mr. Work:

      


      Reference
        is made to (i) that certain Amended and Restated Promissory Note dated March
        29,
        2007 (“Note”);
        (ii) that certain Loan Agreement dated March 17, 2006 (“Loan Agreement”), as
        amended by that certain Modification Agreement effective as of May 11, 2006
        (“First
        Modification”), as further amended by that certain Second Modification
        Agreement and Covenant Waiver effective as of March 29, 2007 (“Second
        Modification”), as further amended by that certain Third Modification
        Agreement and Covenant Waiver effective as of March 15, 2008 (“Third Modification”),
        as further amended by that certain Fourth Modification Agreement and Covenant
        Waiver effective as of June 30, 2008 (“Fourth
        Modification”), as further amended by that certain Fifth Modification
        Agreement and Covenant Waiver effective as of August 29, 2008 (“Fifth Modification”),
        as further amended by that certain Amendment to Fifth Modification Agreement
        and
        Covenant Waiver effective as of September 23, 2008 (“Amendment to Fifth
        Modification”), as further amended by that certain Sixth Modification
        Agreement and Covenant Waiver effective as of October 28, 2008 (“Sixth Modification”),
        and as further amended by that certain Seventh Modification Agreement and
        Covenant Waiver effective as of the date hereof (“Seventh
        Modification”); and (iii) that certain Pledge Agreement together with
        Addendum to Pledge Agreement (collectively, the “Pledge”), each
        dated
        as of March 17, 2006 (the Note, the Loan Agreement, the First Modification,
        the
        Second Modification, the Third Modification, the Fourth Modification, the
        Fifth
        Modification, the Amendment to Fifth Modification, the Sixth Modification,
        the
        Seventh Modification, the Pledge and any other documents executed by the
        Borrower in connection with the loan in the original principal amount of
        $70,000,000.00 from the Lender, but expressly excluding this letter agreement,
        are collectively herein referred to as the “Loan
        Documents”).  All capitalized terms used but not otherwise
        defined herein shall have the meanings set forth on Exhibit B attached
        hereto and incorporated by reference herein.

       

      Pursuant
        to the Purchase Agreement, Borrower proposes to sell the Bank Shares to Vineyard
        Bancshares or another purchaser (Vineyard Bancshares or such other purchaser
        as
        the purchaser of the Bank Shares, the “Buyer”) for the
        Initial Purchase Price.  Upon closing of the sale of the Bank Shares,
        Borrower shall pay (or cause Buyer to pay) to Lender an amount equal to the
        Initial Payoff.  In addition to the Initial Payoff, Lender shall also
        be entitled to receive the Contingent Payoff from the Buyer, as described
        below.  The Total Payoff must be paid to Lender by wire transfer of
        immediately available funds to the account designated by Lender which is
        set
        forth on Exhibit
        A attached hereto (or as otherwise directed in writing by
        Lender).  The Total Payoff represents the negotiated discounted payoff
        of the Loan Liabilities.  Lender agrees that receipt of the Total
        Payoff shall be satisfaction in full for all Loan Liabilities, subject to
        the
        express condition that Lender receives the Initial Payoff no later than March
        31, 2009.  Lender may extend such deadline in its sole and absolute
        discretion.  If Lender has not received the Initial Payoff by such
        date, it may terminate this letter agreement and all of the parties’ rights and
        obligations hereunder by written notice to the other parties.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      In
        consideration of (and conditioned upon) Lender’s receipt of the Initial Payoff
        and Buyer’s agreement to pay the Contingent Payoff to Lender, Lender hereby
        agrees that (i) immediately upon Lender’s receipt of the Initial Payoff, all
        Loan Liabilities shall be deemed discharged and satisfied in full; (ii)
        immediately upon Lender’s receipt of the Initial Payoff, Lender shall be deemed
        to have waived  any right to file or assert a claim against or receive
        any distribution or payment from Borrower or, in the event Borrower becomes
        a
        debtor under the United States Bankruptcy Code (the “Bankruptcy Code”),
        Borrower’s  bankruptcy estate with respect to any Loan Liabilities,
        provided, however, that (a) if Lender is required to repay all or part of
        the payment of the Initial Payoff to Borrower or Borrower’s bankruptcy
        estate, Lender may assert and/or file a claim against Borrower or
        Borrower’s bankruptcy estate in an amount equal to the amount Lender actually
        repays to Borrower or Borrower’s bankruptcy estate, and (b) Lender may
        assert and/or file claims against Borrower or Borrower’s bankruptcy estate
        that arise under the Surviving Indemnities; (iii) immediately upon Lender’s
        receipt of the Initial Payoff, all of Lender’s Liens shall be deemed to be
        automatically released; (iv)  immediately upon Lender’s receipt of the
        Initial Payoff, Borrower, Vineyard Bank, the Buyer or any of their designees
        shall be authorized to file or record all documents, instruments and filings,
        including, without limitation, UCC-3 termination statements, deeds of release,
        or other release agreements as any such party deems necessary in order to
        fully
        evidence its release of Lender’s Liens; (v) against payment to Lender of the
        Initial Payoff, Lender will deliver to Borrower any collateral in its
        possession, including, without limitation, all certificates and stock powers
        associated with the Bank Shares; and (vi) at the request of Borrower, Lender
        will execute and deliver such other termination statements or other release
        documents, as Borrower, Vineyard Bank or the Buyer may reasonably request
        in
        connection with its release of Lender’s Liens.

       

      Notwithstanding
        anything in this letter agreement or the Loan Documents to the contrary,
        as
        additional consideration for Lender’s agreements set forth in this letter
        agreement, Buyer shall pay Lender the Contingent Payoff as set forth
        below:

       

      On
        or before December 15, 2011, Buyer shall pay Lender Eight Million and No/100
        Dollars ($8,000,000.00) on the condition that the Loan Losses of Vineyard
        Bank
        for the period from and including October 1, 2008 through and including
        September 30, 2011 are less than One Hundred Twenty Five Million and No/100
        Dollars ($125,000,000.00).

       

      As
        an inducement to Lender to enter into this letter agreement with the Borrower
        and to accept the Total Payoff, both as of the date hereof and as of the
        date
        Lender receives the Initial Payoff, Borrower further hereby reaffirms and
        agrees
        to be bound by the Surviving Indemnities.

       

      Lender
        agrees that, in the event Borrower becomes a debtor under the Bankruptcy
        Code,
        this letter agreement shall remain in full force and effect and Lender shall
        support a sale of the Bank Shares as set forth in the Purchase Agreement,
        and in
        accordance with the terms of this letter agreement, pursuant to 11 U.S.C.
§ 363
        or a plan, and Borrower and Buyer likewise agree to pursue and support such
        a
        sale.  Lender agrees that in connection with such sale, Lender shall
        not object to the sale under 11 U.S.C. Section 363 (or otherwise) subject
        to the
        condition that the order approving such sale provides that Lender’s lien on the
        Bank Shares attaches to the proceeds of such sale in an amount equal to the
        amount of the Initial Payoff and that Lender shall be paid the Initial Payoff
        from such proceeds upon the closing of such sale within the time required
        hereby.


       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      Lender
        agrees that it will not sell, assign, transfer or convey the Loan Documents
        unless the assignee agrees in writing and for the benefit of the Buyer and
        the
        Borrower to be bound by the terms of this Agreement.

       

      In
        the event that Vineyard Bancshares is not the Buyer, the parties hereto agree
        that such other Buyer (“Replacement Buyer”) must become a party hereto, unless
        otherwise agreed in writing between Borrower and Lender, by delivering an
        executed counterpart of this letter agreement to Lender and Borrower in which
        such Replacement Buyer acknowledges and agrees to the terms hereof as the
        “Buyer,” in which case this letter agreement shall be binding on Lender,
        Borrower and Replacement Buyer as if the Replacement Buyer were the Buyer
        originally party hereto.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      By
        signing below, each of the undersigned parties irrevocably agrees to the
        terms
        and conditions set forth in this letter.  This letter agreement shall
        be governed by the laws of the State of Tennessee without regard to its conflict
        of laws principles.

       

      Sincerely,

      


      VINEYARD
        NATIONAL BANCORP

      


                                     
                                 /s/
        Glen C. Terry

      


      Name:
        Glen C. Terry

      Title:
        President and Chief Executive Officer

      


      Acknowledge
        and agreed:

      


      


      LENDER:

      


      FIRST
        TENNESSEE BANK NATIONAL ASSOCIATION

      


      By:    
        /s/ David S.
        Work                                                          


      Name:   David
        S.
        Work                                                          


      Title:    Executive
        Vice
        President                                                       


      Date:   November
        12,
        2008                  


      


      


      VINEYARD
        BANCSHARES:

      


      VINEYARD
        BANCSHARES, INC.

      


      


      By:  /s/
        Douglas M.
        Kratz                                                         


      Name: Douglas
        M.
        Kratz                                                          


      Title:    President
        and Chief Executive
        Officer                                                       


      Date:  November
        12,
        2008                                                            


      


      


      cc:           
        Rick Smalley – Bank MidWest

      Dave
        Dawson – First Tennessee

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      EXHIBIT
        B

      


      DEFINITIONS

      


      “Accounting
        Standards”  shall mean generally accepted accounting principles
        as modified by applicable regulatory accounting principles and consistent
        with
        past practices.

      


      “Bank
        Shares” means
        all of the issued and outstanding shares of common stock of Vineyard
        Bank.

      


      “Borrower”
shall
        mean
        Vineyard National Bancorp, a California corporation.

      


      “Contingent
        Payoff”
shall mean Eight Million Dollars ($8,000,000.00).

      


      “Initial
        Payoff” shall
        mean the Initial Purchase Price less One Million Dollars ($1,000,000.00)
        if
        Vineyard Bancshares is the buyer of the Bank Shares.  If Vineyard
        Bancshares is not the buyer of the Bank Shares, the Initial Payoff shall
        mean
        the Initial Purchase Price less the sum of the following:  (i) One
        Million Dollars ($1,000,000.00), plus (ii) the Break-Up Fee, and plus (iii)
        Buyer’s Expenses, all as defined in the Purchase Agreement.  However,
        and notwithstanding the foregoing or anything in this letter agreement to
        the
        contrary:

      


      (a)           
        if the Initial Payoff, as calculated pursuant to the preceding two (2)
        sentences, would exceed Nine Million Dollars ($9,000,000.00), then the Initial
        Payoff shall be reduced by an amount equal to twenty-five percent of such
        excess; and

      


      (b)           
        in no event will the Initial Payoff ever be less than Nine Million Dollars
        ($9,000,000.00) or more than the Maximum Amount.

      


      For
        example, if the Initial Payoff as calculated pursuant to the first two (2)
        sentences of this definition would be $10,000,000.00, then it shall be reduced
        by $250,000.00, to $9,750,000.00.

      


      “Initial
        Purchase
        Price” shall mean the greater of (x) Ten Million Dollars
        ($10,000,000.00), or (y) the actual bid accepted for the sale of the Bank
        Shares.

      


      “Lender”
shall
        mean
        First Tennessee Bank National Association, a national bank.

      


      “Lender’s
        Liens” mean
        all security interests, liens and pledges which Lender has or may have in
        or to
        Borrower’s property (including without limitation the Bank Shares) pursuant to
        the Loan Documents or otherwise.

      


      “Loan
        Liabilities”
shall mean all indebtedness and obligations (including all accrued
        and unpaid
        interest, principal, penalties, other fees, expense reimbursements and
        indemnities) owed to Lender by Borrower pursuant to the Loan Documents, but
        expressly excluding the Reserved Claims.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      “Loan
        Losses” mean the
        sum of (a) any loan loss which occurs beginning on October 1, 2008 through
        and
        including September 30, 2011 and which is recognized in accordance with the
        Accounting Standards, (b) any losses on real property that is included in
        the
        Other Real Estate Owned (OREO) account (the “Oreo Account”) of Vineyard Bank,
        National Association as of October 1, 2008, and (c) any losses on real property
        that is added to the OREO Account following foreclosure by Vineyard Bank,
        National Association with respect to a Designated Loan (as defined below),
        whether or not Vineyard Bank, National Association recognizes any loss on
        the
        loan at the time of foreclosure.  Loan Losses shall be recognized only
        on those loans or loan assets (including OREO assets) which were reflected
        in
        the Bank Financial Statements (as defined in Section 4.7 of the Purchase
        Agreement) as of September 30, 2008, and they will not include losses recognized
        on any loans made by the Bank subsequent to September 30, 2008 (the “Designated
        Loans”).  Loan Losses shall be netted against any recoveries with
        respect to the Designated Loans actually collected by the Bank on or prior
        to
        November 29, 2011.

      


      “Maximum
        Amount” shall
        mean the aggregate amount of all indebtedness and obligations (unpaid principal,
        accrued interest and otherwise) that would be due to Lender under the Loan
        Documents in the absence of this letter agreement until Lender has been paid
        the
        full, undiscounted amount thereof, including interest on all unpaid balances
        at
        the interest rate set forth in the Seventh Modification.

      


      “Purchase
        Agreement”
means that certain Stock Purchase Agreement dated November 12, 2008
        between
        Vineyard Bancshares, as buyer, and Borrower, as seller.

      


      “Reserved
        Claims”
shall mean all of Lender’s rights and claims against Borrower under this letter
        agreement, which include (x) Lender’s right to receive the Initial Payoff (until
        it has been paid to Lender in accordance herewith) and (y) Lender’s rights and
        claims under the Surviving Indemnities.

      


      “Surviving
        Indemnities”  shall mean the terms and provisions of Section
        7.12, “Indemnification”,  of the Loan Agreement and Section 10,
“Release and Waiver”, of the Fifth Modification.

      


      “Total
        Payoff” shall
        mean the Initial Payoff and Contingent Payoff; provided that if no Contingent
        Payoff is required to be paid pursuant to the terms of this Letter Agreement,
        then the Total Payoff shall mean the Initial Payoff.  In no event
        shall the Total Payoff exceed the Maximum Amount.

      


      “Vineyard
        Bancshares”
shall mean Vineyard Bancshares, Inc., a Minnesota corporation.

      


      “Vineyard
        Bank” shall
        mean Vineyard Bank, National Association, a national bank.