Presentation to:
American Bank Incorporated
Going Private
February 8, 2007
David G. Danielson
Danielson Capital, LLC
8300 Boone Blvd., Suite 200
Vienna, VA 22182
Phone: 703-564-9120
Fax: 703-564-9125
dgd@danielsoncapital.com
Table of Contents
Overview of a going private transaction
Who should consider a GPT?
Going private strategic considerations
The process
Determining a strategy
Impact on strategic direction
Reasons for going private
Reasons for not going private
Various methods
Voluntary
Involuntary
Other alternatives
Shareholder analysis
Stock price history
Conclusion
1
Overview of a Going Private Transaction
The bank is currently subject to SEC registration which is costly, time consuming
and a burden on management
Going private allows the bank to de-register with the SEC if it can reduce its
shareholder base below 300
Methods of de-registering can be voluntary or involuntary to the shareholder base
Once de-registered, the bank cannot list on NASDAQ but may list on OTC BB or
Pink Sheets
2
Who Should Consider a GPT?
Companies where the benefits of being a public company are outweighed by the
costs and burdens of maintaining a public market
Typically these are companies with:
Low market capitalization
Few institutional investors
Little liquidity in the stock and no “real” liquidity or desire for liquidity among major
stockholders.
No foreseeable need in the near future to raise capital through sales of securities in a
public offering
A desire to restructure to increase profitability
3
Going Private Strategic Considerations
Strategic plan over the foreseeable future
Funding the transaction
Reaction from private shareholders, institutional shareholders, the local
community and other banks.
Number of shareholders who must be eliminated
Likelihood of a favorable shareholder vote
Financial impact on the bank
Trading after the transaction
4
The Process
Step One: Determining a strategy
Consider the impact of a GPT on the bank’s strategic direction
Consider the relevant reasons for going private versus not going private
Review the various methods
Step Two: Shareholder analysis
Perform an analysis of the number of shareholders and their holdings
Devise a plan to reduce the number of shareholders to less than 300
Step Three: Valuation and analysis
Estimate cost savings and impact on earnings
Determine the fair value of the stock in a GPT
Determine amount of funding required
Step Four: Legal and fairness opinion
5
Determining a Strategy:
Impact on Strategic Direction
Capital needs – Raising capital in the future may become more difficult
Acquisitions – Sellers will want cash
Visibility – Less local ownership and potentially a lower profile in the community
6
Determining a Strategy:
Reasons For Going Private
To reduce the costs and burdens associated with being a public company
It is likely that the costs associated with being a public company will continue to
increase without any commensurate benefit to shareholders
Operating as a private company will increase management flexibility by allowing
it to focus more on long-term goals and less on short-term quarterly earnings
Allows management to focus on running the business rather than regulatory issues
The GPT will provide small shareholders with an opportunity for liquidity
7
Determining a Strategy:
Reasons for Going Private (continued)
Other benefits:
Decreases D&O costs
Reduces potential for shareholder lawsuits
Shareholders can still receive quarterly info
Leverages capital
8
Determining a Strategy:
Reasons For Not Going Private
Transaction cost of the GPT
Reduced liquidity of stock
Reduces visibility of company
Uncertain reactions from shareholders, local community, customers, employees
and other banks
Loss of ownership in community and from customers
Stock-based compensation becomes less attractive for employees
Possibly creates hostile or competing offer from another bank
It is easier to raise capital and make acquisitions as a public company
Shareholders will lose certain protections and receive less information
9
Various Methods
Voluntary methods
Open market share repurchases
Tender offers
Involuntary methods
Reverse stock split
Cash-out merger
Create a new class of preferred stock
Mix – Create a new class of preferred stock and cash out merger*
Other alternatives
Leveraged buyout
Management buyout
Using Employee Stock Ownership Plan (ESOP)
* For the smallest shareholders
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Voluntary:
Open Market Share Repurchase
Process
The Board authorizes repurchase plan
Company follows rules set forth by the SEC for share repurchases
Disadvantages
There is no guarantee that enough shareholders will sell enough shares to go private
There is no guarantee that a shareholder will sell all his shares – a problem if a large
block is partially sold
It is difficult to predict how long this process will take
11
Voluntary:
Tender Offers
Process
Bank offers to buy back a set number of shares for a certain amount of time
A tender offer document must be mailed to shareholders setting forth the offer and its
financial impact on the bank
Different types of tender offers
Odd-lot
Fixed Price
Dutch Auction
Advantages
This process is open to all shareholders
Shareholder participation is voluntary
Disadvantages
There is no guarantee that enough shareholders will sell enough shares to go private
There is no guarantee that a shareholder will sell all his shares – a problem if a large
block is partially sold
If pro-rated, oversubscription can result in very few shareholders being eliminated
The bank must have enough capital to purchase shares
12
Involuntary:
Reverse Stock Split
Process
The bank establishes an exchange ratio that will guarantee that the remaining number
of shareholders falls below 300
Shareholders with shares above the exchange ratio remain shareholders and receive cash
for any fractional shares created by the transaction
Shareholders with fewer shares than the exchange ratio receive cash for their shares and
are eliminated
The offering price
Is determined by the Board and must be considered “fair”
In many cases the Board receives a “fairness opinion” from its financial advisor.
Advantages
Can choose to include or exclude beneficial shareholders
Process will ensure number of shareholders falls below 300
Disadvantages
Process is involuntary
Transaction must be approved by all shareholders
Does not offer shareholders an opportunity to retain an equity interest in bank
13
Involuntary:
“Cash-Out” Merger
Process
The number of outstanding shares is reduced
An exchange ratio is established that will guarantee that the remaining number of
shareholders falls below 300
Shareholders holding more shares than the exchange ratio are not affected
Shareholders with fewer shares than the exchange ratio receive cash for their shares and
are eliminated
This method involves a merger with a merger sub organized to facilitate the GPT
Merger sub merges into bank
The exchange ratio for the merger sub’s shares and the bank’s shares are set to result in
the elimination of the necessary number of shareholders
Advantages
Process will ensure number of shareholders falls below 300
Disadvantages
Process is involuntary
Transaction must be approved by all shareholders
Does not offer shareholders an opportunity to retain an equity interest in bank
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Involuntary:
Create a New Class of Stock
Process
Shareholders will be split into two groups, depending on the number of shares held*
Group 1: Shareholders owning 1,000 shares or more are unaffected
Group 2: Shareholders owning less than 1,000 shares have option to receive the new class of preferred
stock or cash.
Any shareholder in Group 2 who does not show preference for either option may be deemed to have elected the
cash consideration
Advantages
Can be perceived as a more “friendly” way of going private
Preferred stock can count towards Tier 1 capital if structured properly
Can be structured to give those receiving preferred stock have the option to receive cash instead
Less cash used as a portion of shareholders will elect to receive the new class of preferred stock
Disadvantages
Uncertainty in counting number of shareholders (in street name, under a broker, beneficial interests)
Illiquidity of new security
If preferred stock is issued there is a dividend cost
If option to receive cash is offered, there is no way to determine how much will be needed
*Number of shares is used as an example in this page and subsequent pages.
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Involuntary:
Create New Class of Stock and Cash Out
Process - Same as previous page but third group added
NEW Group 3: Shareholders owning 100 or fewer shares must
receive cash
Advantages – The bank will be able to determine in advance the exact cost of
these shares and the exact number of shareholders affected
Disadvantages – These shareholders will have no choice and their ownership is
terminated
16
Other Alternatives
Leveraged buyout – Outside group
Management buyout – Inside group
ESOP buyout
17
Shareholder Analysis of American
These shareholders are registered with American
and will be eliminated
426
Shareholders with less than 1,000 shares
Shareholders under these “top level” brokers are not
counted as individual shareholders
33
Plus: Brokers on Cede & Co /NOBO list
Goal is less than 300
275
Shareholders after GPT
Shareholders in this category will be unaffected
242
Shareholders with 1,000 or more*
Shareholders under top level brokers are not
Shareholders under a “top level” broker
individually counted in the proposed transaction
121
Shareholder with more than 1,000 shares
Notes
# of
shareholders
Registered Shareholders
295
Shareholders with less than 1,000 shares
*Adjusted
Source: American Bank internal reports
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American – Stock History
19
American – Recent Stock Prices
20
Conclusion
A GPT is a logical step for American
Market capitalization is too small and liquidity too low to truly benefit from being a
public company
No foreseeable need to tap the public market for capital
And once private, American is projecting a substantial cost savings of approximately
$250,000 annually.
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