UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
SCHEDULE 14A
Proxy Statement Pursuant to Section
14(a) of
the Securities Exchange Act of 1934
(Amendment No. _______)
Filed by the Registrant
þ
Filed by a Party other than the
Registrant
¨
Check the appropriate
box:
þ
Preliminary Proxy
Statement
¨
Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
¨
Definitive Proxy
Statement
¨
Definitive Additional
Materials
¨
Soliciting Material Pursuant to §
240.14a-11(c) or § 240.14a-12
PACIFIC
COAST NATIONAL BANCORP
(Name of Registrant as Specified in Its
Charter)
______________________________________________________
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the
appropriate box):
þ
No fee required
¨
Fee computed on table below per
Exchange Act Rules 14a-6(i)(4) and 0-11.
1)
|
Title of each class of securities
to which transaction
applies:
|
2)
|
Aggregate number of securities to
which transaction applies:
|
3)
|
Per unit price or other underlying
value of transaction computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and state how it
was determined):
|
4)
|
Proposed maximum aggregate value
of transaction:
|
¨
Fee paid previously by written
preliminary materials.
¨
Check box if any part of the fee is
offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
1)
|
Amount Previously
Paid:
|
2)
|
Form Schedule or Registration
Statement No.:
|
905 Calle Amanecer, Suite
100
San Clemente, California
92673
(949) 361-4300
November 21, 2008
Dear Shareholder:
You are
cordially invited to attend a special meeting of shareholders of Pacific Coast
National Bancorp. The meeting will be held on December 19, 2008 at 5:00 p.m.,
local time, at the main office of Pacific Coast National Bank, located at 905
Calle Amanecer, San Clemente, CA 92673.
The
enclosed notice of special meeting and proxy statement describe the formal
business to be transacted at the special meeting, which will include a proposal
to approve an amendment to our articles of incorporation to authorize our board
of directors to issue shares of preferred stock. We are asking for
your approval of this amendment in order to enable us to take advantage of what
we believe is a very attractive capital raising opportunity proposed by the
U.S. government. On October 14, 2008, the
U.S. Department of Treasury announced the establishment of the Troubled
Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase
Program”), pursuant to which Treasury plans to invest up to $250 billion in
U.S. financial institutions by purchasing preferred stock from these
institutions. Shareholder approval of the proposed amendment to our
articles of incorporation is a prerequisite to our participation in the TARP
Capital Purchase Program, assuming our application to participate in the program
is approved by Treasury. The proposed amendment would also provide
our board of directors with the flexibility to issue additional shares of
preferred stock in other capital raising transactions, though no specific
issuances of preferred stock outside of the TARP Capital Purchase Program are
presently contemplated.
While we
continued to be “well capitalized” as of September 30, 2008 under regulatory
capital guidelines, we, like other financial institutions, continue to
experience extremely challenging economic and financial market
conditions. Our board of directors believes that we should take all
necessary steps to achieve higher capital levels, to ensure that we remain
strong for the duration of the current industry crisis and as we continue to
grow.
Our board
of directors unanimously recommends that you vote
FOR
the proposed amendment to
our articles of incorporation. The vote required to approve the
proposed amendment is the affirmative vote of the holders of a majority of the
outstanding shares of our common stock.
Your
vote is very important
- a failure to vote will have the same effect as a
vote against the proposed amendment.
Whether
or not you expect to attend the special meeting in person, please complete, sign
and date the enclosed proxy as promptly as possible and return it in the
enclosed envelope (to which no postage need be affixed if mailed in the United
States) or submit your proxy over the Internet or by telephone. For further
details, see “About the Special Meeting - How do I vote?” in the enclosed proxy
statement.
We
appreciate your continued support and your prompt attention to this important
matter.
|
Sincerely,
|
|
|
|
|
|
Michael S.
Hahn
|
|
President and Chief Executive
Officer
|
PACIFIC COAST NATIONAL
BANCORP
905 Calle Amanecer, Suite
100
San Clemente, California
92673
(949) 361-4300
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
To be held on December 19,
2008
NOTICE IS
HEREBY GIVEN that a Special Meeting of Shareholders of Pacific Coast National
Bancorp will be held at 5:00 p.m., local time, on December 19, 2008, at the main
office of Pacific Coast National Bank, located at 905 Calle Amanecer, San
Clemente, CA, 92673, to consider and act upon the following
matters:
|
1.
|
A proposal to approve an amendment
to Pacific Coast National Bancorp’s articles of incorporation to authorize
the issuance of up to 1,000,000 shares of preferred stock, par value $0.01
per share, to be issued from time to time in one or more series, with such
rights, preferences, privileges and restrictions as shall be designated by
the Board of Directors of Pacific Coast National
Bancorp;
|
|
2.
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A proposal to approve the
adjournment of the special meeting, if necessary, to solicit additional
proxies, in the event there are not sufficient votes at the time of the
special meeting to approve the proposed amendment to the articles of
incorporation; and
|
|
3.
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The transaction of such other
business as may properly come before the special meeting or at any
adjournment or postponement thereof. Except with respect to the procedural
matters incident to the conduct of the meeting, we are not aware of any
other business to be brought before the
meeting.
|
Only
shareholders of record as of the close of business on November 14, 2008 are
entitled to notice of, and to vote at, the special meeting or any adjournment or
postponement thereof. A list of shareholders will be available for inspection
for a period of 10 days prior to the special meeting at the main office of
Pacific Coast National Bancorp at 905 Calle Amanecer, Suite 100, San Clemente,
California 92673 and will also be available for inspection at the meeting
itself.
You are
cordially invited to attend the special meeting in person. However, whether or
not you expect to attend the special meeting in person, we urge you to complete,
sign and date the enclosed proxy as promptly as possible and return it in the
enclosed envelope (to which no postage need be affixed if mailed in the United
States) or submit your proxy over the internet or by telephone. This will ensure
the presence of a quorum at the special meeting and that your shares are voted
in accordance with your wishes. For further details, see “About the Special
Meeting - How do I vote?” in the enclosed proxy statement.
|
By Order of the Board of
Directors
|
|
|
|
|
|
Michael S.
Hahn
President and Chief Executive
Officer
|
San Clemente,
California
November 21, 2008
This
notice of special meeting and proxy statement and form of proxy are first being
distributed to shareholders on or about November 21, 2008.
TABLE OF CONTENTS
|
PAGE
|
ABOUT
THE SPECIAL MEETING
|
1
|
HISTORICAL
FINANCIAL INFORMATION
|
4
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
5
|
PROPOSAL
ONE: APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO
AUTHORIZE
ISSUANCE OF PREFERRED STOCK
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6
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|
General
|
6
|
|
Reasons
for Proposed Amendment
|
6
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|
Terms
of the TARP Capital Purchase Program
|
7
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|
Pro
Forma Financial Information
|
9
|
|
Potential
Anti-Takeover Effect of Preferred Stock
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13
|
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Text
of Proposed Amendment
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13
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PROPOSAL
TWO: APPROVAL OF ADJOURNMENT OF SPECIAL MEETING, IF
NECESSARY
|
14
|
SPECIAL
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
|
15
|
SHAREHOLDER
PROPOSALS FOR THE NEXT ANNUAL MEETING OF
SHAREHOLDERS
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16
|
OTHER
MATTERS
|
17
|
PACIFIC COAST NATIONAL
BANCORP
905 Calle Amanecer, Suite
100
San Clemente, California
92673
___________________________
PROXY STATEMENT
FOR
SPECIAL MEETING OF
SHAREHOLDERS
TO BE HELD ON DECEMBER 19,
2008
_______________________________
This
proxy statement contains information relating to a special meeting of
shareholders of Pacific Coast National Bancorp (sometimes referred to as the
“Company,” “we,” “us,” or “our”) to be held on December 19, 2008 beginning at
5:00 p.m., local time, at the main office of our subsidiary, Pacific Coast
National Bank (sometimes referred to as the "Bank"), located at 905 Calle
Amanecer, San Clemente, CA, 92673, and at any adjournments or postponements
thereof. Certain of the information in this proxy statement relates
to the Bank.
ABOUT
THE SPECIAL MEETING
Who
is soliciting my proxy?
Our board
of directors is sending you this proxy statement in connection with its
solicitation of proxies for use at the special meeting.
What
is the purpose of the special meeting?
At the
special meeting, shareholders will act upon the matters outlined in the
accompanying notice of special meeting, including:
|
·
|
Proposal
One: A proposal to approve an amendment to our articles of incorporation
to authorize us to issue up to 1,000,000 shares of preferred stock (the
“Articles Amendment Proposal”); and
|
|
·
|
Proposal
Two: A proposal to adjourn the special meeting
, if necessary, to solicit
additional proxies, in the event there are not sufficient votes at the
time of the special meeting to approve the Articles Amendment Proposal
(the “Adjournment
Proposal”)
.
|
Except
with respect to the procedural matters incident to the conduct of the meeting,
we are not aware of any other business to be brought before the
meeting.
Why
is the Company seeking to amend its articles of incorporation to authorize the
issuance of preferred stock?
While we
remained “well-capitalized” as of September 30, 2008 under applicable regulatory
capital guidelines, the market outlook for continuing weak economic conditions
requires that we take all necessary steps to achieve higher capital levels that
will position us to remain strong throughout the remainder of the current
industry crisis and as we continue to grow. If the proposed amendment to our
articles of incorporation is approved, we will have broader options to seek
additional capital, including a possible investment by the U.S. Treasury
under the recently enacted Emergency Economic Stabilization Act of
2008. On October 14, 2008, Treasury announced the establishment
of the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital
Purchase Program”), pursuant to which Treasury will invest up to
$250 billion in preferred stock of U.S. financial institutions, in an
amount equal to not less than 1% of the institution’s risk-weighted assets and
not greater than the lesser of 3% of the institution’s risk-weighted assets or
$25 billion. Our risk-weighted assets as of September 30, 2008
were
approximately
$137.3 million, which would allow for an investment from Treasury of between
$1.37 million and $4.12 million. In conjunction with the purchase of
an institution’s preferred stock, Treasury will receive warrants to purchase the
institution’s common stock with an aggregate market value equal to 15% of the
total amount of the preferred investment. Because our articles of
incorporation currently do not authorize us to issue preferred stock,
shareholder approval of the Articles Amendment Proposal is necessary for us to
be able to participate in the TARP Capital Purchase Program, assuming our
application to participate in the program is approved by Treasury. If
the Articles Amendment Proposal is approved by shareholders, the proposed
amendment to our articles of incorporation will be effective regardless of
whether we are approved by Treasury for participation in the TARP Capital
Purchase Program.
What
will the consequences be if the Articles Amendment Proposal is not approved?
If the
Articles Amendment Proposal is not approved by shareholders, we will not be able
to participate in the TARP Capital Purchase Program, even if we are approved by
Treasury, or have the ability to issue preferred stock in other capital raising
transactions. This may place us at a distinct disadvantage against
competitors in the current environment and may limit our ability to raise
additional capital to support future growth.
Who
is entitled to vote at the special meeting?
Only
shareholders of record as of the close of business on the record date, November
14, 2008, are entitled to receive notice of the special meeting and to vote the
shares of common stock that they held on that date at the special meeting or any
adjournment or postponement thereof. Each outstanding share of our common stock
entitles its holder to cast one vote on each matter to be voted upon at the
special meeting. The total number of shares of our common stock outstanding on
the record date and eligible to cast votes at the special meeting is
2,544,850.
Please
note that if you hold your shares in “street name” (that is, through a broker or
other nominee), you will need to bring appropriate documentation from your
broker or nominee to vote in person at the special meeting.
How
many votes must be present to hold the special meeting?
The
presence at the special meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date, or
1,272,426 shares, will constitute a quorum at the special meeting. For purposes
of determining a quorum, proxies received but marked as abstentions and broker
non-votes will be treated as shares that are present and entitled to vote. A
broker non-vote occurs when a broker or other nominee indicates on the proxy
card that it does not have discretionary authority to vote on a particular
matter because it has not received voting instructions from its customer, as the
beneficial owner of the securities. It is expected that brokers will
not have discretionary authority to vote on the Articles Amendment Proposal or
the Adjournment Proposal if they do not receive voting instructions from their
customers.
How
do I vote?
You may
vote your shares either in person at the special meeting or by proxy whether or
not you attend the special meeting. Shares held in your name as the shareholder
of record may be voted in person at the special meeting. Shares held
beneficially in street name may be voted in person at the special meeting only
if you obtain a legal proxy from the broker or other nominee that holds your
shares giving you the right to vote the shares. Even if you plan to
attend the special meeting, we recommend that you also submit your proxy or
voting instructions as described below so that your vote will be counted if you
later decide not to attend the meeting.
Shareholders
whose shares are registered in their own names may vote by submitting a proxy
via the Internet, by telephone or by mailing a completed proxy card as an
alternative to voting in person at the meeting. Instructions for voting via the
Internet or by telephone are set forth on the enclosed proxy card. To vote by
mailing a proxy card, sign and return the enclosed proxy card in the enclosed
prepaid and addressed envelope, and your shares will be voted at the meeting in
the manner you direct. Granting a proxy will not affect your right to vote your
shares if you attend the special meeting and want to vote in person; by voting
in person you will revoke your proxy. You may also revoke your proxy at any time
before the vote at the meeting by providing our Corporate Secretary written
notice of your revocation or by submitting a proxy
bearing a later date via Internet, telephone or mail. If you submit your proxy
but do not mark your voting preferences, the proxy holders will vote your shares
FOR approval of the Articles Amendment Proposal and FOR approval of the
Adjournment Proposal.
If your
shares are registered in the name of a broker or other nominee, you will receive
instructions from your holder of record that must be followed in order for the
record holder to vote the shares per your instructions. Many banks and brokerage
firms have a process for their beneficial holders to provide instructions over
the telephone or via the Internet. If Internet or telephone voting is
unavailable from your bank or brokerage firm, please complete and return the
enclosed voting instruction card in the addressed, postage paid envelope
provided.
Can
I change my vote?
Yes. Even
after you have submitted your proxy, you may change your vote at any time before
the proxy is exercised at the special meeting. If you are the shareholder of
record, you may change your vote by granting via the Internet, telephone or mail
a new proxy bearing a later date (which automatically revokes the earlier
proxy), by providing a written notice of revocation to our Corporate Secretary
prior to your shares being voted, or by attending the special meeting and voting
in person. Attendance at the meeting will not cause your previously granted
proxy to be revoked unless you specifically so request. For shares you hold
beneficially in street name, you may change your vote by submitting new voting
instructions to your broker or other nominee, or, if you have obtained a legal
proxy from your broker or nominee giving you the right to vote your shares, by
attending the meeting and voting in person.
How
are votes counted?
With
respect to each of the Articles Amendment Proposal and the Adjournment Proposal,
you may vote “FOR,” “AGAINST” or “ABSTAIN.”
If you
submit your proxy without giving specific voting instructions, your shares will
be voted in accordance with the recommendations of our board of
directors (“FOR” the Articles Amendment Proposal, “FOR” the
Adjournment Proposal and in the discretion of the proxy holders on any other
matters that properly come before the special meeting, or any adjournment or
postponement thereof).
What
vote is required to approve each proposal?
Proposal
One: The affirmative vote of the holders of a majority of the outstanding shares
of our common stock is required to approve the Articles Amendment
Proposal. Abstentions and broker non-votes will have the effect of
votes “AGAINST” the Articles Amendment Proposal.
Proposal
Two: The affirmative vote of a majority of the shares of our common stock
present in person or by proxy and voting at the special meeting is required to
approve the Adjournment Proposal, if this proposal becomes
necessary. Abstentions and broker non-votes will have no effect on
the Adjournment Proposal.
How
does the board of directors recommend I vote on the proposals?
Unless
you give other instructions on your proxy card, Terry A. Stalk and David L.
Adams, the proxy holders, will vote in accordance with the recommendations of
our board of directors. Our board of directors recommends a vote FOR the
Articles Amendment Proposal and FOR the Adjournment Proposal.
With
respect to any other matter that properly comes before the meeting, the proxy
holders will vote as recommended by our board of directors, or if no
recommendation is given, in their own discretion.
Who
will bear the costs of soliciting proxies for the special meeting?
We will
bear the cost of soliciting proxies for the special meeting.
We have retained Regan & Associates,
Inc. to assist in the solicitation of proxies for a fee estimated to be
approximately $9,000, which includes reasonable out-of-pocket
expenses.
We may also reimburse brokerage firms and other
custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in
sending proxy materials to the beneficial owners of our shares of common stock.
In addition to solicitations by mail, our directors, officers and employees,
including those of the Bank, may solicit proxies personally, by telephone or
otherwise, but will not receive any additional compensation for their
services.
How
can I receive future shareholder communications electronically?
If you
received your special meeting proxy materials by mail, we encourage you to
conserve natural resources, as well as significantly reduce printing and mailing
costs, by signing up to receive your shareholder communications via e-mail. With
electronic delivery, we will notify you via e-mail as soon as our next annual
report and proxy statement are available on the Internet, and you can easily
submit your shareholder votes online. Electronic delivery can also help reduce
the number of bulky documents in your personal files and eliminate duplicate
mailings. To sign up for electronic delivery, follow the instructions on your
proxy card.
Who
can help answer my questions?
If you
have any questions about the special meeting or how to vote or revoke your
proxy, or if you should need additional copies of this proxy statement or voting
materials, please contact:
Terry A.
Stalk
Executive
Vice President and Chief Financial Officer
Pacific
Coast National Bancorp
905 Calle
Amanecer, Suite 100
San
Clemente, California 92673
(949)
361-4300
HISTORICAL
FINANCIAL INFORMATION
Our
most recent historical
financial
information can be found in our Annual Report on Form 10-KSB for the year ended
December 31, 2007, as amended on Form 10-KSB/A, and in our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2008, filed with the Securities
and Exchange Commission (the “SEC”). Copies of these reports are
available upon request by writing or calling us at the address or telephone
number provided above, under “Who can help answer my
questions?” These reports, and our other SEC filings, are also
available, free of charge, via the Internet at the SEC’s website at
http://www.sec.gov. Any document we file with the SEC may also be read and
copied at the SEC’s public reference room at 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on
the SEC’s public reference room.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This
following table sets forth information regarding the beneficial ownership of the
common stock of Pacific Coast National Bancorp as of November 14, 2008,
for:
|
·
|
each
person known by us to own beneficially more than 5% of our common
stock;
|
|
·
|
each
of our directors and executive officers;
and
|
|
·
|
all
of our directors and executive officers as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the
SEC
and includes voting and investment power with respect to the securities. Subject
to applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. In addition, shares of common stock issuable upon
exercise of options and warrants beneficially owned that are exercisable within
sixty days of November 14, 2008, are deemed outstanding for the purpose of
computing the percentage ownership of the person holding those options and other
rights, and the group as a whole, but are not deemed outstanding for computing
the percentage ownership of any other person.
Name
and Address* of Beneficial Owners
|
|
Number
of Shares Beneficially Owned
|
|
Percent
of Class
(
15
)
|
None
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
|
|
|
Thomas
J. Applegate
,
Director
|
|
49,876
(1)
|
|
1.95%
|
|
|
|
|
|
Michael
V. Cummings
,
Director
|
|
8,
2
21
(2)
|
|
*
|
|
|
|
|
|
Fred
A. deBoom
,
Director
|
|
25,283
(
3
)
|
|
*
|
|
|
|
|
|
Colin
M. Forkner
,
Vice
Chairman
of the Board
|
|
10
9,542
(
4
)
|
|
4.
14
%
|
|
|
|
|
|
Michael
S. Hahn
,
Director, President and
Chief
Executive Officer
|
|
116
,198
(
5
)
|
|
4.
38
%
|
|
|
|
|
|
David
Johnson
,
Director
|
|
68,249
(
6
)
|
|
2.67%
|
|
|
|
|
|
Dennis
C. Lindeman
,
Chairman of the Board
|
|
65,438
(
7
)
|
|
2.55
%
|
|
|
|
|
|
Denis
H. Morgan
,
Director
|
|
74,353
(
8
)
|
|
2.91
%
|
|
|
|
|
|
James
M. Morrison, Director
|
|
16,382
(
9
)
|
|
*
|
|
|
|
|
|
Charles
T. Owen, Director
|
|
0
|
|
*
|
|
|
|
|
|
John
Vuona
,
Director
|
|
33,115
(1
0
)
|
|
1.30%
|
|
|
|
|
|
David
L. Adams, Executive Vice President
and
Chief Lending Officer
|
|
17,799
(1
1
)
|
|
*
|
|
|
|
|
|
Stanley
M. Cruse
,
Executive Vice President
and
Chief Credit Officer
|
|
5,367
(1
2
)
|
|
*
|
|
|
|
|
|
Terry
A. Stalk
,
Executive Vice President and
Chief
Financial Officer
|
|
69,919
(1
3
)
|
|
2.
6
8
%
|
|
|
|
|
|
All
directors and executive officers as a
group
(14
persons)
|
|
659,742
(1
4
)
|
|
22
.
72
%
|
_______________________
|
|
|
|
|
*
|
The
address of each of our directors and named executives is c/o Pacific Coast
National Bancorp, 905 Calle Amanecer, Suite 100, San Clemente, California
92673.
|
Notes to
beneficial ownership table:
(1)
|
Includes options to acquire 2,777
shares of common stock
and warrants to acquire 4,212
shares of common stock.
|
(2)
|
Includes
options to acquire 2,221 shares of common stock and warrants to acquire
4,
0
00 shares of common
stock.
|
(3)
|
Includes
options to acquire 1,851 shares of common stock and warrants to acquire
6
,
1
0
6
shares of common
stock.
|
(4)
|
Includes options to acquire
100,542
shares of common
stock.
|
(5)
|
Includes options to acquire
95
,
786
shares of common stock and
warrants to acquire 1
0
,000 shares of common
stock.
|
(6)
|
Includes options to acquire 2,221
shares of common stock and warrants to acquire
12,424
shares of common
stock.
|
(7)
|
Includes options to acquire 2,406
shares of common stock and warrants to acquire 1
6,106
shares of common
stock.
|
(8)
|
Includes options to acquire 2,221
shares of common stock and warrants to acquire 1
2
,
1
0
6
shares of common
stock.
|
(9)
|
Includes warrants to acquire
2
,
1
0
6
shares of common
stock.
|
(10)
|
Includes options to acquire 1,851
shares of common stock and warrants to acquire
8,212
shares of common
stock.
|
(11)
|
Includes options to acquire 167
shares of common stock and warrants to acquire 2,106 shares of common
stock.
|
(12)
|
Includes options to acquire 4,167
shares of common stock.
|
(13)
|
Includes options to acquire
64
,919 shares of common
stock.
|
(14)
|
Includes options to acquire
281,129
shares of common stock and
warrants to acquire
77,378
shares of common
stock.
|
(15)
|
Calculated based on 2,
544,850
shares of common stock
outstanding as of
November 14
, 2008 plus options and warrants
exercisable within sixty days of
November 14
, 2008 for the individual or
the group, as
applicable.
|
PROPOSAL
ONE: APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO
AUTHORIZE
ISSUANCE OF PREFERRED STOCK
General
Under the
existing provisions of our articles of incorporation, we have the authority to
issue up to 10,000,000 shares of common stock, but do not have the authority to
issue preferred stock. Our board of directors has approved an
amendment to our articles of incorporation to authorize up to 1,000,000 shares
of preferred stock, par value $0.01 per share, subject to approval of the
amendment by shareholders at the special meeting (the “Articles Amendment
Proposal”). If the Articles Amendment Proposal is approved by
shareholders, our board of directors will be authorized to provide for the
issuance of preferred stock from time to time in one or more series and, in
connection with the creation of any such series, to determine the rights,
preferences, privileges and restrictions of such series. The shares
of preferred stock would be available for issuance without further action by our
shareholders, except as may be required by applicable law.
Reasons
for Proposed Amendment
Approval
by shareholders of the Articles Amendment Proposal would enable us to
participate in the TARP Capital Purchase Program recently established by the
U.S. Department of Treasury (“Treasury”) pursuant to the Emergency Economic
Stabilization Act of 2008, if our application to participate in that program is
approved by Treasury. Financial institutions approved for
participation in the TARP Capital Purchase Program will be able to sell shares
of preferred stock on standardized terms to Treasury, as described below under
“—Terms of the TARP Capital Purchase Program.”
While we remained “well-capitalized” as
of September 30, 2008 under applicable regulatory capital guidelines, our board
of directors believes that the market outlook for continuing weak economic
conditions requires that we take all necessary steps to achieve higher capital
levels that will position us to remain strong throughout the remainder of the
current industry crisis and as we continue to grow. For this reason,
we currently intend to participate in the TARP Capital Purchase Program, if our
application is approved by Treasury. Because our articles of
incorporation currently do not authorize us to issue preferred stock, however,
shareholder approval of the Articles Amendment Proposal is a prerequisite for
our participation in the TARP Capital Purchase Program. The Articles
Amendment Proposal would also afford our board of directors the flexibility to
set the terms of and issue additional preferred stock in other capital raising
transactions without incurring the time and expense of seeking shareholder
approval for particular issuances,
though no specific issuances of
preferred stock outside of the TARP Capital Purchase Program are presently
contemplate
d. If
the Articles Amendment Proposal is approved by shareholders, the proposed
amendment to our articles of incorporation will be effective regardless of
whether we are approved by Treasury for participation in the TARP Capital
Purchase Program.
Terms
of the TARP Capital Purchase Program
The
following description of the TARP Capital Purchase Program is based on the
information currently available regarding the TARP Capital Purchase
Program. Treasury has indicated that there may be separate terms
applicable to companies, such as us, whose stock is not listed on a national
securities exchange, but has not yet made those terms
available. Accordingly, some of the terms applicable to us could
differ from those described below. The actual terms of our participation in the
TARP Capital Purchase Program, including the specific terms of the securities we
issue, would be set forth in investment agreements and related documents to be
issued by Treasury and executed by us. The current term sheet and current
general forms of these investment agreements and related documents are available
on Treasury’s website, at
www.treas.gov/initiatives/eesa/application-documents
.
Under the
TARP Capital Purchase Program, eligible financial institutions can generally
apply to issue shares of preferred stock to Treasury in an amount equal to not
less than 1% of the institution’s risk-weighted assets
and not
more than the lesser of 3% of the institution’s risk-weighted assets or $25
billion. Our risk weighted assets as of September 30, 2008 were
approximately $137.3 million, which would enable us to receive an investment
from Treasury of between $1.37 million and $4.12 million. We have
requested the maximum possible amount. It is expected that if our
application is preliminarily approved by Treasury, we will then have
30 days to satisfy all requirements for participation in the TARP Capital
Purchase Program, including receipt of shareholder approval of the Articles
Amendment Proposal and the execution and delivery of an investment agreement
with Treasury and other documents.
^ General Terms of Senior
Preferred Stock.
If we participate in the TARP Capital Purchase Program,
Treasury would purchase from us shares of cumulative perpetual preferred stock,
with a liquidation preference of $1,000 per share (the “Senior
Preferred Stock”). The Senior Preferred Stock would constitute Tier 1
capital and would rank senior to our common stock. Cumulative dividends would be
payable on the Senior Preferred Stock quarterly in arrears at a rate of 5% per
annum for the first five years and 9% per annum after year five.
Since
the Bank first opened for business in May 2005, we have made substantial
investments to create an infrastructure designed to support a much larger
organization. As a result of the incurrence of these expenses and the
operating losses we have sustained since the Bank’s formation, the Bank had an
accumulated deficit (negative shareholder’s equity) at September 30, 2008 of
$11.1 million. If the Articles Amendment Proposal is not approved by
shareholders and we are unable to participate in the TARP Capital Purchase
Program or issue additional shares of preferred stock in other capital raising
transactions, we will likely be limited in our ability to grow our loan
portfolio. This would likely result in slower asset growth and prevent us
from increasing the scale of our operations as we seek to enhance our
profitability in order to eliminate the accumulated deficit. The Bank
is prohibited from paying dividends up to the Company without regulatory
approval until this accumulated deficit is eliminated. If we were to
participate in the TARP Capital Purchase Program, in an effort to ensure that we
have sufficient funds at the holding company level to pay dividends on the
Senior Preferred Stock, we expect that we would initially retain at the holding
company an amount of the gross proceeds equal to the aggregate dividends payable
on the Senior Preferred Stock for the first three years after the issuance of
the Senior Preferred Stock (approximately $206 thousand if we receive the
minimum investment from Treasury of $1.37 million or $618 thousand if we receive
the maximum investment from Treasury of $4.12 million) The remainder
of the gross proceeds (approximately $1.16 million if we receive the minimum
investment from Treasury and $3.50 million if we receive the maximum
investment from Treasury) would be downstreamed by us to the
Bank.
The
shares of Senior Preferred Stock would be non-voting shares, but would have
class voting rights on (i) any authorization or issuance of shares ranking
senior to the Senior Preferred Stock; (ii) any amendment to the rights of
the holders of the Senior Preferred Stock; or (iii) any merger, exchange or
similar transaction which would adversely affect the rights of the holders of
the Senior Preferred Stock. In the event the cumulative dividends described
above were not paid in full for six dividend periods, whether or not
consecutive, the holders of the Senior Preferred Stock would have the right to
elect two directors of the Company. The right to elect directors would end when
dividends have been paid in full for four consecutive dividend
periods.
The
shares of Senior Preferred Stock would be redeemable by us after three years at
their issue price, plus any accrued and unpaid dividends. Prior to the end of
three years after Treasury’s investment, the Senior Preferred Stock could only
be redeemed by us using the proceeds of an offering by us of other Tier 1
qualifying perpetual preferred stock or common stock (a “Qualified Equity
Offering”) which yields aggregate gross proceeds to us of at
least 25%
of the issue price of the Senior Preferred Stock. Any such redemption must be
approved by the Company’s primary federal bank regulator, the Board of Governors
of the Federal Reserve System. Treasury would be permitted to
transfer the shares of Senior Preferred Stock to a third party at any
time. We would be required to file a shelf registration statement
with the SEC to permit the transferability of the shares of
Preferred Stock, as well as the Warrants (defined below) and the shares of
common stock underlying the Warrants, as soon as practicable after the date of
Treasury’s investment in the Senior Preferred Stock.
Warrants.
If we
participate in the TARP Capital Purchase Program, we must also issue warrants
(the “Warrants”) to Treasury to purchase a number of shares of our common stock
having a market value equal to 15% of the aggregate liquidation amount of the
shares of Senior Preferred Stock purchased by Treasury. The exercise
price of the Warrants, and the market value for determining the number of shares
common stock subject to the
subject
to the Warrants, would be determined by reference to the market value of our
common stock on the date of Treasury’s ^pre-approval of our participation
in the ^TARP Capital Purchase Program . The exercise price of
the Warrants and the number of shares of common stock issuable upon exercise of
the Warrants would be subject to customary anti-dilution adjustments for any
stock dividends, stock splits or similar transactions or certain below market
issuances by us of common stock or securities convertible to common
stock. Assuming a market value per share of our common stock for
these purposes ^ of ^$5.00 , the number of shares of our common
stock that would be purchasable under the Warrants issued to Treasury would
range from ^41,190 (assuming the minimum Senior Preferred Stock
investment by Treasury of $1.37 million) to ^123,600 (assuming the
maximum Senior Preferred Stock investment by Treasury of $4.12
million). Based on the 2,544,850 shares of our common stock
outstanding as of November 14, 2008 (which excludes an aggregate of 286,650
shares underlying warrants issued in connection with previous capital raising
transactions, 399,474 shares underlying outstanding stock options granted to
directors and employees and 79,326 shares reserved for issuance pursuant to
stock options that may be granted in the future under our existing stock option
plan), the potential dilution to holders of our common stock resulting from the
Warrants issued to Treasury would range from ^1.6 % to
^4.9 %.
The
Warrants would have a term of ten years. The Warrants would be
immediately exercisable and would not be subject to restrictions on transfer;
however, Treasury would only be permitted to exercise or transfer one-half of
the Warrants prior to the earlier of (i) the date on which we have received
aggregate gross proceeds of at least 100% of the issue price of the Senior
Preferred Stock from one or more Qualified Equity Offerings and (ii) December
31, 2009. If we received aggregate gross proceeds of at least 100% of
the issue price of the Senior Preferred Stock from one or more Qualified Equity
Offerings on or prior to December 31, 2009, the number of shares of our common
stock underlying the Warrants would be reduced by 50%. Treasury would
agree not to exercise voting power with respect to any of the shares of common
stock issued to it upon exercise of the Warrants; persons to whom Treasury
subsequently transferred these shares would not be bound by this voting
restriction.
Terms Affecting Common Stock and Any
Other Preferred Stock.
As long as shares of the Senior Preferred Stock
remain outstanding, unless all accrued and unpaid dividends for all past
dividend periods on the Senior Preferred Stock are fully paid, we would not be
permitted to declare or pay dividends on our common stock, shares of any junior
preferred shares or shares of any preferred shares ranking
pari passu
(equally) with the
Senior Preferred Stock (other than in the case of preferred stock ranking
pari passu
with the Senior
Preferred Stock, dividends on a pro rata basis with the Senior Preferred Stock),
nor would we be permitted to repurchase or redeem any shares of common stock or
preferred stock other than the Senior Preferred Stock. Currently, we
do not pay dividends on our common stock. Unless the shares of Senior
Preferred Stock have been transferred or redeemed by us in whole, until the
third anniversary of Treasury’s investment in the Senior Preferred Stock, any
dividends on our common stock would be prohibited without the prior approval of
Treasury. In addition, unless the shares of Senior Preferred Stock
have been transferred or redeemed in whole, until the third anniversary of
Treasury’s investment, Treasury’s consent would be required for any share
repurchases other than repurchases of the Senior Preferred Stock and repurchases
of shares of junior preferred stock or shares of common stock in connection with
any benefit plan in the ordinary course of business and consistent with past
practice.
Executive Compensation.
To
participate in the TARP Capital Purchase Program, we would be required to adhere
to Treasury’s standards for executive compensation and corporate governance for
the period during which Treasury holds any equity securities issued by us under
the TARP Capital Purchase Program. These standards, which generally would apply
to our chief executive officer, chief financial officer, plus the next three
most highly compensated executive officers (collectively referred to as “senior
executives”), include the following: (1) ensuring
that
incentive compensation for senior executives does not encourage unnecessary and
excessive risks that threaten the value of our company; (2) requiring a
clawback of any bonus or incentive compensation paid to a senior executive based
on statements of earnings, gains or other criteria that are later proven to be
materially inaccurate; (3) prohibiting certain severance payments to a senior
executive, generally referred to as “golden parachute” payments, above specified
limits set forth in the U.S. Internal Revenue Code; and (4) agreeing not to
deduct for federal income tax purposes executive compensation in excess of
$500,000 for each senior executive – for this purpose, all compensation paid to
the senior executive for the applicable tax year is taken into account,
including certain qualified performance-based compensation normally deductible
under Section 162(m) of the U.S. Internal Revenue Code. The adoption
of these standards is not expected to materially affect the existing
compensation arrangements with our senior executives.
The
foregoing description of the TARP Capital Purchase Program is based on the
information currently available regarding the TARP Capital Purchase
Program ^ . The final terms of our participation in the TARP Capital
Purchase Program, including the specific terms of the Senior Preferred Stock and
the Warrants, would be set forth in investment agreements and related documents
to be issued by Treasury and executed by us. The general forms of these
investment agreements and related documents are available on Treasury’s website,
at
www.
treas.gov/initiatives/eesa/application-documents
. .
Pro
Forma Financial Information
The
following unaudited pro forma financial information as of September 30, 2008 and
for the nine months ended September 30, 2008 and the year ended December 31,
2007 shows the effects of a minimum of $1.37 million and a maximum of $4.12
million of Senior Preferred Stock purchased by Treasury pursuant to the TARP
Capital Purchase Program. The unaudited pro forma financial information
presented below may change materially under either the “Minimum” or “Maximum”
scenario based on the actual proceeds received under the TARP Capital Purchase
Program, if our application to participate in this program is approved by
Treasury, the actual utilization of the proceeds received and the timing of that
actual utilization. We can provide no assurance that the minimum or
maximum estimated proceeds included in the following unaudited pro forma
financial information will ever be received.
Unaudited Pro Forma Consolidated
Balance Sheet
|
|
Historical
|
|
|
Pro
Forma (1)
|
|
|
|
September
30, 2008
|
|
|
September
30, 2008
|
|
ASSETS
|
|
(unaudited)
|
|
|
Minimum
|
|
|
Maximum
|
|
Cash
and cash equivalents(2)
|
|
$
|
7,382,951
|
|
|
$
|
7,715,951
|
|
|
$
|
10,462,951
|
|
Loans,
net of allowance for loan losses and
unearned
income
|
|
|
128,616,681
|
|
|
|
128,616,681
|
|
|
|
128,616,681
|
|
Other
Assets
|
|
|
2,073,179
|
|
|
|
2,073,179
|
|
|
|
2,073,179
|
|
TOTAL
ASSETS
|
|
$
|
138,072,811
|
|
|
$
|
138,405,811
|
|
|
$
|
141,152,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
124,312,738
|
|
|
|
124,312,738
|
|
|
|
124,312,738
|
|
Other
Liabilities
|
|
|
1,586,585
|
|
|
|
546,585
|
|
|
|
546,585
|
|
TOTAL
LIABILITIES
|
|
|
125,899,323
|
|
|
|
124,859,323
|
|
|
|
124,859,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock(1)
|
|
|
-
|
|
|
|
1,373,000
|
|
|
|
4,120,000
|
|
Common
stock
|
|
|
24,922
|
|
|
|
24,922
|
|
|
|
24,922
|
|
Additional
paid-in capital
|
|
|
26,591,810
|
|
|
|
26,591,810
|
|
|
|
26,591,810
|
|
Accumulated
deficit
|
|
|
(14,443,244
|
)
|
|
|
(14,443,244
|
)
|
|
|
(14,443,244
|
)
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
|
12,173,488
|
|
|
|
13,546,488
|
|
|
|
16,293,488
|
|
TOTAL
LIABILITIES AND
SHAREHOLDERS'
EQUITY
|
|
$
|
138,072,811
|
|
|
$
|
138,405,811
|
|
|
$
|
141,152,811
|
|
___________________________
|
(1)
|
The
pro forma information gives effect to receipt of the proceeds of the
issuance of the shares of Senior Preferred Stock as of September 30,
2008.
|
(2)
|
Reflects
the issuance of a minimum of $1,373,000 and a maximum of $4,120,000 of
shares of Senior Preferred Stock. The proceeds received from
the sale of the Senior Preferred Stock are assumed to be initially
invested primarily in federal funds sold. Subsequent
redeployment of the funds is anticipated but the timing of such
redeployment is uncertain.
|
Unaudited Pro Forma Consolidated
Statement of Operations
(Nin
e
Months Ended September 30, 2008)
|
|
Historical
|
|
|
Pro
Forma (1)
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2008
|
|
|
|
Nine
Months Ended September 30, 2008
|
|
|
Minimum
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income(2)
|
|
$
|
6,353,270
|
|
|
$
|
6,363,568
|
|
|
$
|
6,384,170
|
|
Interest
expense
|
|
|
2,293,861
|
|
|
|
2,293,861
|
|
|
|
2,293,861
|
|
Net
interest income before provision
for
loan losses
|
|
|
4,059,409
|
|
|
|
4,069,707
|
|
|
|
4,090,309
|
|
Provision
for loan losses
|
|
|
1,137,900
|
|
|
|
1,137,900
|
|
|
|
1,137,900
|
|
Net
interest income after provision
for
loan losses
|
|
|
2,921,509
|
|
|
|
2,931,807
|
|
|
|
2,952,409
|
|
Total
noninterest income
|
|
|
830,539
|
|
|
|
830,539
|
|
|
|
830,539
|
|
Total
noninterest expense(3)
|
|
|
5,360,435
|
|
|
|
5,360,435
|
|
|
|
5,360,435
|
|
(Loss)
before income taxes
|
|
|
(1,608,387
|
)
|
|
|
(1,598,090
|
)
|
|
|
(1,577,487
|
)
|
Income
tax expense
|
|
|
1,600
|
|
|
|
1,600
|
|
|
|
1,600
|
|
Net
(Loss)
|
|
$
|
(1,609,987
|
)
|
|
|
(1,599,690
|
)
|
|
|
(1,579,087
|
)
|
Effective
dividend on preferred shares
|
|
|
|
|
|
|
51,488
|
|
|
|
154,500
|
|
Net
(loss) available to common
shareholders
|
|
|
|
|
|
$
|
(1,651,177
|
)
|
|
$
|
(1,733,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
and Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.70
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.76
|
)
|
Diluted(4)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(0.72
|
)
|
Average
basic shares outstanding
|
|
|
2,283,988
|
|
|
|
2,283,988
|
|
|
|
2,283,988
|
|
Average
diluted shares outstanding (4)(5)
|
|
|
2,283,988
|
|
|
|
2,325,178
|
|
|
|
2,407,588
|
|
______________________
|
(1)
|
The
pro forma information gives effect to receipt of the proceeds of the
issuance of the shares of Senior Preferred Stock at the beginning of the
period.
|
(2)
|
The
proceeds received from the issuance of the shares of Senior Preferred
Stock are assumed to be initially invested primarily in federal funds
sold, earning a rate of 1%. Subsequent redeployment of the
funds is anticipated, but the timing of such redeployment is uncertain and
the rate of return earned following redeployment cannot be
estimated.
|
(3)
|
The
costs of the issuance of the Senior Preferred Stock are expected to be
immaterial; accordingly, no effect is shown in this pro forma statement of
operations.
|
(4)
|
Common
shares issuable upon exercise of employee stock options and warrants
previously issued have not been included in the (loss) per share
calculation or average diluted shares outstanding because their inclusion
would have been antidilutive on (loss) per share.
|
(5)
|
The
(loss) per share calculation and the average diluted shares outstanding
include the estimated effect of the exercise of the
warrants.
|
Unaudited Pro Forma Consolidated
Statement of Operations
(Year Ended December 31,
2007)
|
|
Historical
|
|
|
Pro
Forma (1)
|
|
|
|
|
|
|
Year
Ended
December
31, 2007
|
|
|
|
Year
Ended
December
31,
2007
|
|
|
Minimum
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income(2)
|
|
$
|
5,488,303
|
|
|
$
|
5,502,033
|
|
|
$
|
5,529,503
|
|
Interest
expense
|
|
|
1,984,478
|
|
|
|
1,984,478
|
|
|
|
1,984,478
|
|
Net
interest income before provision
for
loan losses
|
|
|
3,503,825
|
|
|
|
3,517,555
|
|
|
|
3,545,025
|
|
Provision
for loan losses
|
|
|
1,383,220
|
|
|
|
1,383,220
|
|
|
|
1,383,220
|
|
Net
interest income after provision
for
loan losses
|
|
|
2,120,605
|
|
|
|
2,134,335
|
|
|
|
2,161,805
|
|
Total
noninterest income
|
|
|
617,874
|
|
|
|
617,874
|
|
|
|
617,874
|
|
Total
noninterest expense(3)
|
|
|
6,778,548
|
|
|
|
6,778,548
|
|
|
|
6,778,548
|
|
(Loss)
before income taxes
|
|
|
(4,040,069
|
)
|
|
|
(4,026,339
|
)
|
|
|
(3,998,869
|
)
|
Income
tax expense
|
|
|
1,600
|
|
|
|
1,600
|
|
|
|
1,600
|
|
Net
(Loss)
|
|
$
|
(4,041,669
|
)
|
|
|
(4,027,939
|
)
|
|
|
(4,000,469
|
)
|
Effective
dividend on preferred shares
|
|
|
|
|
|
|
68,650
|
|
|
|
206,000
|
|
Net
(loss) available to common shareholders
|
|
|
|
|
|
$
|
(4,096,589
|
)
|
|
$
|
(4,206,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
and Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.77
|
)
|
|
$
|
(1.80
|
)
|
|
$
|
(1.84
|
)
|
Diluted(4)
|
|
$
|
(1.77
|
)
|
|
$
|
(1.76
|
)
|
|
$
|
(1.75
|
)
|
Average
basic shares outstanding
|
|
|
2,281,686
|
|
|
|
2,281,686
|
|
|
|
2,281,686
|
|
Average
diluted shares outstanding (4)(5)
|
|
|
2,281,686
|
|
|
|
2,322,876
|
|
|
|
2,405,286
|
|
_________________________
|
(1)
|
The
pro forma information gives effect to receipt of the proceeds of the
issuance of the shares of Senior Preferred Stock at the beginning of the
period.
|
(2)
|
The
proceeds received from the issuance of the shares of Senior Preferred
Stock are assumed to be initially invested primarily in federal funds
sold, earning a rate of 1%. Subsequent redeployment of the
funds is anticipated, but the timing of such redeployment is uncertain and
the rate of return earned following redeployment cannot be
estimated.
|
(3)
|
The
costs of the issuance of the Senior Preferred Stock are expected to be
immaterial; accordingly, no effect is shown in this pro forma statement of
operations.
|
(4)
|
Common
shares issuable upon exercise of employee stock options and warrants
previously issued have not been included in the (loss) per share
calculation or average diluted shares outstanding because their inclusion
would have been antidilutive on (loss) per share.
|
(5)
|
The
(loss) per share calculation and the average diluted shares outstanding
include the estimated effect of the exercise of the
warrants.
|
The
following tables show the Company’s (consolidated) and the Bank’s historical and
pro forma ratios of total capital to risk-weighted assets, Tier 1 capital to
risk-weighted assets and Tier 1 capital as of September 30, 2008, giving effect
to a minimum of $1.37 million and a maximum of $4.12 million of Senior Preferred
Stock purchased by Treasury pursuant to the TARP Capital
Purchase Program.
Holding
Company Consolidated Regulatory Capital Ratios
|
Historical
At
September 30,
2008
|
|
Pro
Forma
At
September 30, 2008
|
|
Minimum
|
|
Maximum
|
Total
capital to risk-weighted assets
|
10.1%
|
|
11.1%
|
|
13.1%
|
Tier
1 capital to risk-weighted assets
|
8.9%
|
|
9.9%
|
|
11.9%
|
Tier
1 capital to average assets
|
8.9%
|
|
9.9%
|
|
11.9%
|
Bank
Regulatory Capital Ratios
|
Historical
At
September 30,
2008
|
|
Pro
Forma
At
September 30, 2008(1)
|
|
Minimum
|
|
Maximum
|
Total
capital to risk-weighted assets
|
10.1%
|
|
11.0%
|
|
12.7%
|
Tier
1 capital to risk-weighted assets
|
8.9%
|
|
9.7%
|
|
11.4%
|
Tier
1 capital to average assets
|
8.9%
|
|
9.7%
|
|
11.4%
|
__________________________
|
(1)
|
Assumes
a downstreaming by us to the Bank of $1.16 million of the proceeds, if we
receive the minimum investment from Treasury of $1.37 million, and $3.50
million of the proceeds, if we receive the maximum investment from
Treasury of $4.12 million. See “—Terms of the TARP
Capital Purchase Program-General Terms of Senior Preferred
Stock.”
|
Potential
Anti-Takeover Effect of Preferred Stock
The
Articles Amendment Proposal could have certain anti-takeover
effects. For example, shares of the authorized preferred stock could
be issued (in a transaction other than pursuant to the TARP Capital Purchase
Program) in such amounts and on such terms so as to make it more difficult or
time consuming for a third party to acquire a majority of our outstanding voting
stock or otherwise effect a change of control. The presence of outstanding
preferred stock could increase the total consideration to be paid by a potential
acquiror, possibly, depending on the terms of the preferred stock, to the point
of being cost-prohibitive to the potential acquiror or to the point of
materially reducing the consideration to be paid to the holders of our common
stock. Our board of directors also could, although it has no present
intention of doing so, issue shares of preferred stock to persons who indicate
that they would support the board in opposing any unsolicited takeover
proposal.
Text
of Proposed Amendment
The full
text of the proposed amendment to our articles of incorporation is attached to
this proxy statement as Appendix A. If the proposed amendment is adopted,
our board of directors would be authorized to issue shares of preferred stock
from time to time in one or more series, with full, limited or no voting rights,
and with such other rights, preferences, privileges and restrictions as may be
determined by the board. The authority of our board of directors in this regard
would include, but not be limited to, the determination or fixing of the
following with respect to shares of any series of preferred stock:
|
·
|
the
division of the shares of preferred stock into series and the designation
and authorized number of shares (up to the number of shares authorized) in
each series;
|
|
·
|
the
dividend rate and whether dividends are to be
cumulative;
|
|
·
|
whether
the shares are to be redeemable, and, if so, whether redeemable for cash,
property or rights;
|
|
·
|
the
liquidation rights to which the holders of the shares will be entitled,
and the preferences, if any;
|
|
·
|
whether
the shares will be subject to the operation of a sinking fund, and, if so,
upon what conditions;
|
|
·
|
whether
the shares will be convertible into or exchangeable for shares of any
other class or of any other series of any class of capital stock and the
terms and conditions of the conversion or
exchange;
|
|
·
|
the
voting rights of the shares, which may be full, limited or none, except as
otherwise required by law;
|
|
·
|
the
preemptive rights, if any, to which the holders of the shares will be
entitled and any limitations
thereon;
|
|
·
|
whether
the issuance of any additional shares, or of any shares of any other
series, will be subject to restrictions as to issuance, or as to the
powers, preferences or rights of any of these other series;
and
|
|
·
|
any
other rights, preferences, privileges and
restrictions.
|
The
actual effect of the issuance of any shares of preferred stock, other than
pursuant to the TARP Capital Purchase Program, upon the rights of holders of our
common stock cannot be known until our board of directors
determines
the specific terms of any shares of preferred stock. However, the effects might
include, among other things, restricting dividends on the common stock, diluting
the voting power of the common stock, reducing the market value of the common
stock or impairing the liquidation rights of the holders of the common
stock. For a discussion of the what the effects would be upon the
rights of holders of the common stock of the Senior Preferred Stock issued
pursuant to the TARP Capital Purchase Program, see “—Terms of the TARP Capital
Purchase Program-Terms Affecting Common Stock and Any Other Preferred Stock”
above.
If the
Articles Amendment Proposal is approved, the proposed amendment will become
effective upon the filing of a certificate of amendment with the Secretary of
State of the State of California, which we expect we would do promptly following
the special meeting.
The
affirmative vote of the holders of a majority of the outstanding shares of our
common stock is required to approve the Articles Amendment
Proposal. Abstentions and broker non-votes will have the effect of
votes AGAINST the Articles Amendment Proposal.
Our board
of directors unanimously recommends that you vote FOR this
proposal.
PROPOSAL
TWO: APPROVAL OF ADJOURNMENT OF SPECIAL MEETING, IF NECESSARY
In the
event there are not sufficient votes at the time of the special meeting to
approve the Articles Amendment Proposal, our board of directors may propose to
adjourn the special meeting to a later date or dates in order to permit the
solicitation of additional proxies. Pursuant to the provisions of our bylaws, no
notice of an adjourned meeting need be given to shareholders if the date, time
and place of the adjourned meeting are announced at the special
meeting.
In order
to permit proxies that have been received by us at the time of the special
meeting to be voted for an adjournment, if necessary, we have submitted this
proposal (the “Adjournment Proposal”) to you as a separate matter for your
consideration. In this proposal, we are asking you to authorize the
holder of any proxy solicited by our board of directors to vote in favor of
adjourning the special meeting and any later adjournments. If shareholders
approve the Adjournment Proposal, we could adjourn the special meeting, and any
adjourned session of the special meeting, to use the additional time to solicit
additional proxies in favor of the Articles Amendment Proposal, including the
solicitation of proxies from shareholders who have previously voted against the
Articles Amendment Proposal. Among other things, approval of the Adjournment
Proposal could mean that, even if proxies representing a sufficient number of
votes against the Articles Amendment Proposal have been received, we could
adjourn the special meeting without a vote on the Articles Amendment Proposal
and seek to convince the holders of those shares to change their votes to votes
in favor of the Articles Amendment Proposal.
The
affirmative vote of a majority of the shares of our common stock present in
person or by proxy and voting at the special meeting is required to approve the
Adjournment Proposal, if this proposal becomes
necessary.
Abstentions
and broker non-votes will have no effect on the Adjournment
Proposal. No proxy that is specifically marked AGAINST the Articles
Amendment Proposal will be voted in favor of the Adjournment Proposal unless
that proxy is specifically marked FOR approval of the Adjournment
Proposal.
Our board
of directors believes that if the number of shares present or represented by
proxy at the special meeting and voting in favor of the Articles Amendment
Proposal to approve Articles Amendment Proposal, it is in the best interests of
the shareholders to enable our board of directors to continue to seek to obtain
a sufficient number of additional votes to adopt the amendment.
Our board
of directors unanimously recommends that you vote FOR this
proposal.
SPECIAL
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
proxy statement contains certain statements that are forward-looking within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions that are difficult to
predict. Actual results may differ materially from those expressed
in, or implied by, the forward-looking statements. These statements
are made through the use of words or phrases such as “pro forma,” “may,”
“should,” “could,” “predict,” “potential,” “believe,” “will likely result,”
“expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,”
“would” and other similar expressions or future or conditional
verbs. These forward-looking statements, implicitly and explicitly,
include the assumptions underlying the statements and other information with
respect to our beliefs, plans, objectives, expectations, anticipations,
estimates, financial condition, results of operations, future performance and
business, including management’s expectations and estimates with respect to
revenues, expenses, asset quality and other financial data and capital and
performance ratios.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, these statements involve risks and uncertainties that are subject to
change based on various important factors, some of which are beyond our
control. The following factors, among others, could cause our actual
results and performance to differ materially from what is currently
anticipated:
·
|
the
possibility that we will not be approved by Treasury for participation in
the TARP Capital Purchase Program, or that Treasury will invest less than
the amount for which we have
applied;
|
·
|
the
loss of key personnel;
|
·
|
changes
in monetary and fiscal policies and regulations, and changes in policies
by regulatory agencies, as well as other governmental initiatives
affecting the financial services
industry;
|
·
|
adverse
changes in general economic conditions and economic conditions in Southern
California, and adverse changes in the local real estate market and the
value of real estate collateral securing a substantial portion of our loan
portfolio;
|
·
|
changes
in the availability of funds resulting in increased costs or reduced
liquidity;
|
·
|
geopolitical
conditions, including acts or threats of terrorism, actions taken by the
United States or other governments in response to acts or threats of
terrorism and/or military conflicts which could impact business and
economic interests in the United States and
abroad;
|
·
|
changes
in market rates and prices which may adversely impact the value of
financial products, including securities, loans, deposits, debt and
derivative financial instruments and other similar financial
instruments;
|
·
|
fluctuations
in the interest rate environment, and changes in the relative differences
between short- and long-term interest rates, which may reduce interest
margins and impact funding
sources;
|
·
|
changes
in the quality or composition of our loan or investment portfolios, and
changes in the level of our non-performing loans and other loans of
concern;
|
·
|
competition
from bank and non-bank competitors, and the ability to develop and
introduce new banking-related products, services and enhancements and gain
market acceptance of such
products;
|
·
|
the
ability to grow our core businesses and decisions to change or adopt new
business strategies;
|
·
|
changes
in tax laws, rules and regulations and interpretations
thereof;
|
·
|
changes
in consumer spending and savings habits;
and
|
·
|
management’s
ability to manage these and other
risks.
|
Any
forward-looking statements are based upon management’s beliefs and assumptions
at the time they are made. We undertake no obligation to update or revise any
forward-looking statements included in this proxy statement or to update the
reasons why actual results could differ from those anticipated in such
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
statements discussed in this proxy statement might not occur, and you should not
put undue reliance on any forward-looking statements.
SHAREHOLDER
PROPOSALS FOR THE NEXT ANNUAL MEETING OF SHAREHOLDERS
In order
to be eligible for inclusion in our proxy materials for our next annual meeting
of shareholders, any shareholder proposal for that meeting must be received by
our Corporate Secretary at our principal executive office, located at 905 Calle
Amanecer, Suite 100, San Clemente, California 92673 by April 10,
2009. Any such proposal will be subject to the requirements of the
proxy rules adopted under the Exchange Act.
In
addition to the deadline and other requirements referred to above for submitting
a shareholder proposal to be included in our proxy materials for our next annual
meeting of shareholders, our bylaws require a separate notification to be made
in order for a shareholder proposal to be eligible for presentation at the
meeting, regardless of whether the proposal is included in our proxy materials
for the meeting. In order to be eligible for presentation at the next
annual meeting of shareholders, written notice of a shareholder proposal must be
received by our Corporate Secretary:
|
·
|
not
less than 60 days nor more than 270 days prior to the 2009 annual
meeting; or
|
|
·
|
in
the event that less than 30 days’ notice or prior disclosure of the date
of the meeting is given to our shareholders, notice by the shareholder
must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was
mailed or such disclosure was made.
|
The
notice must contain the following information, as specified in Article II,
Section 7 of our bylaws:
|
·
|
a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual
meeting;
|
|
·
|
the
name and address of the shareholder making the proposal as it appears on
our record books;
|
|
·
|
the
class and number of shares of our capital stock that are beneficially
owned by the shareholder making the proposal;
and
|
|
·
|
any
material interest of such shareholder in such
business.
|
OTHER
MATTERS
To the
best knowledge, information and belief of our board of directors, there are no
matters that are to be acted upon at the special meeting other than as described
in this proxy statement. If such matters arise, the form of proxy provides that
discretionary authority is conferred on the designated persons in the enclosed
form of proxy to vote with respect to such matters.
|
By Order of the Board of
Directors,
|
|
|
|
|
|
Michael S.
Hahn
President and Chief Executive
Officer
|
San
Clemente, California
November
21, 2008
APPENDIX
A
The text of the proposed amendment to
the Company’s Articles of Incorporation described in Proposal One is as
indicated below, marked to show the changes from the provisions currently in
effect. Additions are marked by underlining.
Article
III would be revised to read substantially as follows:
“
ARTICLE III
Capital
This corporation has the authority to
issue an aggregate of 10,000,000 shares of common stock, having a par value of
$0.01 per share
, and
an aggregate of 1,000,000 shares of preferred stock, having a par value of $0.01
per share (the “Preferred Stock”). The Preferred Stock may be issued
from time to time in one or more series. The board of directors of
this corporation is authorized to fix the number of shares of any series of
Preferred Stock and to determine the designation of any such series. The board
of directors is also authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
such series subsequent to the issue of shares of that
series.
”
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