agreement.htm


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    Exhibit
      10.1

     

    


    November
      21, 2007

    


    


    Mr.
      Danny
      L. Wiginton

    President
      and CEO

    Commonwealth
      Savingshares Corporation

     

    


     

    


     

    Re:           Proposed
      Business Combination with Commonwealth Savingshares Corporation

     

    Dear
      Mr.
      Wiginton:

     

    This
      letter (“Letter of Intent”) is being written to you in your capacity as
      President, Chief Executive Officer and sole shareholder of Commonwealth
      Savingshares Corporation (“CSC”), a Delaware corporation and registered thrift
      holding company, and the parent company of SOUTHBank, a Federal Savings Bank
      with its main office in Huntsville, Alabama (the “Bank”).  The purpose
      of this binding Letter of Intent is to settle the civil action styled
Corinthian Mortgage Corporation v. Summit Financial LLC et al., Chancery
      No.
      187513 (the “Litigation”) and to set forth an expression of the basis upon
      which each party is presently prepared to consider and negotiate a proposed
      transaction whereby Summit Financial Group, Inc. (“Summit”) may acquire CSC in
      exchange for the consideration and on the basic terms and conditions set forth
      below:

     

    1.           Structure
      of the Transaction.  The transaction will be structured as a
      merger constituting a tax-free reorganization within the meaning of Section
      368
      (a) of the Internal Revenue Code pursuant to which all of the shares of CSC
      will
      be exchanged for a combination of shares of common stock of Summit and cash
      (hereinafter referred to as the “Transaction”). Prior to or contemporaneously
      with the Closing, CSC and Wiginton shall be entitled to accomplish a
      reorganization, spin-off or other distribution so as to retain the assets listed
      on Exhibit A hereto.  In addition, the Agreement will contain a
      royalty-fee license for use of the name “SOUTHBank” with respect to the
      operations retained by Wiginton and, in the event that Summit ceases to use
      such
      name, it will transfer such name to Wiginton.

     

    2.           Execution
      of Definitive Agreement.  Summit, Wiginton and CSC will negotiate
      in good faith to enter into a definitive merger agreement (the “Agreement”)
      setting forth in detail the terms and conditions governing this Letter of
      Intent.  Among other things, the Agreement will provide for
      restrictions that will be placed on Wiginton’s rights as a shareholder of
      Summit, including, but not limited to, Wiginton’s voting rights and rights to
      seek a seat on Summit’s Board of Directors.

     

    3.           Consideration.  The
      Agreement will provide that the shares of CSC common stock will be exchanged
      for
      aggregate consideration of $52.5 million (the “Purchase Price”), which sum
      includes the consideration received by Summit from Federal Insurance Company
      to
      assist in settling the Litigation (but if such consideration is not received
      from Federal Insurance Company, it shall not reduce the Purchase
      Price).  The Purchase Price shall be payable in a combination of stock
      and cash at Closing (as defined herein).  The combination of stock and
      cash shall be no less than fifty percent stock and fifty percent cash, and
      no
      greater than sixty percent stock and forty percent cash.

     

    4.           Closing
      and Closing Date.  The closing (the “Closing”) of the Transaction
      shall occur on the soonest possible date following the receipt of all necessary
      regulatory approvals and the expiration of any mandatory regulatory waiting
      periods.

     

    5.           Regulatory
      and Corporate Approvals.  This Letter of Intent is expressly
      conditioned on the receipt of approval of the Executive Committee of Summit
      and
      the Board of Directors of Corinthian Mortgage Corporation and CSC within five
      (5) days of execution of this Letter of Intent, and the Agreement is expressly
      conditioned upon approval of the Board of Directors of Summit and
      CSC.  The Agreement will provide that the acquisition of the common
      stock of the CSC will be conditioned upon the prior receipt of all necessary
      regulatory and corporate approvals on terms and conditions satisfactory to
      Summit, Wiginton, and CSC.  In the event regulatory approval is not
      received, then Summit will be required to make the alternative cash payment
      described in Section 10 below.  Summit, CSC and Wiginton agree that
      regulatory approval will not be deemed to have been received if a regulatory
      agency imposes a material condition on its approval, which condition will have
      a
      material impact on either CSC, Wiginton or Summit.  Summit, CSC, and
      Wiginton will cooperate and aid each other in preparation of any regulatory
      applications or notices, and further agree to provide the other party with
      access to any records or information reasonably necessary or which is required
      to be included in such applications or notices, or that is required or requested
      by any such regulatory authority.

     

    6.           Put
      and Call.  Wiginton may elect to sell any shares of stock back to
      Summit anytime and from time to time between 3 to 5 years from issuance for
      the
      Per Share Guaranteed Return Price, and in such case Summit shall purchase such
      shares.  Similarly, Summit will have the right to repurchase the
      shares anytime and from time to time between 3 to 5 years from the date of
      issuance for the Per Share Guaranteed Return Price, and, in such case, Wiginton
      shall sell such shares.  The “Per Share Guaranteed Return Price” shall
      mean the sum of (i) per share price assigned as the value of the common stock
      of
      Summit for purposes of determining the consideration payable in Summit stock
      with respect to the acquisition of CSC (the “Per Share Closing Price”), plus
      (ii) interest at the Interest Rate on the Per Share Closing Price from the
      Closing Date until the date cash payment is made.  The term “Interest
      Rate” shall mean eleven percent (11%) per annum, multiplied by a fraction, the
      numerator of which shall be the PE Ratio of the Peer Group as of the Closing
      Date and the denominator of which shall be the PE Ratio of the Peer Group as
      of
      the date of the exercise of the put or call; provided, however, that in no
      event
      shall the Interest Rate be more than thirteen percent (13%) or less than nine
      percent (9%). The Peer Group shall be a group of financial institutions
      acceptable to the parties and established in the Agreement.

     

    7.           Right
      of First Refusal.  For a period of five years from the Closing
      Date, Summit will have the right of first refusal to purchase any shares that
      Wiginton wishes to sell on the open market.

     

    8.           Subsequent
      Sale of CSC.  If Summit elects to sell any or all of the assets of
      CSC or the Bank within a period of 3 years from the date of acquisition, any
      profit in excess of 10% (annualized) shall be paid 50% to Wiginton and 50%
      to
      Summit.

     

    9.           Transfer
      of Summit Shares by Wiginton.  Wiginton will have the right to
      transfer shares to a trust, limited partnership or other entity for the benefit
      of the members of his immediate family or to members of his immediate family
      under the same terms and conditions stated herein, which transfer shall not
      give
      rise to a right of first refusal of Summit.  Certificates for all
      shares held by Wiginton, any trust or immediate family member will contain
      a
      legend indicating they are subject to the same stock transfer restrictions
      as
      applicable to Wiginton.  Shares of stock issued to Wiginton cannot be
      registered in nominee or broker name, but must be held in his name or the name
      of the trust or family member owning the shares.

     

    10.           Cash
      Alternative.  At any time prior to the execution of the Agreement,
      Summit, Wiginton, and CSC shall each have the right in its or his sole
      discretion to choose not to pursue the acquisition of CSC by Summit and to
      terminate, subject to the payments required under this Section 10, this Letter
      of Intent.  In such case, Summit shall pay or cause to be paid, within
      twenty (20) days thereafter to Corinthian, CSC and Wiginton the total sum of
      $10.5 million as consideration (i) for settling the Litigation and (ii) as
      a
      break-up fee.  After execution of the Agreement, should
      any regulatory body whose approval is required by law not approve this
      acquisition or should the Agreement be terminated for any reason whatsoever,
      including without limitation, as a result of the breach of the Agreement by
      any
      party, Summit shall pay, or cause to be paid within twenty (20) days thereafter,
      to Corinthian, CSC and Wiginton  the total sum of $10.5 million as
      consideration (i) for settling the Litigation and (ii) as a break-up
      fee. If either Summit, CSC or Wiginton chooses not to pursue
      the acquisition and Summit pays the total sum of $10.5 million to Wiginton,
      Corinthian or CSC, or if regulatory approval is not received and Summit pays
      the
      total sum of $10.5 million to Wiginton, Corinthian and CSC, then in both events,
      each of the parties shall pay their respective legal fees and expenses. For
      purposes of this Section, Summit, CSC and Wiginton agree that regulatory
      approval will not be deemed to have been received if a regulatory agency imposes
      a material condition on its approval, which condition will have a material
      impact on either CSC, Wiginton, the Bank, or Summit.  In the event
      either party breaches the Agreement and Summit is required to pay the total
      sum
      of $10.5 million dollars, the parties acknowledge and agree that such payment
      is
      consideration for the settlement of the Litigation and does not affect or alter
      in any way the ability of either party to pursue its contractual rights and
      remedies under the Agreement.  The parties further acknowledge and
      agree that the $10.5 million payment includes consideration received from
      Federal Insurance Company to assist in settling the Litigation (but if such
      consideration is not received, it shall not reduce the $10.5 million
      payment).

     

    11.           Fees
      and Expenses.  The Agreement will provide that Summit, CSC,
      Corinthian, and the Bank will each pay their respective legal fees and expenses
      in connection with the Transaction, including if the Transaction does not close
      because of a failure to receive regulatory approval.

     

    12.           Representations,
      Warranties and Covenants.  The Agreement will contain such mutual
      representations, warranties and covenants as are customary or appropriate for
      a
      transaction of this nature, including but not limited to a representation that
      there has been no material adverse change to the respective business, operations
      or financial condition of Summit, CSC or the Bank.  The
      representations and warranties will survive the Closing for a period of one
      (1)
      year, except for any representations and warranties relating to Corinthian
      Mortgage Corporation, which shall survive three (3) years.

     

    13.           Indemnification.
      Except for indemnification obligations relating to Corinthian Mortgage
      Corporation (which shall survive for three (3) years), the Agreement will
      provide for reciprocal indemnification obligations between the parties for
      a
      period of one (1) year following the Closing.  The Agreement will
      provide that Wiginton and CSC will indemnify and hold Summit harmless for any
      damages or loss of any nature relating to, resulting from or arising out of
      the
      operation or ownership of Corinthian Mortgage Corporation for a period of three
      (3) years. Notwithstanding anything to the contrary, in no event shall
      Wiginton’s, CSC’s or Summit’s aggregate liability for indemnification exceed
      $2.5 million (which limitation as to Summit shall not apply to failure to pay
      the Purchase Price, the Per Share Guaranteed Return Price or the payments under
      Section 8 hereof).  Notwithstanding anything to the contrary, in no
      event shall Wiginton, the Bank or CSC provide any indemnification under the
      Agreement whatsoever with respect to any matters arising out of any claims
      Corinthian may have whether asserted or not against ChoicePoint Precision
      Marketing, LLC (now Inc.) or its officers, directors, employees, agents,
      subsidiaries, parents, affiliated entities, successors, and
      assigns.

     

    14.           Public
      Disclosure.  Neither Summit nor Wiginton nor CSC will make any
      press release or other public disclosure concerning this Transaction without
      the
      prior written consent of the other parties to this Letter of Intent;
provided, however, that notwithstanding the foregoing, Summit, Wiginton
      and CSC will be permitted to make any public disclosures or governmental filings
      as legal counsel may deem necessary to maintain compliance with or to prevent
      violations of applicable law or regulations or that may be necessary to obtain
      regulatory approval for the Transactions.

     

    15.           Confidentiality.  Except
      as may be required by applicable law or regulation or as may be necessary to
      obtain regulatory approval of the Transaction contemplated by this Letter of
      Intent, Summit, CSC and Wiginton will treat as confidential any information
      (the
“Information”) related to the Transaction described herein obtained from Summit,
      CSC or Wiginton, as applicable. Summit, CSC, and Wiginton will use the
      Information, and not disclose it to others, except its employees, advisors,
      directors and agents, expressly for the purposes of evaluating the potential
      of
      consummating the Transaction proposed herein. The information may be shared
      with
      potential purchasers of any or all of the assets of CSC provided any potential
      purchaser agrees to be bound by this provision. The term “Information” does not
      include any information that (i) at the time of disclosure or thereafter is
      generally available to and known by the public, (ii) was available on a
      nonconfidential basis from a source other than Summit, or, or (iii) was
      independently acquired or developed without violating any laws or obligations
      of
      this Letter of Intent.

     

    16.           Further
      Cooperation.  Summit, CSC and Wiginton hereby agree to cooperate
      and work together in providing any information required by either party to
      consummate the Transaction and in negotiating and agreeing upon any other
      matters that may arise in connection with the preparation of the
      Agreement.

     

    17.           Amendment,
      Modification or Extension.  The terms of this Letter of Intent may
      not be amended, modified or extended, nor may any of its terms be waived, except
      by a written instrument signed by all of the parties thereto.

     

    18.  Execution
      of Settlement Agreement and Release.  Upon execution of this
      Letter of Intent and subject to receipt of satisfactory evidence of the approval
      of this Letter of Intent by the Executive Committee of Summit and the Board
      of
      Directors of Corinthian Mortgage Corporation and CSC within five (5) days of
      execution of this Letter of Intent, Corinthian, Summit and the individual
      defendants will execute that certain Settlement Agreement and Release attached
      hereto as Exhibit B, to which this Letter of Intent shall be attached as
      Attachment 1.

     

    19.           Binding
      Provisions. Except for the obligations of the parties set forth in Sections
      10, 11, 14, 15 and 18 hereof, this letter is not intended, and shall not be
      deemed, to create any binding contract or obligation among Corinthian, Summit,
      Wiginton, CSC or the Bank (and there shall be no obligations whatsoever based
      on
      such things as parol evidence, extended negotiations, “hand shakes,” oral
      understandings or courses of conduct), but only sets forth an expression of
      the
      basis upon which each party is presently prepared to consider and negotiate
      the
      proposed Transaction; provided, however, notwithstanding the foregoing it is
      agreed that the Agreement, to the extent executed, will provide for the Purchase
      Price and the Per Share Guaranteed Return Price set forth in Section 2 and
      6
      hereof, respectively, and the terms set forth in Section 8.  Neither
      Corinthian, Summit, Wiginton, CSC nor the Bank shall be bound to consummate
      the
      Acquisition unless and until the parties execute and deliver a final, complete
      and definitive Agreement.

     

    If
      the
      foregoing binding Letter of Intent is acceptable to you, please so signify
      by
      executing this letter in the space provided below and returning one copy of
      this
      letter to the undersigned at the above address.

     

    Very
      truly yours,

    


    Summit
      Financial Group, Inc.

    


    


    By: /s/
      H. Charles Maddy, III

    


    Its: President
      & CEO

    


    


     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    AGREED
      AND ACCEPTED THIS 19th DAY OF November, 2007.

    


    Commonwealth
      Savingshares Corporation

    


    By:           /s/
      Danny L.
      Wiginton                                                                           

     Danny
      L. Wiginton

    Its:           President,
      Chief Executive Officer an

     Sole
      Shareholder

    


    


    SOUTHBank,
      FSB

    By:           /s/
      Danny L.
      Wiginton                                                                           

     Danny
      L. Wiginton

    Its:           President

    


    


    Corinthian
      Mortgage Corporation

    


    By:           /s/  Danny
      L.
      Wiginton                                                                

     Danny
      L. Wiginton

    Its:           President

    


    


    /s/
      Danny L.
      Wiginton                                                                           

    Danny
      L. Wiginton

    



    
      
         

      

      
         

        
          

        

      

      
         

      

    


    EXHIBIT
      A

    


    Retained
      Assets

     

     

    

      
        	
                1.

              	
                 
                  SOUTHBank – Florida

                 

              
	
                2.

              	
                 
                  North Carolina branches and related real estate.

                 

              
	
                3.

              	
                 
                  Related company loans (Danny Wiginton)

                 

              
	
                4.

              	
                 
                  2nd mortgage receivable from sale of Durham, NC building

                 

              
	
                5.

              	
                 
                  Corinthian Mortgage Corporation (with minimum net worth required
                  by
                  investors, FNMA and FHLMC)

                 

              
	
                6.

              	
                 
                  REO and other repossessed assets

                 

              
	
                7.

              	
                 
                  Assignment of all claims involving Cobb loan

                 

              
	
                8.

              	
                 
                  MERS Stock and Membership in the Ritz Carlton Club-Jupiter
                  Florida