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The Deal

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Enterprising Investor Member Level  Tuesday, 12/20/11 05:17:52 PM
Re: Enterprising Investor post# 22
Post # of 51 
The Deal

On August 26, 2011, the Company consummated the sale of a total of 112,000 shares of Series B Convertible 8.4% Noncumulative Preferred Stock (the “Initial Series B Shares”) for an aggregate purchase price of $11.2 million. The Carpenter Funds, purchased 37,000 of those Initial Series B Shares, designated as the “Series B-1” Shares. Those Initial Series B Shares are convertible, at the option of the Carpenter Funds, at a conversion price of $5.32 per share, into a total of 695,488 shares of our common stock which, as of December 15, 2011 would have represented approximately 4.8% of our outstanding voting shares. SBAV LP, an affiliate of Clinton Group, Inc. (“SBAV”), which is not affiliated with the Carpenter Funds, purchased the other 75,000 of those Initial Series B Shares, designated as the “Series B-2” Shares, which are convertible, at the option of SBAV, into a total of 1,409,774 shares of our common stock, also at a conversion price of $5.32 per share. The Carpenter Funds are private equity funds which invest primarily in California-based banks and bank holding companies.

On that same date, the Company entered into an Additional Series B Stock Purchase Agreement (the “Additional Series B SPA”), which provides for the Company to sell an additional 108,000 Series B Shares to the Carpenter Funds and an additional 10,000 Series B Shares to SBAV (the “Additional Series B Shares”). The Additional Series B Shares will be convertible at the option of the Carpenter Funds and SBAV into 2,030,075 and 187,969 shares, respectively, of our common stock at a conversion price of $5.32 per share. If the 108,000 Additional Series B Shares are sold to the Carpenter Funds, they would hold securities that would represent approximately 16% of our outstanding voting securities. Consummation of the sale of the Additional Series B Shares is conditioned on the sale of the Common Shares to the Carpenter Funds and the receipt of Federal Reserve Board approval by the Carpenter Funds of their purchase of the Additional Series B Shares.

On August 26, 2011, the Company and the Carpenter Funds also entered into a Common Stock Purchase Agreement (the “Common Stock Purchase Agreement” or the “CSPA”) which provides for us to sell $15.5 million of shares of our common stock (the “Common Shares”) to the Carpenter Funds, at a purchase price equal to the greater of (i) $5.31 per share or (ii) the book value per share of our common stock as determined from the SEC report last filed by us before the date on which the sale of the Common Shares is consummated (our “Last Reported Book Value”). A copy of the Common Stock Purchase Agreement is attached as Annex A to this Proxy Statement. If (i) this Proposal No. 1 and Proposal No. 2 are approved by our shareholders and the other conditions under the Common Stock Purchase Agreement (including the receipt by the Carpenter Funds of Federal Reserve Board approval of their purchase of the Common Shares) are satisfied by January 31, 2012, and (ii) the Last Reported Book Value at that time is $5.55 per share, then, we will sell a total of 2,792,792 Common Shares to the Carpenter Funds, which will further increase their voting power to approximately 28% of our outstanding voting shares.

If the sales of the Additional Series B Shares and the Common Shares are consummated, concurrently therewith, the Company will sell and issue stock purchase warrants (the “Warrants”), at a price of $0.125 per Warrant, which will entitle the Carpenter Funds and SBAV to purchase up to an additional 408,834 shares and 399,436 shares, respectively, of our common stock (the “Warrant Shares), at a purchase price of $6.38 per share, at any time within (4) years following the issuance of the Warrants, but only if the Company consummates, during that four year period, an acquisition (by merger or by the purchase of the outstanding shares or assets) of a bank or bank holding company with total assets of more than $250 million.

We believe that the sale of the Common Shares to the Carpenter Funds will be significantly less dilutive and, therefore, more advantageous to our existing shareholders than a sale by us of shares in a public offering, because the price that the Carpenter Funds will be paying for the Common Shares will be no less than the Last Reported Book Value per share of our common stock which, as of the date of this Proxy Statement, was $5.55. By comparison, we expect that the price at which we could sell shares in a public offering would not exceed (and more likely would be approximately 10%-15% below) the market price of our shares which, between October 1, 2011 and December 9, 2011, has ranged from a high of $3.41 to a low of $2.97 and which closed at $3.09 per share on December 9, 2011.

Even assuming, for example sake, that we could sell our shares at a price of $3.41 in a public offering, as the following table indicates that price would be approximately 38% lower than the $5.55 price which the Carpenter Funds will be paying for the Common Shares and, as a result, the number of shares that we would have to sell in such a public offering in order to raise $15,500,000 would be 38% greater than the number of shares that we will be selling to the Carpenter Funds to raise that same $15,500,000.

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